Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by p_vinay
    So people having less than 10L annual income declare below poverty line.

    And they should also be given rice at INR 2/kg, wheat at INR 3/kg & sugar for INR 2/kg !! Hell, and junk planning commission says that INR 38/day is sufficient for one to survive.
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  • Credai decries govt apathy towards housing issues

    PUNE: Real estate developers in the country are finding themselves at the end of their wits as they see no solution coming anytime soon for the plethora of administrative, taxation and regulatory problems they have been facing for the past few years. "The talk of affordable housing is meaningless if the authorities continue to neglect these issues which are a major contributor to the high real estate prices," Lalit Kumar Jain, national president, Confederation of Real Estate Developers' Associations of India (Credai), said, warning that the realtors may stop work if the indifference continues.

    ^^ is this another excuse for delayed possession now ?

    Complete story here :-

    Credai decries govt apathy towards housing issues - Times Of India
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  • Home re-sale prices stagnant since 2010

    Property prices seem to be going up steadily in India's metropolises - but only in new projects. In the resale market, prices have been stagnant since 2010, say experts."If there is no actual price correction, there would be a time correction - that is, price will remain stagnant for long period," said Pankaj Kapoor, Liases Foras, a real estate research firm. "While in new properties developers are artificially jacking up prices, resale property prices have been the same since 2010 in all metros."

    "I wanted to sell a 1BHK in 2010 and I expected to fetch around Rs. 50,00,000, the deal did not go through," said Rasik Patel, 54, a diamond trader. "After that I had postponed the plans, but this month when I inquired about the price of my flat, I was surprised that the price has been same."

    Home re-sale prices stagnant since 2010 - Hindustan Times
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  • Originally Posted by khbarilal
    "I wanted to sell a 1BHK in 2010 and I expected to fetch around Rs. 50,00,000, the deal did not go through," said Rasik Patel, 54, a diamond trader. "After that I had postponed the plans, but this month when I inquired about the price of my flat, I was surprised that the price has been same."

    Home re-sale prices stagnant since 2010 - Hindustan Times

    If you consider cost of holding into account, it is already a loss making proposition. Man, there are people who will demand 10% more rent & for that they will keep searching for tenant for 4-5 months, forgetting the fact that the loss of 4-5 months is more than 30-35 % !! :D
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  • Originally Posted by khbarilal
    Property prices seem to be going up steadily in India's metropolises - but only in new projects. In the resale market, prices have been stagnant since 2010, say experts."If there is no actual price correction, there would be a time correction - that is, price will remain stagnant for long period," said Pankaj Kapoor, Liases Foras, a real estate research firm. "While in new properties developers are artificially jacking up prices, resale property prices have been the same since 2010 in all metros."

    "I wanted to sell a 1BHK in 2010 and I expected to fetch around Rs. 50,00,000, the deal did not go through," said Rasik Patel, 54, a diamond trader. "After that I had postponed the plans, but this month when I inquired about the price of my flat, I was surprised that the price has been same."

