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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  • Same goes for Bulls also... Some small Clouds somewhere makes them feel that the whole world is getting adequate rainfall.... :) ( You are intelligent to interpret it !!!)

    Originally Posted by compuwalah
    To sum up recent posts , bearish comments are back to 2009 pattern where every other negetive news (or even positive ones pained as negetive ) were posted to paint a darker picture. You can visit back when such post have been bombarded left and right (some people event went as far to blame falling fertility rate to rising RE prices ... hasna manaa hai :) ... sorry ... :( ... :D)

    To summarize
    Ganesh Mandals have got less sponsorship - Oh my god. Now someone please create chart of donation vs RE prices vs depression vs number of siberian cranes those crossed himalayas to nest in Bharatpur.

    Some isolated mall isn to able to make rental income - please do not consider it one off case but lets generalize for all malls :)
    US people are turning towards rentals - yeah. our economy , culture, history , demographies are so similar to US that we should think this will be trend in India too :)

    Some people are depressed due to inflation - one can paint the picture as he deems fit. Let me say they are depressed due to diturbing monsoon pattern.

    India has not seen the bubble burst like USA - I am so scared now (my sentiments have been on negetive side, thanks to other supporting negetive posts , I will see this as some kind of warning. ) ... kit kit kit kit .... :D
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  • Originally Posted by realpune
    ...
    What Mr Bernanke will do now ? Print and directly deposit money into citizen's account ? After all, the money can be printed out of thin air :bab (59):.


    Actually if benny did that it would be the right move !

    printing is not bad is it is made out to be ! it depends on the context it is printed for !

    printing to support unfeasible institutions is bad as it engenders the same practices.

    So as a matter of fact if benny did print again for nth time and then decided to give it to the citizen's america would be out of this mess in a SECOND but would banks allow it ?

    simply put there it is not just about two colors BLACK or WHITE, there do exist many shades in between !
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  • Originally Posted by mymarji
    Same goes for Bulls also... Some small Clouds somewhere makes them feel that the whole world is getting adequate rainfall.... :) ( You are intelligent to interpret it !!!)


    Not true. Please show me instances where there is bombardment of bullish post on this forum. However at onset of every slump, tonnes of gloomy posts will flood this forum and then even neutral news are painted in red. That is what I was pointing to.

    Also most of the bullish posts are mostly in reponse to bearish post. So both ways your statement does not hold good.

    Also bulls have been pretty meek compared to bears. bears come up with pretty bold predictions (which are in contrast to the real world). Its started with 15 to 20% fall prediction in 2009 and then someone went to 30-50% fall prediction. bulls only meekishly say that price are expected to rise without coming with any bold statements like "prices to go up 30% this year".
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  • Originally Posted by compuwalah
    To sum up recent posts , bearish comments are back to 2009 pattern where every other negetive news (or even positive ones pained as negetive ) were posted to paint a darker picture. You can visit back when such post have been bombarded left and right (some people event went as far to blame falling fertility rate to rising RE prices ... hasna manaa hai :) ... sorry ... :( ... :D)

    To summarize
    Ganesh Mandals have got less sponsorship - Oh my god. Now someone please create chart of donation vs RE prices vs depression vs number of siberian cranes those crossed himalayas to nest in Bharatpur.

    Some isolated mall isn to able to make rental income - please do not consider it one off case but lets generalize for all malls :)
    US people are turning towards rentals - yeah. our economy , culture, history , demographies are so similar to US that we should think this will be trend in India too :)

    Some people are depressed due to inflation - one can paint the picture as he deems fit. Let me say they are depressed due to diturbing monsoon pattern.

    India has not seen the bubble burst like USA - I am so scared now (my sentiments have been on negetive side, thanks to other supporting negetive posts , I will see this as some kind of warning. ) ... kit kit kit kit .... :D


    Bearish sentiments are maximum at the bottom of a trough

    Every bull market climbs a wall of worries.

    Always do the opposite of what common wisdom is - be fearful when others are greedy and greedy when others are fearful.

