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 Venkytalks
    But this zoom is very old news? 2 years ago?


    Yes but the loan hasn't been paid yet. So why are banks are not going to court to liquidate the company and auction off the assets? Similarly with Kingfsher. Maybe govt can infuse 2000 cr as equity into the banks who lent money to Zoom and then no need to go after the company :)

    In case of NSEL we saw promoters property being attached and govt took control of NSEL and MCX.
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  • Originally Posted by Venkytalks
    But this zoom is very old news? 2 years ago?


    Lenders like PNB mull winding up petition against ECGC in Zoom Developers case - Economic Times

    This is really amazing. Most of the banks which lent the money are govt controlled. The entity which guaranteed the loan - Export Credit Guarantee Corporation of India - is fully govt owned.

    So now if Zoom has defaulted then ECGCI should pay the money to the banks. But if ECGCI pays the banks it itself goes bankrupt so the Indian govt - which is its promoter - has to inject equity in ECGCI!!

    Would be interesting to know if the loan is secured or unsecured.
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  • Freaking scary...

    Wonder what is happening to all the PF contributions.. as long as there is a fool down the line to contribute to this Ponzi.. :bab (59):

    No better than Enron: The finmin guide to hiding the fiscal deficit | Firstpost
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  • Originally Posted by herohiralal
    Yes but the loan hasn't been paid yet. So why are banks are not going to court to liquidate the company and auction off the assets? Similarly with Kingfsher. Maybe govt can infuse 2000 cr as equity into the banks who lent money to Zoom and then no need to go after the company :)

    In case of NSEL we saw promoters property being attached and govt took control of NSEL and MCX.


    Promotors must have already syphoned off all money and left the country. Typically the guy will sit on the boad and let a figurehead President take the fall - the chap eating all the money will be someone without much link to the company itself

    Originally Posted by herohiralal
    Lenders like PNB mull winding up petition against ECGC in Zoom Developers case - Economic Times

    This is really amazing. Most of the banks which lent the money are govt controlled. The entity which guaranteed the loan - Export Credit Guarantee Corporation of India - is fully govt owned.

    So now if Zoom has defaulted then ECGCI should pay the money to the banks. But if ECGCI pays the banks it itself goes bankrupt so the Indian govt - which is its promoter - has to inject equity in ECGCI!!

    Would be interesting to know if the loan is secured or unsecured.


    Obviously people in govt would have eaten their fill already - and the politicians would have stashed the money abroad as well.

    This is how tax payers money is looted in large quantities.

    Originally Posted by Sharpj
    Wonder what is happening to all the PF contributions.. as long as there is a fool down the line to contribute to this Ponzi.. :bab (59):

    No better than Enron: The finmin guide to hiding the fiscal deficit | Firstpost


    Oil is still contributing the largest chunk of tax for govt (income, excise and import duty are highest from oil) . So after heavy taxation, some of the money is returned to the company as so called subsidy for forcing company to sell below market price (which includes the heavy taxes) but this subsidy is given as "bonds" = pieces of paper = kicking the bucket down the road.

    Petrol in USA is half the cost of petrol in India - because taxed less. Some 35 Rupees from Petrol cost is central and state taxes.

    Also cost of producing oil from ONGC is 25$ per barrel but sells it to refiners at 100$ per barrel - rest govt eats as royalty and profits. SOme 25% of India's oil comes from ONGC (havet checked recently though)
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  • FINANCIAL EXPRESS.

    The over-riding sentiment is that the economy will pick up after the next Lok Sabha election, just a few months away. Past data show evidence of growth picking up after the polls as political uncertainty ebbs and investment sentiments improve. Inflation rates tend to decline before elections because the government tries to create favourable economic outcomes in the lead up to an election and, subsequently, after the polls, prices tend to rise.
    The Indian rupee tends to depreciate against the dollar before elections because of the uncertainty among foreign institutional investors. However, within three quarters of the polls, the rupee appreciates by about 3% on an average and creates a favourable balance of payments situation. A Deutsche Bank analysis shows that within three quarters of an election, GDP growth rises by as much as 100 basis points (bps) and inflation tends to rise by 100-150 bps after the polls.
    In the run-up to the previous two general elections, there was a considerable build-up of infrastructure orders, particularly in the power sector. However, the investment cycle in the run-up to the current election cycle has been weak and there are fewer outstanding projects to be pushed ahead of the next year’s general elections.
    While elections don’t affect the direction of the market, the impact of election results is generally neutral-to-positive for the market. A stable and competent government will certainly improve business confidence and support fresh investments, but the recovery is likely to be slow because the investment cycle will need more time to pick up.
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  • Unsold tag is getting bigger in Mumbai's property mart

    Mumbai-based realty developer, HDIL, had a Rs 12,043-crore inventory last financial year, while its net sales stood at Rs 1,025 crore, implying an inventory-to-sales ratio of 12:1.

    HDIL is not alone; Mumbai’s residential market, the biggest in the country in value terms, is seeing an unusually high unsold inventory level. About 130,000 of the city’s 290,00 under-construction residential properties (45 per cent) are lying unsold due to weak demand and high prices, shows a report released by global property consultant Knight Frank on Tuesday.

    “We expect a more pronounced price correction in Mumbai which may drive the market to a better equilibrium,” said Samantak Das, Knight Frank’s chief economist & director (research).

    The slowdown in real estate has also led companies like HDIL and Orbit Corporation to defaulting on loans taken earlier this year from non-banking financial companies, such as Indiabulls Housing Finance and LIC Housing Finance.


