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 Baruch
    RBI & FinMin considering 'funding for lending’ scheme to enable cheaper auto, realty loans - Economic Times

    RBI & FinMin considering 'funding for lending’ scheme to enable cheaper auto, realty loans

    (If approved, banks will…)

    The Reserve Bank of India and the finance ministry are evaluating a 'funding for lending' scheme that will result in cheaper loans for sectors such as housing and automobiles. To achieve this, banks will be allowed to borrow from RBI at rates 1-2% lower than the market under a special scheme. "Refinancing under this scheme will enable cheaper auto and home loans," said atop official involved in the discussions. "The big advantage of such a scheme will be to bring down borrowing rates for housing and auto without cutting policy rates," the official said.

    A scheme with exactly the same name was launched by the Bank of England and UK Treasury in July 2012. The UK version appears to be similar to the one being discussed in India, with the Bank of England providing funding to banks and building societies for extended periods at lower rates. The UK scheme aims to encourage banks to reduce the rates they charge small and medium firms. Officials involved in the discussions said a final decision was yet to be taken. Hence, the September 20 credit policy, the first under RBI Governor Raghuram Rajan, may not see any announcement on the scheme. However, the proposal is likely to become a reality given the government's desire to encourage growth.
    The auto and real estate sectors have been hit hard by the slowdown and have been clamouring for a stimulus package. But given the government's compulsion to restrict fiscal deficit to 4.8% of GDP, there is little scope to cut excise duty on automobiles, the traditional mode for a stimulus. A top official said the expected rise in consumption will revive demand and production, and hopefully set in motion a virtuous cycle.
    There are, however, a few voices of concern. Those opposed to the plan say the move will boost liquidity and stoke inflation further. But proponents argue that high inflation is because of food prices.


    Rajan is looking more and more like subbu of the initial years, coming from finance ministry he was only harping growth on cost of inflation. Only at the end of his career did he realize that all the money that he pushed into markets didn't help because economy was managed by an extravagant and stupid government.
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  • Originally Posted by punerebuyer
    thats related... for most of the guys RE is the life times money.. so it is closely linked to jobs... in fact, the most mature advice i have seen on this forum for end users is to "Buy without over leverage"

    Leverage indicates use of future money and that implies guarantee of a job for salaries individuals... all the industry discussions also first talk about job downturn and then its impact on RE...

    So if you save wisely now and if you have a job inspite of recession, you can strike a good deal when RE prices come down... if one doesnt have a job, i dont think one would even be thinking about RE purchase...


    Punerebuyer,
    Have you bought a flat in Pune? Just curious.....
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  • Originally Posted by ashish18
    Rajan is looking more and more like subbu of the initial years, coming from finance ministry he was only harping growth on cost of inflation. Only at the end of his career did he realize that all the money that he pushed into markets didn't help because economy was managed by an extravagant and stupid government.


    This news is like a paid news Aashiish. I have never seen such news anywhere else.


    However RGR is not like subbu it seems....
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  • Originally Posted by mangoman2012
    This news is like a paid news Aashiish. I have never seen such news anywhere else.


    However RGR is not like subbu it seems....


    Oh yes,
    I will retract my words. RR is 1000 times better than Subbu. That's a difference between a bureaucrat and an economist. Excellent credit policy I must say, super like for him. Best part is his emphasis on the fact that tapering is postponed and eventually will come back to haunt INR and markets.
    Wish some PM in India have the guts to get the country out of clutches of IAS lobby and start using more academicians and specialists of each field.
    Have already started thinking that BJP or congress, he is the best FM, India can have probably today.
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  • Originally Posted by ashish18
    Oh yes,
    I will retract my words. RR is 1000 times better than Subbu. That's a difference between a bureaucrat and an economist. Excellent credit policy I must say, super like for him. Best part is his emphasis on the fact that tapering is postponed and eventually will come back to haunt INR and markets.
    Wish some PM in India have the guts to get the country out of clutches of IAS lobby and start using more academicians and specialists of each field.
    Have already started thinking that BJP or congress, he is the best FM, India can have probably today.


    indeed a great policy...good that he isnt carried away by taper breather...this also forces GOI to do more at its end on reforms
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  • Originally Posted by ashish18
    Oh yes,
    I will retract my words. RR is 1000 times better than Subbu. That's a difference between a bureaucrat and an economist. Excellent credit policy I must say, super like for him. Best part is his emphasis on the fact that tapering is postponed and eventually will come back to haunt INR and markets.
    Wish some PM in India have the guts to get the country out of clutches of IAS lobby and start using more academicians and specialists of each field.
    Have already started thinking that BJP or congress, he is the best FM, India can have probably today.


    Good decisions. However, the increase in rates is not good news for people with home loans today. Also, this will push the builders further, and in due course the ones who are vilnerable will be thrown out of the system.
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  • may be..


    who knows..we know the FII fire power..

    we know our corrupt corporates and their richness..

    however this scheme has not come out in the monetary policy....

    May be it is a carrot for the unsuspecting people (mangoes like me)
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  • Home loan EMIs set to rise as SBI hikes interest rates

    State Bank of India, the country's largest lender, today raised its home loan rates to 10.10 per cent from 9.95 per cent earlier, the bank announced today.

    This interest rate applies to all loans up to Rs. 30 lakh.

    Interest rates for loans above Rs. 30 lakh, which earlier stood at 10.10 per cent, were also revised upwards. They now stand at 10.30 per cent.

