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 neerajbans
    The slowdown in economy rather gives a breather to most of the companies & households to balance the books.


    Exactly, it gives breather to corporates & aam aadmi to re-balance their books. But practically, how to they balance it ? Just think about it..

    Aam Admi:
    By reducing non-essential expenditure (foot travellers stick to their buses instead of buying bike, bikers stick to their bikes instead of going for car, diwali expenses curtailed to only sweets, new home furnishings postponed for next year - you can have n number of such examples).

    And focussing only on essential expenses (grocessries, medicare, education etc.).

    Corporates:
    Companies that deal in non-essential items then further rebalance it by reducing/fogetting bonus/increments, no new additions to manufacturing, reducing employee benefits etc.

    Thus employees (aam aadmi) earns lesser which further leads to constrained demand. Add to this rising unemployment and depreciating rupee, you get a perfect DOMINO-EFFECT.... :D
    CommentQuote
  • Originally Posted by bhuvang
    Exactly, it gives breather to corporates & aam aadmi to re-balance their books. But practically, how to they balance it ? Just think about it..

    Aam Admi:
    By reducing non-essential expenditure (foot travellers stick to their buses instead of buying bike, bikers stick to their bikes instead of going for car, diwali expenses curtailed to only sweets, new home furnishings postponed for next year - you can have n number of such examples).

    And focussing only on essential expenses (grocessries, medicare, education etc.).

    Corporates:
    Companies that deal in non-essential items then further rebalance it by reducing/fogetting bonus/increments, no new additions to manufacturing, reducing employee benefits etc.

    Thus employees (aam aadmi) earns lesser which further leads to constrained demand. Add to this rising unemployment and depreciating rupee, you get a perfect DOMINO-EFFECT.... :D



    Dont forget companies stop fresh hiring and make do with squeezing more work out of existing employees.

    A very pernicious effect
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  • Sorry but I disagree Wiseman.

    GDP = Consumption + Saving + Investment

    Given the GDP is constant, it's the investment which has taken the biggest hit than the savings. India traditionally is a country which saves, even if we have to cut down on consumption.

    Given our consumption story, ideally we should have been least affected by the global slowdown. However, the culprit had been high oil prices and inability of govt. to pass them on thus raising subsidies & hence the CAD (reason for rupee depreciation) and a huge investment in public welfare schemes raising inflation (this could have better managed by implementing various schemes in a more elongated time period).
    Even if the govt. is really humane and wanted to implement all such schemes it could have balanced the books with some reforms to increase income & increase outside investments which unfortunately it didn't.

    The above has caused investments both at home & from abroad to slow down resulting in the gdp growth to come down.

    Fundamentals still remains the same for our economy & couple of push from the government will bring the GDP growth back within the 7-8% zone.

    In terms of middle class people living their life from paycheck to paycheck, I don't agree again. India's poor are not in the position to save anything. The entire gross savings is build on the back of Middle Class savings.

    I hope we do manage to bring in Modi in 2014 and I am sure we all will see investors coming back.

    Regarding Fed & ECB pumping in money, I am not sure why the house is so much against it. Fed did manage to save America from recession through QE and bring in back to growth. By taking debt off from companies & individuals book and shifting it back to Fed makes it easier for the earliers to invest back in economy and same thing happened. It's the ECB which spoiled the party by not buying the Govt. debt directly and letting sentiments fall down to such levels.
    Also, I read in some of the posts about inflation. The money printing has not added to inflation but rather saved the world from deflation with investments turning negative in most of the developed economies.

    Cheers!



    Originally Posted by wiseman
    Gross Domestic Saving (GDS) = GDP - Final Consumption Expenditure (total Consumption)

    Let us not complicate issues with Domestic Capital Investments (which is contributed to from GDS and foreign inflows). Let us stick only to what you have brought up.

    As you can see, GDS and total consumption are INVERSELY related. GDP being constant, if Savings goes UP, consumption goes DOWN (sounds common-sensical). But high GDP growth in recent years has seen the Aam Indian not only raise consumption but also simultaneously raise Gross Savings as well.