    But having said that:

    Every other thread other than bubble thread in every forum is a bullish thread. Bears are a minority - bulls are busy buying

    Right now, most people are against stocks and everyone thinks RE purchase is the best option.

    So the opposite is likely - stocks will rise. RE will stagnate (it never falls)

    Note: Bears can do something in stock markets - they can short sell. Bears cannot do anything in RE - they can either sell or not buy.

    If shorting were possible in RE, the market would find its levels much faster like the stock market. And prices would actually come down rather than stagnate
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  • PE investors burnt by realty

    Everyone is loosing, then why not sale at discount to create demand, than carrying over losses ?

    Hot money: PE investors are getting burnt by realty | Firstpost

    PE firms that invested in Indian realty in the 2006-08 boom years are looking to exit, but are unable to so with profitable returns. Sources say heads are rolling at the top levels of these firms as a fallout of the negative returns from the investments made under them.
    While most PEs had expected 20-25% returns post tax, the harsh reality is they are being forced to exit with zero returns, and this is the outcome of too much hot money chasing the same commodity without a proper due diligence.


    Soaring land prices and price-resistance from buyers began to narrow investors’ margins slowly, but significantly. While many PE funds have postponed their plans to exit investments due to lower returns a few cash-rich ones are treading cautiously and avoiding investing anywhere as valuations have dropped.
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  • Why will retail FDI not come rushing in

    Originally Posted by realpune
    This will be a trend going forward. Don't know about footfalls. People will still visit malls, but won't buy everything tagged with 30% off. They may not even go out for dinner every time they go for movie.

    Thanks to rising inflation! Every rupee is being spent wisely.

    High mall rents + less business is going to make things tougher for every retail outlet.

    Real estate costs are making even Wall mart think before starting india operations. It's a different story though that the RE developers have already started celebrating, hoping that they would increase commercial RE rates every week :D, calling up Wall mart and telling them to buy before they miss the bus :bab (59):.


    Retail giants are having a tough time in the West. So dear MMS thinks that merely announcing FDI in retail will have the Walmarts of the world salivating at the thought of looting a fresh bunch of consumers.

    Well ... think again! Several things stand in the way of Walmart and India-ko-lootle!

    1. America is 70% consumer economy. Savings is practically ZERO. India is 22% savings economy.

    2. America only knows how to buy supersize and waste, waste, waste! Much of India (I exclude much of the IT/ITEs crowd which has become American) is great of stretching everything they buy to the max. In my house I even have bedspreads more than 25 years old in top condition! :)

    3. Vast majority in India looks to the Kirana merchant to split wholesale into tiny retail (cooking oil in 50-100 ml sizes, for example). They do end up paying a premium for this, but they have no choice (not enough spending power) and the Kirana guy is just a few meters away so we can go own anytime to stock up the tiny sizes.

    Walmart will give you savings, but minimum quantity is 5 liters of cooking oil to get that price! Not Indian style or capacity.

    Lastly, there is always the Chinese experience of reversing decisions after the investment is made. Now, even India is seen in that light (while earlier people thought that once announced, policies will stay). Then there is the state level decision making where non-Congress states will simply not allow FDI.

    I think, given the sky-high RE prices (as soon as Walmart announces a location price will shoot 50% in that area for large size plots!) and the tough Indian consumer, these companies will play the waiting game for a while more to ensure that their billions are safe when invested as well as give some sort of return.

    We also see a little desperation in the Govt where additional reforms are being sought to be brought in in Insurance, etc. Where are the REAL reforms? Land ownership. Electricity Generation, backend infrastructure ....

    cheers
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  • MNC have the staying power and ability to indianize - look at HLL or McDonald or KFC's - thay have come with products and price points to suit every Indian pocket.

    Last i heard was that the Re1 pouches successful in India are planned to be introduced by HLL, P&G in Europe for soaps, shampoo and ketchups...

    Coke is bringing back Rim-Zim, Pepsi had to re-introduce Dukes Soda, Big Mac as Samosas, KFC & Pizza Hut was "Only Veg" menu outlets...