    A revision in the base rate directly impacts the interest rate of home, auto and personal loans.

    Interest rates for deposits from seven days to 179 days have been increased from 6.5 per cent to 7.5 per cent; for deposits of 180-210 days, rates have been revised from 6.5 per cent to 6.8 per cent; for 211 days to less than a year, rates now stand at 7.5 per cent, up from 6.5 per cent, while rates for deposits of one year up to 10 years now stand at 9 per cent, up from 8.75 per cent.

    SBI is the first major state-run bank to hike lending rates after short-term rates rose as a result of the Reserve Bank of India's liquidity tightening moves announced in July.

    Home loan EMIs set to rise as SBI hikes interest rates - NDTVProfit.com
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  • RBI announces credit policy, Rajan says 'raised repo rate due to inflationary pressures'

    India's new Reserve Bank governor Raghuram Rajan marked his first policy meeting Friday with a bold decision to hike interest rates, wrong-footing analysts and leading to sharp falls on the stock market.

    RBI announces credit policy, Rajan says 'raised repo rate due to inflationary pressures' - Hindustan Times
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  • 2008 Vs 2013

    As some RE bulls keep bringing in 2008 in discussion, just a quick comparo between then & now.

    > India short term debt $ 80 bn in 2007-08, now its $ 170 bn;

    > Oversees investment by Indian cos in 2008 was $ 20 bn, now just $ 7 bn, & no local investments,

    > 1 US$ = INR 41.80 in 2008, it's around 65 now,

    > Top 10 cos debt Rs, 1000 bn in 2008 to Rs.6000bn now,

    > India at bottom in global rankings for fiscal deficit,

    > 25% cos can't repay interest, let alone principal amount,
    As some RE bulls keep bringing 2008 here, just a quick comparo between then & now.

    > Banks will be hit by more bad loans & this is worse economic crisis in past 20 yrs.
    Man, even there is 36.5% duty on TV now, which wasn't earlier if you bought it alongwith your luggage. This just shows how bad the situation is.

    > Add to it the inflation, hike in interest rates, absence of teaser rates & refusal of banks for rollover of loans to realty sector. The RBI banning RE schemes like 80:20, putting RE in high risk etc. is itself an indication about RE as asset bubble.


    The real estate price was following 'amplification mechanism', whereby, a large increase in asset price is followed by a higher demand, as investors think that further increases in prices will follow. However, the tide now appears to have turned, not to forget large scale NPAs in RE sector.
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  • Realty companies may offer discounts to clear inventory

    The upward revision in repo rate by the Reserve Bank of India is likely to increase pressure on RE developers to offer discounts in the upcoming festive season as they struggle to clear their inventory at a time when demand is tepid and Interest rates are rising.
    Realty companies may offer discounts to clear inventory - The Times of India
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  • Originally Posted by realacres
    India's new Reserve Bank governor Raghuram Rajan marked his first policy meeting Friday with a bold decision to hike interest rates, wrong-footing analysts and leading to sharp falls on the stock market.

    RBI announces credit policy, Rajan says 'raised repo rate due to inflationary pressures' - Hindustan Times


    Higher interest rates will obviously not cool down food inflation....and whatever WPI(5-6%) we are seeing is because of CPI(9-10%) which in turn is due to food inflation (12%+)

    But I still think Rajan did a brilliant thing by not giving space to this corrupt government ....if Chiddu wants an ok economy in summers of 2014...some hard steps needs to be taken on diesel and other fiscal components...

    Rajan is living up to expectations of Chicago school of economics....he might not be a Volker but he is surely an inflation hawk....he makes me very bullish abpout nominal assets (FDs, debt) from next 1-2 years perspective....hopefully stocks will do ok too once we are able to tame inflation completely....

    If he indeed does what he says he will do then time for gold and RE is up in India for next few years
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  • Originally Posted by Baruch
    Higher interest rates will obviously not cool down food inflation....and whatever WPI(5-6%) we are seeing is because of CPI(9-10%) which in turn is due to food inflation (12%+)

    But I still think Rajan did a brilliant thing by not giving space to this corrupt government ....if Chiddu wants an ok economy in summers of 2014...some hard steps needs to be taken on diesel and other fiscal components...

    Rajan is living up to expectations of Chicago school of economics....he might not be a Volker but he is surely an inflation hawk....he makes me very bullish abpout nominal assets (FDs, debt) from next 1-2 years perspective....hopefully stocks will do ok too once we are able to tame inflation completely....

    If he indeed does what he says he will do then time for gold and RE is up in India for next few years


    Yes, going this way, RE investors and small time builders are going to have a hard time in next few years - as Rajan has done something which could have been 'postponed'!
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  • Salaried real estate investors in mess as loan cost pinches

    MUMBAI: The deepening economic slowdown, rising cost of living and low wage revisions, coupled with higher interest rares, are forcing salaried professionals who had earlier invested in properties to put them up for sale, say industry experts.

    According to a survey, resale inventory has increased nearly 30 per cent over the last six months.

    "Economic slowdown has hit the real estate industry. Salaried professionals who had invested in properties five-six years ago to cash in on the boom, are now looking to sell them as they are finding it difficult to cope with the high cost of living," property portal Housing.co.in co-founder and marketing head Advitiya Sharma told PTI.


    Salaried real estate investors in mess as loan cost pinches - The Times of India
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