    Well, as the rest of the world is slowing down and entering a Double-Dip recession (which could easily slide into a depression because this double-dip has been AFTER pumping in TRILLIONS of Stimulus money created out of nothing by all countries from US to EU to China and India as well), the problem becomes GDP growth.

    We have seen GDP growth come down from targeted 9% to targeted 6% this year. If global situation becomes dire (as it is fairly apparent by now), I do not see why it cannot go down to 5% or even 3-4% from here. As far as I'm concerned, there is a lot of scope for it to go down over the next few years as ALL those trillions start vanishing from the system.

    Second, (correct me if I'm wrong) I think the GDS figure is not adjusted for inflation. The rupee has been constantly going down (40 in 2007 to 56 now against the dollar - 40% in 5 years, and 9500 in 2007 to 30000 in 2012 in terms of gold, thats an even more impressive 215%). As you have said in the other post, the rupee in your hand now does not have the same purchasing power as it had in 2007 and will have much less as you go forward.

    While you may be right about the frequency of my posts being too much :D, I still think we are on an unsustainable path with relation to consumption and savings - as per your selection of parameters.

    Going forward, its a no brainer that sometime (sooner rather than later) all of this is going to unravel (nothing to do with us but with the rest of the world, who, incidentally contribute to a huge portion of your Foreign Exchange reserves, which keeps India's trade with other countries going as well as adds investments into the country from which future consumption and savings come).

    If we do have GDP growth rate contraction and a dip in confidence, this will encourage aam admi to save more (perhaps in gold), which will lead to serious contraction in consumption.

    Add unsustainable debt burden on most Indians with a home and fancy car and its not too difficult to imagine distress among a substantial portion of the population with those debts and therefore a serious contraction in consumption - especially in those fancy, high-price items.

    I read a report around an year ago that concluded that around 96% of Indians (Urban) did not have even 6 months living expenses stashed away. One more issue is that the a large majority of the 30% "middle-class" fall into this "paycheck-to-paycheck-existence" category and the Gross Savings is hugely skewed and not evenly distributed amongst all of us.

    You may well expect fairly significant contraction in consumption of all kinds (except food and other essential articles, which even may contract in conspicuous consumption - Rs 1000 per head dinners! :)).

    Thank you for bringing up your points as it has led to more clarity in my own head about the details of how and why we should lookout for the slowdown. I will now start watching consumption data in these categories to see how the nation is faring.

    cheers
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  • Could you please cite some references?

    Originally Posted by neerajbans
    Sorry but I disagree Wiseman.

    GDP = Consumption + Saving + Investment

    Given the GDP is constant, it's the investment which has taken the biggest hit than the savings. India traditionally is a country which saves, even if we have to cut down on consumption.

    Given our consumption story, ideally we should have been least affected by the global slowdown. However, the culprit had been high oil prices and inability of govt. to pass them on thus raising subsidies & hence the CAD (reason for rupee depreciation) and a huge investment in public welfare schemes raising inflation (this could have better managed by implementing various schemes in a more elongated time period).
    Even if the govt. is really humane and wanted to implement all such schemes it could have balanced the books with some reforms to increase income & increase outside investments which unfortunately it didn't.

    The above has caused investments both at home & from abroad to slow down resulting in the gdp growth to come down.

    Fundamentals still remains the same for our economy & couple of push from the government will bring the GDP growth back within the 7-8% zone.

    In terms of middle class people living their life from paycheck to paycheck, I don't agree again. India's poor are not in the position to save anything. The entire gross savings is build on the back of Middle Class savings.

    I hope we do manage to bring in Modi in 2014 and I am sure we all will see investors coming back.

    Regarding Fed & ECB pumping in money, I am not sure why the house is so much against it. Fed did manage to save America from recession through QE and bring in back to growth. By taking debt off from companies & individuals book and shifting it back to Fed makes it easier for the earliers to invest back in economy and same thing happened. It's the ECB which spoiled the party by not buying the Govt. debt directly and letting sentiments fall down to such levels.
    Also, I read in some of the posts about inflation. The money printing has not added to inflation but rather saved the world from deflation with investments turning negative in most of the developed economies.