    So, well any Super store can come to India but then they will have to act & behave like the corner store (read Kirana) and meet-up Indian taste and buying habits...it's just not easy to change age-old habits within one generation. Probably 20 yrs down the line things stand to change and become western...

    till then - lets all watch the Big Indian Circus of Consumerism!!
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  • Originally Posted by simsagar
    MNC have the staying power and ability to indianize - look at HLL or McDonald or KFC's - thay have come with products and price points to suit every Indian pocket.

    Last i heard was that the Re1 pouches successful in India are planned to be introduced by HLL, P&G in Europe for soaps, shampoo and ketchups...

    Coke is bringing back Rim-Zim, Pepsi had to re-introduce Dukes Soda, Big Mac as Samosas, KFC & Pizza Hut was "Only Veg" menu outlets...

    So, well any Super store can come to India but then they will have to act & behave like the corner store (read Kirana) and meet-up Indian taste and buying habits...it's just not easy to change age-old habits within one generation. Probably 20 yrs down the line things stand to change and become western...

    till then - lets all watch the Big Indian Circus of Consumerism!!


    Also heard the coffee giant Starbucks is coming to India with Retail FDI move, seems like Cafe Coffee Day and Barista are in for some stiff competition :)
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  • Actually the real estate prices are totally against Walmart.

    Large space is only available outside city. Nobody will spend so much time and money to drive so far out for daily needs.

    Those who do - their houses are too small to store their bulk purchases.

    Most Americans have a big store room only for their monthly big shopping - some 400 sf of space in town/suburban houses. In India, even the drawing room is usually just 200 sf in size.

    Where to keep the big boxes of supplies?

    I face this problem every day in my small flat - if I buy 10 bottles of deo spray or shave foam - there is no space to store them !!!

    I have switched to Kindle for all my reading - no space for books
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  • I don't know if D-Mart have their stores in Gurgaon and Bangalore, but they do have stores in Pune.

    The secret of their business is pay less for RE and offer great deals to the customers. The stores are slightly away from the main street and kind of cramped, you will start sweating if you spend more than an hour there. But people still visit D-Mart stores for the great deals and ready to stand in queue for as long as 30-40 minutes.

    Not exaggerating, but couple of times i noticed that someone buying biscuits worth Rs 2k!!! Who can buy these ? Only a kirana store owner. Such are the deals which makes even kirana owners buy from D-Mart and sell in their shop.

    The key is to reduce the amount of lease you pay to run the stores of such scale successfully. RE costs are significant part of investment in any business these days and has started posing threats already! Indirectly fueling inflation. I am wondering if Chidu will do something to keep RE prices in check, i can see govt is desperate to bring down inflation before going to polls.

    When i compare D-Mart with the likes of Big Bazar, Reliance Mart, Start Bazar; all fail. These guys setup their shops in some hi-fi mall, try to sale sub standard goods like branded ones with no real offers on branded goods.

    The customer is smart and knows where to buy from!
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  • Originally Posted by realpune
    I don't know if D-Mart have their stores in Gurgaon and Bangalore, but they do have stores in Pune.

    The secret of their business is pay less for RE and offer great deals to the customers. The stores are slightly away from the main street and kind of cramped, you will start sweating if you spend more than an hour there. But people still visit D-Mart stores for the great deals and ready to stand in queue for as long as 30-40 minutes.

    Not exaggerating, but couple of times i noticed that someone buying biscuits worth Rs 2k!!! Who can buy these ? Only a kirana store owner. Such are the deals which makes even kirana owners buy from D-Mart and sell in their shop.

    The key is to reduce the amount of lease you pay to run the stores of such scale successfully. RE costs are significant part of investment in any business these days and has started posing threats already! Indirectly fueling inflation. I am wondering if Chidu will do something to keep RE prices in check, i can see govt is desperate to bring down inflation before going to polls.

    When i compare D-Mart with the likes of Big Bazar, Reliance Mart, Start Bazar; all fail. These guys setup their shops in some hi-fi mall, try to sale sub standard goods like branded ones with no real offers on branded goods.

    The customer is smart and knows where to buy from!


    Quite true - and I have seen exactly the same thing - most customers at wholesale price shops are other small retailers (Kirana store owners).