    Home re-sale prices stagnant since 2010 - Hindustan Times


    Pasting a comment on this article. Applies to Pune as well-

    Apt buyers be vary of Indian builders
    So you are planning to retire and go back to India to buy your dream apartment. Here is a summary of how the fraudulent Indian builder will likely cheat you in the metropolitan areas including Gurgaon, Faridabad and other cities of India
    · Make you sign one-sided contracts that you won’t be allowed to change; it will include open ended final charges for extra super area while net carpet area will be the same, electric connection and other charges that could be substantial.
    · The project could be delayed by years and small compensation promised will never be paid.
    · Don’t rely on courts to help you – the matter could take years including in the consumer courts. You also won’t be allowed to sue them in many cases, as they have mentioned that disputes to be settled before their appointed, arbitrator.If you decide to sell your apt in frustration before possession, they will likely slap you with huge illegal transfer fees that can run into lakhs of rupees.
    · If you make late payments for installments, you will likely be slapped interest rate of 24% to 36%.
    · They will engage in deceptive practices, likely show sample apts with marble flooring and high quality fixtures but replace with cheap substitutes; the quality of construction will likely lot poorer. You will have no recourse.
    · The club facilities won’t be ready for years after possession and yet will likely be paying very high maintenance charges that will include facility charges.
    · There will be very poor communication from the builder side, you be only receiving your payment notices. No money will ever be returned nor will they ever respond to your complaints / emails. They can also demand cash payments.
    · You will not get possession till all dues of have been cleared including their ransom charges of the last minute.
    · Many builders will also default on construction after taking several installments up to 40% of the total charges from you before any real construction would begin. You are unlikely to get your money back and will be wasting your time trying to recover your money from the economic offence wings or the courts where the judges will take decades to decide on a case that can be decided in 15 minutes.
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  • Originally Posted by ati11a
    Has anyone seen this:Real estate in Delhi-NCR is a bubble about to pop | Firstpost ?

    Worth reading. I am not aware if something like this happens in Pune. Also can someone throw a light on whether the power of attorney abuse happens here?



    The concept mentioned in the article is widely used in the stock market. It is called an option. The buyer pays a fee and secures the option to buy a stock at a agreed prices at a future date. Now the buyer is hoping that the price will increase and the seller is hoping that the price will fall.

    In the case of RE the investor is paying 5 lakhs to buy the option of buying the house at 1 cr on the day of project launch or 3-6 months after project launch. I dont think any builder would just take the 5 lakhs and not require the investor to pay regularly when the construction begins.

    If in the mean while the price of the house increases by 10% then the investor has made a profit of 5 lakhs. 10 lakhs in gain - 5 lakhs in investment = 5 lakhs. The leverage in this transaction is 1 crore / 5 lakhs = 20.

    If the price was to fall by 5% then investor would lose all his/her money. When the prices keep on going up every quarter this strategy of investing looks good but when prices stabalise of start falling then the pain is even greater.

    The stock market crash in the US of 1928 is widely blamed due to excessive speculation on margin. Whether the same situation occurs in Indian real estate market is to be seen.
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  • Originally Posted by herohiralal
    In the case of RE the investor is paying 5 lakhs to buy the option of buying the house at 1 cr on the day of project launch or 3-6 months after project launch. I dont think any builder would just take the 5 lakhs and not require the investor to pay regularly when the construction begins.


    Any idea why the properties are listed as "SOLD OUT" within 2 days of any new launch. Is it possible to be SOLD OUT within such a short time ?, when after 2 years the same builder is trying to sell these "unsold" flats, either himself or thro brokers. The builder gets his cut, and most of these beneficiaries are the folks who are sitting on the builders files and gandhi-topi chaps.
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  • Originally Posted by realacres
    If you consider cost of holding into account, it is already a loss making proposition. Man, there are people who will demand 10% more rent & for that they will keep searching for tenant for 4-5 months, forgetting the fact that the loss of 4-5 months is more than 30-35 % !! :D


    Rightly said. These folks in their greed can only see the 10% profit and not the loss. Not only the loss of the rent, they also face the inconvenience of showing the properties to atleast 50 people in the hope, everytime they have to spend time from their "busy" schedule.
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  • herohiralal,

    And besides what you have mentioned, one can't average out the price in RE like the way it can be done in commodities & stocks. And atleast in case of gold, silver etc. & stocks/MFs, you get it immediately after making payment, unlike RE where it may take years to be handed over to you.

    And best part is you can sell these things at drop of a hat where as in case of RE, one may need to require to wait for months/years to sell the property.

    Originally Posted by mymarji
    Any idea why the properties are listed as "SOLD OUT" within 2 days of any new launch. Is it possible to be SOLD OUT within such a short time ?, when after 2 years the same builder is trying to sell these "unsold" flats, either himself or thro brokers. The builder gets his cut, and most of these beneficiaries are the folks who are sitting on the builders files and gandhi-topi chaps.