    Cheers!



    Neeraj,

    Here we go again ... :) We were discussing Gross Domestic Savings. Here is one citation which defines it ...

    Gross domestic savings (% of GDP) | Data | Table

    GDS = GDP less (-) Total Expenditure

    You had mentioned GDP = Savings + Expenditure + Investment.

    We both are saying the same thing (if we leave Investment aside).

    So, you cannot disagree with me given we both are stating the same formula (the one I proposed!) :D

    Second, investment cannot come from thin air. It has to come from surplus (which is another word for savings!). GDP, on the other hand relates to the OUTPUT of the country. Investment is an INPUT, which, in due course of time will result in greater OUTPUT.

    Of course, lately we have taken recourse to investment from borrowings (DEBT), which is the worst form of investment. WE do this to ostensibly push "growth" beyond current limits, but this growth is generally short-term and always leads to greater pain in the future as the debt comes back to haunt us in the future. Humans do not know when to stop borrowing, always over-estimating their own earning capacity and under-estimating their own spending needs in relation to the future.

    The strange situation when savings remains high along with increasing consumption as well as increasing investment is due to injection of a huge amount of DEBT, both from foreign lands as well as our own deficits and domestic borrowings. This has led to a dangerous situation, weakened the rupee and is now threatening to run away in terms of inflation. Please read previous para on the dangers of borrowing to force growth through investment via debt.

    The mini-crisis faced by even our better companies is due to their inability to repay debts (foreign currency borrowings) taken to force growth in the early 2000s. They all thought, "what could go wrong in borrowing cheap and making hay?". Well, rupee weakening, economy slowng and all coming together means, today many companies are in silent crisis and begging for rollovers and soft-bailouts (banks, RE companies, etc are at the forefront in this regard). All you investors think about the "valuation" you are currently giving companies. High debt along with slowing sales and profit growth will lead to ... what valuations in future? :)

    Savings in India is highly skewed. Are you telling me Urban India has a lot of savings stashed away in general? Ha, ha! Wait for people to start losing jobs or take salary cuts and you will quickly see who was swimming covered (enough savings to tide over debt) and who was swimming naked (insolvency) when the tide (income) runs out! Warren Buffett said this in reference to companies. I believe that a lot of the "savings" in middle-class India today is like how the people in the US were fooled into. People take price of their homes, reduce it from current (inflated) market price and take that as their "saving". So, if you bought for 50L (with a 45L loan) and current market quotation is 70L, they believe that they now have 20L surplus, while they still owe the bank 40L (after paying off 5L in principal and perhaps 10-12L in interest)!!!

    Unless they sell and recover this profit (less the interest they paid, which they often forget to include in the net savings calculation), it remains on paper only. This home is bank-owned till the LAST EMI is paid and the risk (of capital loss) is always present. So, coming back to topic, a huge majority of "middle-class" Indians do live from paycheck-to-paycheck and do not have even 6 months cash savings set aside for emergencies. Averaging Gross Savings Rate (do not confuse this with "per capita Savings Amount" and believing in this phantom figure is a big mistake!

    In my view, Modi is no superman. All he did was to make Gujarat a more investor-friendly place to do business in. Its the enterprising Gujarati who did the rest. Compared to what MMS did in 1990 (some say the real visionary and superman was Narasimha Rao!:)), what Modi did in Gujarat was child's play. I'm not downplaying what he has reportedly done in Gujarat, but he is not necessarily the superman to take care of our coming crisis. So, lets get off the Modi bandwagon here as an answer to the problems we are going to face shortly. Investors will come when there is money to be made more than in competing investments worldwide.

    Lastly, try to forget this Keyensian nonsense about spending your way out of a high-debt situation. Keynes did not have an answer to the ultimate question we are facing today globally. Fortunately for him WW2 came and he did not have to answer that question as the War and its aftermath resolved the interminable global depression the world faced back in the 1930s (due to exactly the same problem we have created today - too much debt). So, is a global war the only possible solution to an interminable depression going forward? When people (and Govts) cannot borrow anymore because of debt-exhausion, what then? The answer is coming down the road in a short while. Debt implosion, huge deflation and a correction to the imbalance. A lot of our assets will lose paper value. Sometimes they will lose more value than the money we have "invested" in these "safe" assets.