    BTW, the number of empty shops in malls and the thin crowds even on weekends seems quite worrying - people are not spending.

    Even more worrying is the small number of job vacancies advertised. Weekly job supplements (Shine jobs and Ascent) are no longer supplements - they are just two extra pages attached to the tenders section.

    No jobs from Gulf either.

    Only Indian govt seems to be hiring - very worrisome.
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  • Originally Posted by Venkytalks
    Quite true - and I have seen exactly the same thing - most customers at wholesale price shops are other small retailers (Kirana store owners).

    BTW, the number of empty shops in malls and the thin crowds even on weekends seems quite worrying - people are not spending.

    Even more worrying is the small number of job vacancies advertised. Weekly job supplements (Shine jobs and Ascent) are no longer supplements - they are just two extra pages attached to the tenders section.

    No jobs from Gulf either.

    Only Indian govt seems to be hiring - very worrisome.


    Gone are those days when people used buy Times of India exclusively on a day on which they used publish "Ascent" with every page filled up with jobs. You are talking about hiring, but i can see people already started getting laid off, silently.

    About empty malls - people simply don't have disposable income to spend anymore. Whatever little they can save after spending for day to day needs, has no meaning (thanks to inflation). Everything is going through the roof in terms of cost and making everyone count every Rupee being spent.

    On his recent posts, i saw wiseman comparing IT guys with Americans. But let me tell you even IT guys are not the same what they used to be prior to 2008 when it comes to spending. People are extremely cautious and thinking about different possible ways to cut down on the monthly expenses.
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  • Originally Posted by Venkytalks
    Quite true - and I have seen exactly the same thing - most customers at wholesale price shops are other small retailers (Kirana store owners).

    BTW, the number of empty shops in malls and the thin crowds even on weekends seems quite worrying - people are not spending.

    Even more worrying is the small number of job vacancies advertised. Weekly job supplements (Shine jobs and Ascent) are no longer supplements - they are just two extra pages attached to the tenders section.

    No jobs from Gulf either.

    Only Indian govt seems to be hiring - very worrisome.


    Just when we were talking about spending by people, came across this:

    Low income, middle-income groups to spend lesser on festivities this year: Assocham - The Economic Times

    People say India is domestic consumption driven economy and relatively immune to external factors. Here, the domestic consumption itself is dying, with reduced purchasing power of rupee! Lets see where do we land.

    We are seeing everyone dancing with reforms announcement. One bad news from Euro zone and lets see which way INR marches!
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  • Originally Posted by realpune
    I don't know if D-Mart have their stores in Gurgaon and Bangalore, but they do have stores in Pune.

    The secret of their business is pay less for RE and offer great deals to the customers. The stores are slightly away from the main street and kind of cramped, you will start sweating if you spend more than an hour there. But people still visit D-Mart stores for the great deals and ready to stand in queue for as long as 30-40 minutes.

    Not exaggerating, but couple of times i noticed that someone buying biscuits worth Rs 2k!!! Who can buy these ? Only a kirana store owner. Such are the deals which makes even kirana owners buy from D-Mart and sell in their shop.

    The key is to reduce the amount of lease you pay to run the stores of such scale successfully. RE costs are significant part of investment in any business these days and has started posing threats already! Indirectly fueling inflation. I am wondering if Chidu will do something to keep RE prices in check, i can see govt is desperate to bring down inflation before going to polls.

    When i compare D-Mart with the likes of Big Bazar, Reliance Mart, Start Bazar; all fail. These guys setup their shops in some hi-fi mall, try to sale sub standard goods like branded ones with no real offers on branded goods.

    The customer is smart and knows where to buy from!

    Totally Agree

    My friend runs a kirana store & he buys Goodday biscuits from D Mart.
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  • Hey,

    Does anyone watch the property show at NDTV.. I have been watching it for a last few months and I get surprised at the budgets some people seem to have..

    Looks like property prices are here to stay.. there will always be some poor soul losing his house due to the leverage.. (like a kingfisher employee for now).. but that is not indicative of any huge dip..
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