    +1. There are many projects which were sold out on first day itself but now ads can be seen & heard on radio.
    Eg. Forest Trails, Blue Ridge, Sun Universe, Rohan Mithila, Rohan Leher, Park Street, Amanora, Goel Gangas all projects............

    And in exhibis too, the same projects will be showcased :D.
    First of all, when RE is good according to CREDAI, why are they conducting RE exhibis every month ? Everytime they say, 'Very Good response' (earlier it was over-whelming response) & yet the same projects will be there for another exhibis.
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  • Originally Posted by realacres
    herohiralal,

    And besides what you have mentioned, one can't average out the price in RE like the way it can be done in commodities & stocks. And atleast in case of gold, silver etc. & stocks/MFs, you get it immediately after making payment, unlike RE where it may take years to be handed over to you.

    And best part is you can sell these things at drop of a hat where as in case of RE, one may need to require to wait for months/years to sell the property.



    Yes agree. Liquidity is very high in assets like gold, stocks, silver etc.

    Consider this following scenario and we might be able to understand why many schemes are sold out within the 1st few days.

    A businessman who owns and runs a small/medium factory or any other self employed person making a decent amount of money is always looks at the best possible return on his/her investment. His/her business works in the following fashion

    His/her capital (called as equity) + money from banks/lenders (lets call is borrowed capital here for the sake of simplicity) is invested in the production of goods for sale or for buying wholesale good and selling them in retail.

    Whateven profit he/she makes is divided with the total capital (equity + borrowed capital) and we get a figure called return on capital (RoC).

    Now if his/her business delivers a RoC of say X% but buying a real estate property on margin and selling it after a few months gives a return on RoC of X+Y% where Y is significant enough to cover for the extra risk of investing in a real estate with all its problems then I am pretty sure the person is right to invest in a real estate property.

    When real estate prices show an consistent upward trend more and more investors are attracted to buying RE on margin. Its true with any business or asset class. For e.g. if the demand of cycles was to shoot up 100% in the next 6 months we would have 2 kinds of players entering the market.

    1) Speculators who would buy 100 cycles on margin and sell them at a higher prices (assuming prices rise)
    2) New cycle manufactures - companies who were previously producing paper plates might think producing cycles is a logical extension to their existing business and start producing cycles

    The problem with the Indian RE is that we dont have enough of RE developers and enough raw material (land) so people usually tend to stick with point 1 when it comes to profiting from rising RE prices. If we had enough people doing point 2 the price rise of RE would not be so steep.

    The whole model of buying on margin is very very dangerous as it takes a very small % fall in prices for the investor to lose all his/her equity. Whether this happens to the Indian RE market is a very different story cause when a market as the RE market falls the country as a whole goes into a recession and politicians can then use other tricks (lower interest rates, waive off stamp duty, tax exemptions, bank mergers and equity injection, etc) to prevent a RE crash.
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  • Originally Posted by herohiralal
    Now if his/her business delivers a RoC of say X% but buying a real estate property on margin and selling it after a few months gives a return on RoC of X+Y% where Y is significant enough to cover for the extra risk of investing in a real estate with all its problems then I am pretty sure the person is right to invest in a real estate property.

    2 things need to be considered :-

    > In his own business, he knows when he will be getting the money with profit; but in case of RE, he is dependent on builder completely for that Y% returns. The risk is such that X% + Y% = 3 X%, but there is possibility of principle amount getting 0% or even negative if the returns are far less than X %.

    > To get this X + Y% profit, there has to be a buyer who is ready to pay X+Y% as premium for the flat, else it remains unsold for lot of time increasing the holding cost & the interest which he pays otherwise.


