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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  • The riddle

    The financial markets have always been a riddle and have confounded even the veterans all these years. Even Warren Buffet was confounded by the erratic behaviour defying all the proven rules of Economics.In the US housing sales have gone down but the rates have gone up. In the UK where RE speculation is comparatively less the prices have not gone down despite the European uncertainty.It is difficult to believe that only some people can control the market--RE or any others. Only just now some bigwigs of the RE are climbing down from their high pedestals with some token concessions but nothing substantial.Look up the bookings , you will find that real buyers are also there in the market!!!
    CommentQuote
  • Originally Posted by rambler
    The financial markets have always been a riddle and have confounded even the veterans all these years. Even Warren Buffet was confounded by the erratic behaviour defying all the proven rules of Economics.In the US housing sales have gone down but the rates have gone up. In the UK where RE speculation is comparatively less the prices have not gone down despite the European uncertainty.It is difficult to believe that only some people can control the market--RE or any others. Only just now some bigwigs of the RE are climbing down from their high pedestals with some token concessions but nothing substantial.Look up the bookings , you will find that real buyers are also there in the market!!!


    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers

    In the US it is big money that is investing in distressed property seeking rent. Retail buying is still in the pits. Therefore this recent strengthening of prices on very low volumes is onl benefiting Big Funds, Banks, etc.

    Low volumes with rising prices is a recipe for disaster. No bull market ever ended well with such a format. The DOW is headed to 16000 where something big is likely to happen. Even our market indices went up while most stocks went down and you will see the effects of this in the coming months.

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.

    Typical end of an extended bull market which has long lost its basis in economics and is running on bailouts and sentiment.

    cheers
    CommentQuote
  • long term returns in this condition

    wiseman, if you think of returns don't you think that buying flats for rental and holding to it for long term is better? Interest returns will turn negative because of inflation and dividend yields are negligible, and now dividends may taper out more. So why do you think that buying may not be good now? Let's imagine that I have money to invest and I feel RE may give better returns in the long run. If the market and sentiments continue like this for long then RE is safe bet. Not that I am advising buying now but the consequences may turn out favourable for RE! If the prices come down that is icing on the cake now! Imagine that for some time to come no one will build and then housing will see better demand in tune with the rising population.That is assuming that the country will be in some shape by then.
    CommentQuote
  • "Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price."
    Suppose I hold my invested property for a period 5 years.Let us say three year period to avoid LTCG problems and then around two years on a wait and watch policy to get best sale price.
    I am sure most who are in buying flats and selling them,will have at least 5 years time horizon.Off course those who buy in prelaunch and sell on project completion may not gain much in such tight economic situations.
    I personally believe that RE still remains a good bet if you hold the property for minimum 3 years + from date of possession.
    CommentQuote
  • Originally Posted by realpune
    Nothing can impact RE, it can only go up! Just kidding :D

    Although, the article talks about freshers. There is bigger problem for those with 15+ years of experience. When it comes to cutting costs, such people are looked upon as easy targets. The kind of low end consulting work done in Indian IT, doesn't' add up any value to your experience once you go past 15 years. If someone with 12 years exp can deliver similar to the one with 20 years, why the company will spend more!

    Recently, I have seen such trend where high salaried seniors are targeted. There are very few openings for this experience in IT these days. Growing insecurity can be easily noticed.

    Sent from my KFTT using Tapatalk 2


    My experience if quite different. People who have 15 yr exp in the IT industry and those who have stayed in the technical domain or have moved into the business side of things are really minting money at the moment. There are many project managers who will certainly be culled but talented folks have never had it better.

    A 12 yr old and a 20 yr old maybe producing the same quality of output but you need to ask that 20 yr old some serious questions if he/she is still in India and has to compete with 12 yr experienced IT folks.

    People with 20 yrs IT exp should atleast have 4-5 crs of stock options, 5-6 houses and 10 yrs of onsite under them. If not then there is something seriously wrong with these 20 yr experience folks. 20 yrs ago i.e in 1993 whoever joined IT could not have had a better chance to make it big in life.
    CommentQuote
  • Originally Posted by rambler
    In the UK where RE speculation is comparatively less the prices have not gone down despite the European uncertainty.It is difficult to believe that only some people can control the market--RE or any others. Only just now some bigwigs of the RE are climbing down from their high pedestals with some token concessions but nothing substantial.Look up the bookings , you will find that real buyers are also there in the market!!!


    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.

    RE speculation in UK is less?? before 2007-08 UK had adopted the worst policies of the European and American model - socialism form Europe and mis-pricing of risk with on a massive scale by govt backed banks from America. Only in the last 3 yrs has some effort gone into reducing the socialist policies but the last budget just started another round of crazy house lending prices.

    Expect housing prices in UK to go thru the roof over the next 2-3 yrs mostly due to the home equity loan started by the govt and the growing confidence in the UK economy.
    CommentQuote
  • Originally Posted by wiseman

    Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price.


    Rising RE prices helps US banks. They will report amazing profits (after taking out all the fines and trading losses) as they can mark-to-market all those below par house loans given prior to the bubble burst which in turn will help lending to consumers and businesses.