    Forget the hype of 8-9% growth. Even China is staring at a decade of sub-4% growth going forward due to their own Debt and stimulus binge. At least they HAD their double-digit growth back in the last century. Like our Olympics showing, much of our growth is in talk only!

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Neeraj,

    Savings in India is highly skewed. Are you telling me Urban India has a lot of savings stashed away in general? Ha, ha! Wait for people to start losing jobs or take salary cuts and you will quickly see who was swimming covered (enough savings to tide over debt) and who was swimming naked (insolvency) when the tide (income) runs out! Warren Buffett said this in reference to companies. I believe that a lot of the "savings" in middle-class India today is like how the people in the US were fooled into. People take price of their homes, reduce it from current (inflated) market price and take that as their "saving". So, if you bought for 50L (with a 45L loan) and current market quotation is 70L, they believe that they now have 20L surplus, while they still owe the bank 40L (after paying off 5L in principal and perhaps 10-12L in interest)!!!

    Unless they sell and recover this profit (less the interest they paid, which they often forget to include in the net savings calculation), it remains on paper only. This home is bank-owned till the LAST EMI is paid and the risk (of capital loss) is always present. So, coming back to topic, a huge majority of "middle-class" Indians do live from paycheck-to-paycheck and do not have even 6 months cash savings set aside for emergencies. Averaging Gross Savings Rate (do not confuse this with "per capita Savings Amount" and believing in this phantom figure is a big mistake!



    cheers


    Great post wisey. Some time ago there was some discussion in GGN about what is the global wealth. After a lot of discussion the answer was - nobody knows!

    One estimation valued all assets (infrastructure and minerals also) prepared by economists with left leaning and environmentalist credentials (very suspect lot in my view) and came up with 200 odd trillions.

    Another estimate was based on investment amounts (prepared by an investment bank - looking to manage some of it!) and again came up with around 200 trillion.

    My own estimate was 400 plus trillions, including "everything" - including gold, stocks, unlisted, infrastructure, minerals and human capital - unscientific but useful ball park figure. It probably grows by about 3-5% and depreciates by about 1/3rd of growth i.e 1-1.5% per annum. Another useful way is that global wealth is 10 times global GDP of 40 trillion.

    Point you have made is this - the same wealth (house) is often counted twice - as 1crore by the owner (thinking it is his wealth) and as 1 crore asset on the bank books against which 1 crore in "lendings" has been created out of thin air by the central bank (which it is).

    Actually it is just one dwelling unit for a few people. All numbers attached to it are meaningless - only its utility value remains when all these mirage numbers are discounted - you can call it 1 crore - or if a river floods over it or a road changes direction, it might become 1 lakh also.

    And if nobody lives in it, it may as well be a rock - sometimes entire cities are empty houses - no matter how much the value, the real value is zero - less than zero because millions wasted their efforts to build a useless thing
    CommentQuote
  • Note : Keynes has never stated spend till infinity, keynes has only stated that govt. needs to step up spending when the private entities are unable to do so for various reasons.

    This has been b#stardised by the powers to be a sanction to do as willing,
    which has been further extrapolated by the austrian crowd for all evils in the world.
    CommentQuote
  • Originally Posted by Venkytalks
    Great post wisey. Some time ago there was some discussion in GGN about what is the global wealth. After a lot of discussion the answer was - nobody knows!

    One estimation valued all assets (infrastructure and minerals also) prepared by economists with left leaning and environmentalist credentials (very suspect lot in my view) and came up with 200 odd trillions.

    Another estimate was based on investment amounts (prepared by an investment bank - looking to manage some of it!) and again came up with around 200 trillion.

    My own estimate was 400 plus trillions, including "everything" - including gold, stocks, unlisted, infrastructure, minerals and human capital - unscientific but useful ball park figure. It probably grows by about 3-5% and depreciates by about 1/3rd of growth i.e 1-1.5% per annum. Another useful way is that global wealth is 10 times global GDP of 40 trillion.