    1) Speculators who would buy 100 cycles on margin and sell them at a higher prices (assuming prices rise)

    But if the prices come down even by 5%, it means they lost the money for 5 cycles, not to forget the interest they paid to bank or the money they lost as interest upon, if payment was made from their own pocket.


    2) New cycle manufactures - companies who were previously producing paper plates might think producing cycles is a logical extension to their existing business and start producing cycles

    Even in this case, if there is 10% drop in prices, the older players will be able to digest it with ease; the overheads in new cos. are tad more as production cycle has not yet even started. They need to recover they invested amount first before they could actually earn some profits.


    The problem with the Indian RE is that we dont have enough of RE developers and enough raw material (land) so people usually tend to stick with point 1 when it comes to profiting from rising RE prices. If we had enough people doing point 2 the price rise of RE would not be so steep.

    In India, I think there must be one of largest number of developers in the world. Any scorpio chap having land will become a builder (gunthamantri).

    Issue is not with no. of builders but no. of PROFESSIONAL builders, which I feel is very low.

    Similarly, we have enough land for good spaced house for each family, problem is not enough land but enough of DEVELOP-ABLE LAND.
    Just imagine if Govt allows farmers to get NA done & directly sell in open market, how many people will even buy flats at first place ??
    The land conversion is deliberately kept complicated so that more buyers are dependent on builders, leading to profits to builders + netas .


    The whole model of buying on margin is very very dangerous as it takes a very small % fall in prices for the investor to lose all his/her equity.

    +1. And besides this you never know how good the end product will turn out to be & it also comes with charges like property tax, maintenance etc. which is not the case in investments like gold, stocks etc.

    All in all, investment in property is worth only if you are getting returns of 20%/annum, else the risk + capital gains tax + interest loss etc. will lead to returns which will be lower than maybe even FD .
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  • Originally Posted by realacres



    But if the prices come down even by 5%, it means they lost the money for 5 cycles, not to forget the interest they paid to bank or the money they lost as interest upon, if payment was made from their own pocket.


    Even in this case, if there is 10% drop in prices, the older players will be able to digest it with ease; the overheads in new cos. are tad more as production cycle has not yet even started. They need to recover they invested amount first before they could actually earn some profits.




    Agree but when u see RE prices go up from 1100 to 5000 in the span of 8-9 years then a lot of people think they will continue to go up forever and this kind of confidence makes one become very bullish on RE prices and encourage them to take extra risk by buying on leverage
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  • well said herohiralal...people think RE will continue to go up forever and this kind of confidence makes one become very bullish on RE prices & This is the trap..
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  • Originally Posted by herohiralal
    Agree but when u see RE prices go up from 1100 to 5000 in the span of 8-9 years then a lot of people think they will continue to go up forever and this kind of confidence makes one become very bullish on RE prices and encourage them to take extra risk by buying on leverage

    +1. And what they forget is the fact that returns are variable, what is only fixed is the economic fundamentals.
    Man, had RE been so lucrative, all tom, dick & harry would have been in RE.

    Infact, had this been the case, cos like Infy, TCS etc. would have taken outsourcing work from RE cos in US & max. salary would have been to civil engineers :D.
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  • March IIP at -3.5% Vs 4.1% in Feb

    India's industrial output unexpectedly contracted 3.5% in March, government data showed on Friday.

    Analysts had expected output to grow 1.5%, a CNBC-TV18 poll showed. The March figure compares with February's annual increase of 4.1%.

    March IIP at -3.5% Vs 4.1% in Feb - Moneycontrol.com -

    Capital goods takes toll as output falls by 21%, overall manufacturing drags, lower by 4.4%

    Industrial production contracted 3.5 per cent in March, dragging the cumulative factory output growth last fiscal closer to the level of global financial crisis period of 2008-09. This clearly indicated that economic expansion has really slowed down and it may not be possible for India to really grow its GDP by 6.9 per cent during 2011-12 as was calculated in advance estimates.

    Disappointing March IIP numbers, output falls by 3.5%
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