    US is in at the start of a nice run - investment in energy production coupled with rising house prices and a strong dollar backed by lower govt debt will see it grow nicely in the short term.

    China will benefit form this and so will India. The crisis in Europe has gone away for the time being. Not that the Indian stock market or any global stock market will continue to go up - stocks and underlying economic growth are at times not directly related - but this is a good time to buy good quality stocks and good quality RE in good locations.
    CommentQuote
  • Originally Posted by vaibav123
    "Longer prices stay up creating a sense of security in people holding property, larger the no of bulls and steeper will be the fall in price when market suddenly takes a turn and leaves people stranded with everyone becoming a seller together and no buyers at any price."
    Suppose I hold my invested property for a period 5 years.Let us say three year period to avoid LTCG problems and then around two years on a wait and watch policy to get best sale price.
    I am sure most who are in buying flats and selling them,will have at least 5 years time horizon.Off course those who buy in prelaunch and sell on project completion may not gain much in such tight economic situations.
    I personally believe that RE still remains a good bet if you hold the property for minimum 3 years + from date of possession.


    If you are not over-leveraged, have secure income then my argument does not apply. Given sufficient time horizon RE like good stocks and gold is always a buy. I'm only talking of players on the margin playing with high debt. Their risk goes up significantly.

    cheers
    CommentQuote
  • Leverage is a common tool that works well, when used prudently.Getting into a situation being over leveraged and facing declining rent/irregular rents with vacant periods can put you under strain.With job losses happening and economic downturn.You must check out the state of leverage.
    Having said this,is RE a good investment for a retiree in his 50's in the present state of market,looming uncertainties,delayed possessions of flats?Say an amount of 50 lakhs.
    Parameters Assured pension,no o/s loans,children yet to be married off, but well employed.
    What are your views,if a query like this is received?
    CommentQuote
  • Investing in RE with rental yield around 20% the cost of the capital, is just a belief in GFT(Greater fool theory). The probability of huge fall is increasing day by day. The probability of appreciation is dimming due to the affordability factor. Only hope is that politicians/bureaucrats/banks wont let RE fall since they are all have a lot to lose.
    CommentQuote
  • not everyone went onsite for 10 years , i would say less than 10% went onsite for such a long period ..... getting into IT in 93-99 was golden period :) i was in school back then ... by the way ppl with so much exp are totally shying away from RE and dont want to risk their hard earned money ..... most already have nice houses in good localities
    CommentQuote
  • no hesitation

    Originally Posted by vaibav123
    Leverage is a common tool that works well, when used prudently.Getting into a situation being over leveraged and facing declining rent/irregular rents with vacant periods can put you under strain.With job losses happening and economic downturn.You must check out the state of leverage.
    Having said this,is RE a good investment for a retiree in his 50's in the present state of market,looming uncertainties,delayed possessions of flats?Say an amount of 50 lakhs.
    Parameters Assured pension,no o/s loans,children yet to be married off, but well employed.
    What are your views,if a query like this is received?



    NO LOAN, ASSURED PENSION,CHILDREN WELL EMPLOYED, with this kind of foundation what is the need to ask question or hesitate? The marriages can be partly financed by children as they are employed. Since the person is on the verge of retirement it is better to take the leap, I think. Why bother about the delay? If the project is by reliable builder that will be much better. A permanent roof over head is better at this stage. The economic problems may peter out in a couple of years.That is what I feel. I have faith in our rural economy getting buoyant in the present year and also the size of population lubricating the economy to some extent.That is the reason for the "couple of years" estimate. The problems do not mean end of the country. whatever happens a roof is much better now. If that man kept money, inflation will erode it completely and then he will be in much worse condition.
    CommentQuote
  • Originally Posted by rambler
    swatantra-66 by state bank of Hyderabad-9.40%--seniors-9.70%

    Even Yes bank is giving 9.10%, while for senior citizens Axis bank is giving about 9.5%.
    BoB has also started MahaBachat deposit scheme with good rates.
    CommentQuote
  • Originally Posted by abhayd
    True...now a days i have even observed that there are no more discussions on real estate in office :) and lately haven't seen anyone buying a flat for self use or for investment from my friend circle/relatives\

    That doesn't mean no one is buying...but the real estate buzz/fever that was there earlier is reducing due to FUD

    +10000
    The laundry shop which I have in my neighborhood earlier had boards outside stating 2,3,4 BR for sale/rent & some basic details were given & the phone no. also given below. Now that board is gone. Similarly, the boards on trees giving RE ads are now gone. One thing which I have observed closely is RE is no longer a HOT topic which is discussed as it was earlier, be it my friends or colleagues. I know a guy who earlier used to read ToI on Sat for Times Property, now he is not reading it either.

    The biggest indication that RE is very down comes from the fact that major land deals in city have fallen by over 85% in last 4-5 months. Those builders who had given token money to land owners, are letting go that money but not entering into agreement/development agreement. Ample of cases in Ravet, Wakad, Baner (other side of highway), Kharadi. Just speak with seasoned local RE agent, he will tell you more details.
    CommentQuote
  • Property prices should come down soon

    Get ready for more realty defaults: Property prices should come down soon

    A major cash crunch in the economy along with a drop in property sales is proving to be a double whammy for realtors who are now defaulting on bank loans, suggesting that the situation may be getting out of control for India’s real estate sector.