    Point you have made is this - the same wealth (house) is often counted twice - as 1crore by the owner (thinking it is his wealth) and as 1 crore asset on the bank books against which 1 crore in "lendings" has been created out of thin air by the central bank (which it is).

    Actually it is just one dwelling unit for a few people. All numbers attached to it are meaningless - only its utility value remains when all these mirage numbers are discounted - you can call it 1 crore - or if a river floods over it or a road changes direction, it might become 1 lakh also.

    And if nobody lives in it, it may as well be a rock - sometimes entire cities are empty houses - no matter how much the value, the real value is zero - less than zero because millions wasted their efforts to build a useless thing


    Global wealth at a given point is the sum total of the net worth of the world population at that given point. Corporations are just entities and the final owner of the corporation (banks, software companies etc) are people.

    Even the net worth of a country is actually to be divided in to the population of that country. the net worth of a company/corporation would be divided within the shareholders.

    Each individual would need to have a balance sheet. Physical assets like house, gold, shares will be listed and then in the liabilities things like loans, expense within the next 1 yr, etc will be listed.

    In the assets section you would need to also have an entry for intangible assets - talent, future earning potential etc.

    Net worth of a country would have to take into consideration the natural wealth of the country and the debt of the country.
    CommentQuote
  • Problem comes with valuation.

    If Dow falls from 12000 to 6000, does it mean it has wiped out 50% of wealth? From 16 trillion to 8 trillion?

    If gold falls from 1600 to 800, does it mean that 4.5 trillion out of 9 trillion just ceased to exist?

    What is the value of unlisted companies? Discounted cash flow? Book value?

    What is the value of infrastructure? Replacement cost? Increase in output because of it? Or the capital expended?

    Then we have derivatives - which are supposed to be zero sum - except when someone makes a mistake in the sum and then we get Lehman Brothers or Soc Gen or Nick Leeson.

    Does Shahrukh Khan create any wealth at all? If so how much? What is intrinsic brand value? How much wealth does Mona Lisa represent and why?

    We spend our life in pursuit of wealth without ever knowing what wealth is!!!!
    CommentQuote
  • Originally Posted by realacres
    contd....

    21.) My wife will divorce me if I don't buy a house or shall I show her the savings by not buying the house.
    WRONG. She will divorce you if you do buy a house and go bankrupt trying to pay the mortgage. She won't divorce you if you rent a much nicer place than you can buy, and then take her to Paris for a month in an year, which you can do just by avoiding that suicidal mortgage.

    22.) Drop in interest rates would make people jump into market again which will increase the prices or atleast won't let RE prices crash.
    WRONG. The RE prices reflect the median income of the area. RE market in Pune was largely driven by IT, NRIs & investors. IT industry is slashing jobs or cutting the pays & perks. Due to global economic crunch, NRIs lack funds today. Several investors have burnt their fingers in stock market & they see no appreciation but a RE correction today (some may call it as rates are ‘Softening’). Hence, all these elements that were the main drivers for RE boom are absent today. At the end of the day what matters is whether one can afford EMIs or not. To what extent is priciple amount & interest component is altogether diferent issue. Try to see to it that what is fixed (RE rates) are low so that interest rates fluctuation won't bother you much. The RBI figs. posted by fellow blogger clearly shows how loan dibersement has decrerased despite hike in RE prices. This only means that people aren't simply taking loans. Home loan NPAs are increasing every day passing by. Hence, banks are in no mood to lend further for a highly depreciating asset.

    23.) Demand is there hence, drop won't take place.
    WRONG. Demand is there but definately not at current levels. Current market is dictated by end users & end users alone. Hence, builders can't today enjoy on investors money & neglect the end users.

    24.) No new projects are being announced. This will lead to low supply hence pushing up the rates.
    WRONG. Even if 58% of the projects are abandoned, there simply aren't any buyers for the rest 42%. Add to it the investors 40% additional supply which will flood the market this year.

    25.) Small correction here & there doesn't amount to crash.
    WRONG. The correction of 20% & more, if is small, then another 'Small correction' is sufficient for crash. Consider this as a 'Whirlpool'. Once you are in, you are not out unless you sink to the bottom.

