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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  • Piling inventory, poor sales may force builders to slash rates, say experts

    With real estate inventory at an all-time high, severe liquidity crunch and decelerating sales, experts feel that developers will be forced to slash residential property rates in the coming months.

    With the real estate companies in poor financial health, experts predict softening of prices owing to lack of options to augment liquidity. The 'stress level' of these companies — reflected in their low operating cash flows and huge debt — is at its highest in the past five years, according to real estate consulting firm Knight Frank.

    "The developers have been caught in a trap of ambitious expansion, decelerating sale, hardening interest rate, and weakening cash flow. With few options to obtain money from either banks or private equity funding, these companies do not have much choice but to soften prices," said Samantak Das, chief economist & director (research), Knight Frank.

    Real estate research and rating firm Liases Foras says unsold inventory in six major cities adds up to about 5.39 lakh units — an all time high. "The city's inventory will take up to 40 months to clear at the current pace of absorption, while a healthy market does not maintain more than 10 months' inventory," said Pankaj Kapoor from Liases Foras.

    Piling inventory, poor sales may force builders to slash rates, say experts - Indian Express

    Coming to some Pune RE news,

    Bramha Suncity, Vadgaonsheri, Rohan Mithila, Lohegaon & Ivy Estate, Wagholi are being pushed hard by RE agents these days. They also say they can offer good deal on 'Investors' flat. In reality though, they are working for builders only.

    Nirman developers is now offering free taxes, which means a net discount of around 12% & this is official discount. Builder is open for negotiation further of price/sq ft as well.
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  • CEO Interview

    ''Housing loan market penetration still relatively nascent so opportunity is huge''
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  • Some downside on real estate sector

    The increase in repo rate is going to have some downside on the real estate sector in a stressed environment that is already plagued by slowdown in sales, increasing input costs, liquidity issues and high costs of capital, Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, said.

    “Today’s review of monetary policy would have disappointed most people as many were looking at the new RBI Governor to make radical economic changes. However, high expectations from the new RBI Governor Raghuram Rajan to provide all the solutions to the ailing Indian economy are grossly misplaced and unrealistic,” he said.

    http://www.thehindubusinessline.com/industry-and-economy/some-downside-on-real-estate-sector/article5150001.ece
    CommentQuote
  • House prices tumble as buyers delay purchases

    As stricter RBI guidelines, rising inventory and the slowing economy leave developers reeling, buyers are bargaining harder to strike a deal

    Drop in residential property prices may have been a buyer's dream till recently, but now it is as real as it can get.

    But there are enough pointers to the answer. Sanjay Sharma, managing director, Qubrex, a real estate consultancy, draws attention to two kinds of prices - asking price and transaction price. The asking price or the published rate may be holding on, while the amount at which a transaction is completed could be much lower, according to Sharma. "Nobody is paying the asking price. And only those developers compromising on price are selling now," he says in a telling admission of the state of affairs in the sector. The secondary market has experienced a very definite fall in prices, Sharma points out.

    "There is room for some more price correction," says NHB's Verma. "We have seen a price decline across cities - it was due for some time.

    House prices tumble as buyers delay purchases | Business Standard
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  • South Delhi, Mumbai high-end property is headed south

    Distress sales are crimping the luxury real estate market in South Bombay and South Delhi as a slowing economy has pushed out not only end-users but also investors. Not only have property prices in prime locations of South Mumbai and South Delhi fallen by over 15 percent, even rental yields are at an all-time low. Take, for instance, the upmarket Panchsheel Park in South Delhi, where rental for a 7,000 square feet bungalow was around Rs 7 lakh a month. It is now down by more than 25 percent to just Rs 4 lakh. The same is true even when you buy a property. A 5,000 sq ft property in the same area was commanding at least Rs 90 crore. Today, the valuation is down to Rs 70 crore.

    “With elections round the corner, there is a major liquidity crunch. Buyers are staying away due to instability at the Centre and will continue to do so till the polls are over,” a South Delhi architect told Firstpost on condition of anonymity.