    Real estate firms are finding it difficult to meet repayment commitments due to the visible slowdown in sales and the fact that majority of banks have virtually stopped fresh loan disbursals. Add to that the fact that RBI has ruled out further restructuring of realty loans. The number of new projects too have nearly halved due to the difficulty in getting funds.

    According to a report in the Business Standard banks may further tighten the screw on India’s unregulated real estate sector by asking for higher collateral which will make it more difficult for the industry to borrow loans.

    That may be bad news for realty tycoons but good news for buyers.
    The more the sector comes under pressure, the more realty prices will come down as builders are forced to disgorge inventories to up cash flows. :)

    A K Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services, told BS: “Once the names of defaulters come out, the prices of properties will shake. Those under distress will cut prices.

    On Tuesday, Mumbai-based real estate firm Orbit Corp was issued a notice of default and loan recovery to the tune of Rs 96 crore by LIC Housing Finance.

    The company has failed to pay up the amount even after getting a extension of six months.

    Not only did the company fail to repay the loan amount, it has also defaulted on the interest payable on the loan amount.

    While LIC Housing Finance has classified the account as a non-performing asset, it has also restrained the developer from creating any third-party rights on over 2.40 lakh sq ft across three of its projects that were mortgaged for securing the loan, says this Economic Times report.

    The housing finance company has also curbed Orbit Corp’s sale of flats in three Mumbai projects, which are located at Andheri, Lower Parel and Lalbaug, reported CNBC- TV18 today.

    “The company took a loan of Rs 250 crore from LIC, of which it has repaid about Rs 150 crore but didn’t pay up the rest as projects have been held up because of delays in obtaining regulatory permissions, impacting cashflows,” Orbit managing director Pujit Aggarwal was quoted as saying in the Mint.

    But Orbit is not the first to grapple with a liquidity crunch.

    Even Indiabulls Financial Services on Tuesday alleged that real estate major Housing Development and Infrastructure Ltd’s ( HDIL) promoters Sarang and Rakesh Wadhwan have failed to pay interest worth Rs 3.5 crore accrued on their personal loan worth Rs 46 crore.

    According to a CNBC-TV18 report, Indiabulls Housing Finance has given them 60 days time to clear dues. If they fail to pay up, the company may proceed to take possession of mortgaged property in Goa.

    Their loan accounts have now been classified as non-performing asset.


    The Wadhwans have said that the matter concerns only the promoters and not the company but the news does spell trouble for HDIL as investors in the past too have been worried about the ability of the company to sort out its finances.

    Last month, Mumbai International Airport Pvt Ltd (MIAL), which runs Chhatrapati Shivaji International Airport in Mumbai, claimed damages of Rs 276.46 crore from HDIL for delaying the first phase of construction at the airport. In May, MIAL terminated the slum rehabilitation contract given to the company, forcing the real estate firm to write off the costs incurred and report a loss for the March quarter.

    The stock is down 10 percent today after hitting a record low of Rs 28.10 in morning trades. Even DLF tanked 6 percent today and is down nearly 30 percent in the past eight trading sessions, after Citigroup downgraded it to “sell” from “neutral”, citing high leverage, mounting interest costs, tough macro situation and slowing demand.

    Other real estate stocks too are trading at historic lows today on concerns that there is no chance of the interest costs declining in the near future as the rupee hit new low of 61.70 against dollar today.

    Pankaj Kapoor, chief executive of Liases Foras, a real estate research agency, told Firstpost that home sales have gone down in recent months as there are barely any investors interested in entering the market right now while the current home valuations, especially in Mumbai and NCR are unaffordable for end users.

    Some of the developers are over-leveraged due to a constraint in cash flows because of slowdown in sales and difficulty in getting loans. Add to that the fact that private equity players are all looking to exit their investments now. With no money coming in, real estate is in dire straits,” he said. :)

    In fact data provided by real estate research firm Jones Lang LaSalle India shows foreign money in real estate is at an all-time low. From its peak of $5,500 million in FY10, FDI in real estate in FY13 is down to just $1,500.

    Even affordable housing projects are failing to strike a chord with investors owing to the low yield and long gestation period involved,” said Shobhit Agarwal Managing Director – Capital Markets, Jones Lang LaSalle India.

    In other words, developers are holding on to inventory with unproductive prices, which implies that the market has to undergo a correction.

    Clearly, it is just the unexplained and continuous increase in the price of land that is allowing realtors in Mumbai and the NCR to survive for neither sale of apartments or rentals will keep them afloat in the current gloom and doom.

    http://www.firstpost.com/business/get-ready-for-more-realty-defaults-property-prices-should-come-down-soon-1013355.html

    >> So finally, things are becoming more clearer & I expect RE prices to fall drastically & more sooner this time. Good time for RE buyers to enjoy. :)
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