    26.) I just want to own my own house.
    CORRECT. Most people do and that's fine. Buyers will get their chance when housing costs half as much and they have saved a fortune by renting. House ownership is great - unless you ruin your life paying for it. If you can save even just 10% on the price of a house, you can retire several years earlier than you would otherwise. If you can save 50%, then you can easily take a ten year vacation and still come out ahead.

    Conclusion:-

    1.) People are simply not spending due to current RE & economic scenario.

    2.) Investors aren't there, ending the speculation.

    3.) Current market is end user dictated. End user doesn't find rates affordable/logical.

    4.) Builder>> End User or
    Builder>> Investor/speculator>> End user.
    The chain ends with end user. End user is the king. Hence, expect distress sales from investors too.

    5.) Result is visible on ground. Builders slashing prices, thus defying PBAP diktat. One builder reduces rates & now it is catching steam that will set off chain reaction for RE crash.

    6.) Most importantly, the buyers are not homeless. They have a house even if it means rented one. Those who want to upgrade from 2BHK to 3/4BHK have put their plans on hold, as they too are not desperate. Due to several layoffs, people are going back to their native place, thus increasing the number of flats on rent.

    7.) Several news posted earlier, clearly indicate that bankers, economic analysts as well as realty observers state that the RE prices will come down by 50-60% from their peak value, irrespective of place, location. These people are neither bears nor bulls, but analysts with neutral perspective.

    8.) Most importantly, the holding capacity of buyers is greater than builders. Builders have taken loans from various finance sources with interest rates as high as 20-35%. These are turning defaulters & if they want the finance institutions not to put an attachment to their properties, they will have no other option but to sell off current inventory a very low rates.

    Who blinks first was the question late last year. Today we have the answer:- Builders.

    Like it or not, the current Pune RE scenario is similar to that of a ship heading inside the ‘Bermuda triangle’. What is visible today is just a deflection of ‘Compass’. Once it reaches the epicenter of the ‘Bermuda Triangle’, no one can help it from sinking.

    To conclude, the builders require your money. So, whom should you believe? Facts or theories put forth by boomers? Think for yourself.

    I would be very glad if you can share your thoughts on my article.
    Comments most welcome & I would be happy to hear from you.

    Regards,
    Realacres

    --concluded--

    Realacres - you wrote this more than 3 years ago. How wrong were you in your analysis? You have deprived many from purchasing their house. Your analysis was so dumb is proven by the following fact . I purchased a 2 bed house in Jasminium in Jul 2009 for 39 lakhs and sold the same property a week back ( had to wait for 3 years - for long term capital gains benefit) for 68 lakhs.
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  • I am a novice to the world of economics, but that shouldn't stop me from voicing my views.

    Originally Posted by Venkytalks
    Problem comes with valuation.

    If Dow falls from 12000 to 6000, does it mean it has wiped out 50% of wealth? From 16 trillion to 8 trillion?


    While calculating world wealth, stock price has no meaning.

    Originally Posted by Venkytalks
    If gold falls from 1600 to 800, does it mean that 4.5 trillion out of 9 trillion just ceased to exist?


    Valuing the world in terms of currency assumes that currency has stable value. If gold falls by 4.5 trillion, it automatically means that rest of the assets of the world have gained 4.5 trillion. Since this may not always reflect in the "currency prices" of those assets, this shows that currency is the weakest link while valuing the world.

    Can we value the world in gold? For conversion purpose, we can take one fixed reference point in time, say today.

    Now we can say that my flat = 2 KG of gold.
    Let the valuation of the word, this way, be 1 crore tonnes of gold.

    Tomorrow if price of gold is doubled, and the price of flat remained same, then price of flat becomes 1 KG of gold. it means that property has become less desirable than gold. or gold has become more desirable than property.

    Now the valuation of world might come to 75 lakh tonnes of gold. This is acceptable, this simply would mean that gold has become more precious to the world in general.

    Originally Posted by Venkytalks

    What is the value of unlisted companies? Discounted cash flow? Book value?