    South Mumbai is even worse. Rental yields have fallen by more than half. From 3-5 percent in 2008-11, yields are now down to 1-2 percent, while capital appreciation has dropped to 10 percent from 30 percent a year earlier, an Economic Times report said today (10 September). “According to property consultants, sale of a new property has dropped 30 percent in the past eight to 12 months, with fewer investors and end-users willing to buy expensive homes. For every 100 homes available for sale in a quarter, only six are getting sold,” the report said.

    “Real estate developers have been caught in a trap of ambitious expansion, decelerating sales, hardening interest rates, and weakening cash flows. Unlike earlier occasions, the sector now has no bailout package and alternate funding options have also dried-up,” said Dr Samantak Das, Chief Economist & Director, Research, Knight Frank. Chances of a revival in their financial health during the current year seem bleak as banks, one of the largest lenders to the real estate sector, are shying away from lending as they are troubled in their own backyard with increased non-performing assets, tightened monetary policy, currency depreciation and volatile debt markets. Private equity funds, the all-time white knights for the real estate sector, have also been seen exiting Indian markets.

    “The aftermath of the dried-up funds scenario is also apparent in the market; some real estate companies have defaulted on their debt repayments. This seems to be just the beginning of doom for highly leveraged realty firms,” adds Das.

    South Delhi, Mumbai high-end property is headed south | Firstpost
    CommentQuote
  • Originally Posted by realacres
    As stricter RBI guidelines, rising inventory and the slowing economy leave developers reeling, buyers are bargaining harder to strike a deal

    Drop in residential property prices may have been a buyer's dream till recently, but now it is as real as it can get.

    But there are enough pointers to the answer. Sanjay Sharma, managing director, Qubrex, a real estate consultancy, draws attention to two kinds of prices - asking price and transaction price. The asking price or the published rate may be holding on, while the amount at which a transaction is completed could be much lower, according to Sharma. "Nobody is paying the asking price. And only those developers compromising on price are selling now," he says in a telling admission of the state of affairs in the sector. The secondary market has experienced a very definite fall in prices, Sharma points out.

    "There is room for some more price correction," says NHB's Verma. "We have seen a price decline across cities - it was due for some time.

    House prices tumble as buyers delay purchases | Business Standard


    Thanks RealAcres.

    I would assume that resale market will have even more discounts. Two years of inventory with builders and many projects underway. I dont know why people are irrationally exuberant, but it was obvious that 1.1 Cr + for cramped 3BHK flats with no signs of roads, regular electricity, social infrastructure,etc is out of reach of even people who earn 20L+ pa.
    Blindly following Mumbai in property rates isnt logical for smaller cities like Pune, Hyd, Bangalore, Ahmedabad, Indore, Jaipur, etc. Mumbai RE prices are much higher, but then, it has some of the richest janata of the country, who dont mind paying sky high prices for a good property. Mumbai has better infrastructure, Pune just doesnt.
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  • I don't think there's any real estate bubble: Keki Mistry | Business Standard

    If prices stabilise it’s a good thing. Prices are not coming down by 30-40 per cent anywhere. When you compare prices even in one particular pocket, you need to look at the projects and the amenities
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  • Commener

    Nice attempt...only thing is that these circular logics are in place for decades now...this fails to understand a beast called inflation....1cr is a big sum for 1bhk but even 10 laks was a big sum for 1 bhk 15 years back....

    I think better way to understand RE prices is to compare with any real asset not with fake assets like rupee

    If you count how many KGs of onions/potatos it used to take to buy a 2bhk in 2000...probably RE is underpiced now
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  • Originally Posted by commonner
    I almost fell out of my chair laughing....