    What is the value of infrastructure? Replacement cost? Increase in output because of it? Or the capital expended?

    Then we have derivatives - which are supposed to be zero sum - except when someone makes a mistake in the sum and then we get Lehman Brothers or Soc Gen or Nick Leeson.

    Does Shahrukh Khan create any wealth at all? If so how much? What is intrinsic brand value? How much wealth does Mona Lisa represent and why?

    We spend our life in pursuit of wealth without ever knowing what wealth is!!!!


    :)

    There obviously isn't any way to measure exact wealth.
    You being a doctor, can ANY person in the world consume exactly the recommended quantity of macro and micro nutrients every day? NO. But do we have people who are very healthy? YES! Mathematically perfect equations are seldom necessary in life. Mota mota hisaab is suitable for most purposes.

    How this applies to your last sentence in bold?
    1. spending time without fear of life is wealth
    2. thinking "what will I get to eat tonight" rather than "will I get to eat tonight" is wealth.
    3. being able to plan a Manali trip before winter, instead of begging for blankets for survival, is wealth.
    4. Saying "paisa ka moh mat karo", with several crores of net worth, is wealth!
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  • We spend our life in pursuit of wealth without ever knowing what wealth is!!!!

    BARSO MAI TERE NAAM PE KHATA RAHA FAREB

    MERE KHUDA KAHAA HAI TUU APNAA PATAAA TOH DE
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  • Originally Posted by Venkytalks
    Problem comes with valuation.

    If Dow falls from 12000 to 6000, does it mean it has wiped out 50% of wealth? From 16 trillion to 8 trillion?

    If gold falls from 1600 to 800, does it mean that 4.5 trillion out of 9 trillion just ceased to exist?

    What is the value of unlisted companies? Discounted cash flow? Book value?

    What is the value of infrastructure? Replacement cost? Increase in output because of it? Or the capital expended?

    Then we have derivatives - which are supposed to be zero sum - except when someone makes a mistake in the sum and then we get Lehman Brothers or Soc Gen or Nick Leeson.

    Does Shahrukh Khan create any wealth at all? If so how much? What is intrinsic brand value? How much wealth does Mona Lisa represent and why?

    We spend our life in pursuit of wealth without ever knowing what wealth is!!!!



    So after a 600 pages long discussion we come back to understanding "What is wealth?". Ramayan ke baad "Ram kaun?".

    Are paglon!! Yeh sab to Maya hain!!! Love and Harmony is the only Real Gobal Wealth!!! Kya laye ho?..kya lejaoge?

    The time that you spend on this blog thinking about the fastest way to multiplying your wealth....spend that much time on your family and friends and see how blessed and wealthy you feel.
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  • Family - wealth paradox!

    Originally Posted by rembrants
    So after a 600 pages long discussion we come back to understanding "What is wealth?". Ramayan ke baad "Ram kaun?".

    Are paglon!! Yeh sab to Maya hain!!! Love and Harmony is the only Real Gobal Wealth!!! Kya laye ho?..kya lejaoge?

    The time that you spend on this blog thinking about the fastest way to multiplying your wealth....spend that much time on your family and friends and see how blessed and wealthy you feel.



    Are bhai,

    When I didn't bring home the wealth, family is kicking me out saying, "first go get the wealth, otherwise you are useless!" :)

    When I try to go get the wealth by posting and reading on this forum about how to get wealth, you are saying, "Don't waste time on this blog thinking about how to get wealth; rather go back to family, which is your true wealth!"

    Between one and the other, batao Rembrants, which comes first, family or wealth!!! :D

    cheers
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  • Originally Posted by nridesi
    Realacres - you wrote this more than 3 years ago. How wrong were you in your analysis? You have deprived many from purchasing their house. Your analysis was so dumb is proven by the following fact . I purchased a 2 bed house in Jasminium in Jul 2009 for 39 lakhs and sold the same property a week back ( had to wait for 3 years - for long term capital gains benefit) for 68 lakhs.


    Wait for sometime...realacres will come up with yet another dumb calculation to prove you that you are still wrong!!
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