    Reading this might give some insight...

    https://www.indianrealestateforum.com/forum/city-forums/mumbai-real-estate/66253-market-crashes-in-real-estate-mumbai?t=67534


    STUPID ALERT! If you want to waste time, then follow that link by the commoner, who is posting this on almost every sub-forum. Our bears are much more mature than this immature babbler.
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  • Originally Posted by Baruch
    Commener

    Nice attempt...only thing is that these circular logics are in place for decades now...this fails to understand a beast called inflation....1cr is a big sum for 1bhk but even 10 laks was a big sum for 1 bhk 15 years back....

    I think better way to understand RE prices is compare with any real asset not with fake assets like rupee

    If you count how many KGs of onions/potatos it used to take to buy a 2bhk in 2000...probably RE is underpiced now


    But I can still afford onions and potatoes, but not a decent 3BHK apartment !
    Cars were cheaper ten years ago but unaffordable, but now I can afford one.

    Maybe I am making the same point you are. But yes, commonner has a good point.
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  • Originally Posted by Sat234
    But I can still afford onions and potatoes, but not a decent 3BHK apartment !
    Cars were cheaper ten years ago but unaffordable, but now I can afford one.

    Maybe I am making the same point you are. But yes, commonner has a good point.


    You can still afford a 3BHK, but the amounts are huge. Also, the areas have grown much faster than any other commodity.

    But Baruch's point remain valid. If you compare the prices of real assets, or compare ratios of salary to prices, while making sure the rent:price ratio too remains comparable, you will see that flats are not yet completely gone out of sky.

    For example, don't consider Kothrud prices 10 yr ago vs today. But compare 10 yr ago Kothrud prices with respect to other prices then, vs maybe Kharadi's prices today with respect to other prices today. The prime areas will always grow up very fast as compared to non-prime areas, so if one keeps his mind open and not like some posters 'SKY IS FALLING!', one can definitely see the logic.
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  • Originally Posted by Sat234
    But I can still afford onions and potatoes, but not a decent 3BHK apartment !


    that (onions and potatoes being affordable versus house being not) was true in 1950s, 60s, 70s will be true in 2050s, 60, 70s too for anyone

    whats the correlation with RE prices ?

    In previous generations( even those who were decently paid) used to get their first house in 40s only...why a 20+ guy not being able to afford a house will dictate the RE prices now ?

    Again...please avoid bringing moralties in discussion...just discuss - whats the case in past versus what now and try to udnerstand if it was always the same

    RE is a succor's place...most of the people work all their life to get a Chhota Sa Makan...thats the way it has been for ages
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  • Originally Posted by TheTruth
    You can still afford a 3BHK, but the amounts are huge.
    ...
    But Baruch's point remain valid. If you compare the prices of real assets, or compare ratios of salary to prices, while making sure the rent:price ratio too remains comparable, you will see that flats are not yet completely gone out of sky.



    Ratio remains comparable - yes.

    But in absolute terms - flats are still unaffordable.

    It is like percentage hike you get in appraisals or when switching. If you move from 2L to 3L, the ratio is 50% but in absolute terms, it isnt good. If you move from salary 10L to 12L, the ratio is 20% but in absolute terms it is good.
    Statistics are like a mini skirt etc etc....

    Somehow, my elder cousins have bought flats worth 20L in prime Baner locations (see 1) when they made just about 4L pa. Affordable. Now increase salary to 20L, then flats are 1.1 Cr+ (see 2). Ratio is comparable. But amount is too high. There has to be a tipping point.

    1 - in Baner, ten years ago, infrastructure at that time better than project sites these days, these places closer to city (consider city as Deccan or KP in west and east)

    2 - without proper infrastructure, way out of city, sometimes not even in municipal limits, higher loading, smaller carpet areas, higher taxes, terrace at 100%...

    You also need to consider that you are getting and at what cost. Prices rising and quality degrading.

    For end user, you also have to consider other costs (home loan interest to be paid, and furnishing cost). I am not sure, but my impression is that most investors (at least the bigger ones in the market) hardly need home loans, they dont spend on furnishing, and they already have a place to live.

    Please correct me if I am mistaken or misinformed anywhere - lets discuss and share information that is useful to all of us. Thanks again to regular contributors and information sharers.
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