    The Mumbai real estate markets’ stress has also led to decline in stock prices of listed players. So far this financial year, the shares of city-based HDIL, Orbit and Hubtown have fallen 57 per cent, 72 per cent and 34 per cent, respectively. The BSE Realty Index has declined 37 per cent during the period.

    Unsold tag is getting bigger in Mumbai's property mart | Business Standard
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  • India Office Boom Turns Glut With Vacancies: Real Estate

    India Office Boom Turns Glut With Vacancies: Real Estate - Bloomberg
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  • Loan recast has gone “out of control,” says RBI official

    Stating that the overall asset restructuring in the banking system has touched Rs. 3.25 lakh crore as of June, RBI Executive Director B. Mahapatra on Saturday said loan recast has gone “out of control” and all stakeholders need to tackle the problem jointly.

    “Till March 2011, things were manageable. We had around Rs. 1.1 lakh crore in recast loans, but now if you see, things are quite out of control. It has gone up to Rs. 2.7 lakh crore. This is only CDR (corporate debt restructuring) and if you put both (CDR and bilateral restructuring cases between banks and companies) together, may be it might exceed Rs. 3.25 lakh crore,” he said at the annual Bancon in Mumbai.

    Loan recast has gone
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  • Gujarat Builders Offering 30% Discount

    Liquidity crunch, housing scheme put pressure on real estate market.

    There is some good news for property buyers. Real estate developers here have started offering discounts.

    In the wake of liquidity crunch in the market coupled with the state government’s initiative of launching affordable housing schemes, the developers have started announcing huge discount on purchase of flats. Till now they were offering only freebies and rebate on interest rates, but now they offering discount on actual price of the flat to attract customers.

    One of them in east Ahmedabad has offered a discount of Rs2 lakh, if the property is booked within two weeks. Another developer has offered 30% discount on a recently launched scheme.

    Expecting more such offers coming up in near future, Kintan Soni of Svasaar Value Builders said if developers can afford to give 30% discount, it showed that real estate prices were exorbitantly high in the city.

    “Peer pressure for not reducing the rates works only up to a certain extent. However, when the situation turns out of control one has to reduce rates,” he said.

    Gujarat Builders are offering discounts on flats. Grab it - Ahmedabad - DNA
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  • Are you talking to me?

    RA-One

    As the bulls fondly call you:D

    I can not fathom why would you quote me and said all that you did

    Did you mis-quote?:bab (50):

    It happens...rahen do bhai..;)





    Originally Posted by realacres
    Prices have already falling in Pune RE. Now one can't do anything if you can't see the same.
    And please first know the concept of 'Money from Thin Air'. Issue is no matter what, bulls paint bullish picture only.

    Now give me atleast 5 reasons with proof that RE prices will only increase. Kindly enlighten us.
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  • Poll reverses may put pressure on fiscal deficit: Fitch

    The setback faced by the Congress Party in State elections could potentially raise the political pressure on the Government’s near-term fiscal goals, according to Fitch Ratings.

    “The Government has articulated a strong commitment to fiscal consolidation. But this commitment may be tested further as the deficit-reduction goals are stretched, and a steeper political struggle to pull in more votes may hinder the full scope of expenditure restraint,” said the credit rating agency in a statement.

    Observing that the state of public finances is an important factor in India’s sovereign ratings, Fitch said the State election results might be read as increasing the risk of policy slippage.

    “An evident anti-incumbency trend against the Congress could mean an increasing likelihood of political pressure to limit expenditure cut-backs.

    “This would help support economic recovery in the run-up to the national elections which must be held by May 2014. But it may raise some doubt about the Government’s ability to meet its stated near-term fiscal goals,” the agency said.

    The Government’s fiscal deficit has already reached 84 per cent of its target in the first seven months of the fiscal year, against 72 per cent over the same period last year, implying a weaker fiscal position.

    Fitch assessed that unless revenues increase significantly in the remaining months of the fiscal year, greater expenditure curbs may be needed to meet the deficit target.

    “At the same time, significant fiscal policy slippage is not a certainty. There is not much time before general elections for a shift in policies to gain more traction with voters.

    “We will assess the campaign pledges, and the implications for the post-election fiscal outlook. A more definitive medium-term fiscal framework will only emerge once the next Government is formed,” the agency said.

    Fitch observed that amidst the monetary authorities’ anti-inflation policy bias, appropriate fiscal policies have a greater chance of shoring up the country’s savings-investment imbalance. This could lower the current account deficit, and help alleviate another key pressure point for the credit profile.

    The Union Government has stressed its strong commitment to lowering the fiscal deficit to 4.8 per cent of GDP by the end of the fiscal year (ending in March 2014).

    Moreover, in the last fiscal year it also demonstrated its ability to take difficult measures to trim expenditure towards the end of the fiscal year, and to meet its deficit target.

    (This article was published on December 10, 2013)
    CommentQuote
  • """“An evident anti-incumbency trend against the Congress could mean an increasing likelihood of political pressure to limit expenditure cut-backs"""
    I am sure by now ruling party has realised just throwing money on so called public welfare schemes without actually delivering to the intended recipients is not a vote catcher anymore.
    Public who are expected and entitled to receive benefits do not get it and that itself becomes a negative point aginst Government.I am sure they will cut down on such wasted exercises.
    After some time welfare schemes loose the novelty and it becomes an entitlement.Just because a scheme is there does not garner votes for Congress.
    I am sure Congress will evaluate things more carefully and responsibly.
    They will try and avoid worsening ratings and widening fiscal deficit.
    CommentQuote
  • After 4-0 drubbing, Congress wants rollback of 'costly' decisions ahead of 2014 Lok Sabha polls | NDTV.com


    Poor INR.

    Originally Posted by rambler
    Poll reverses may put pressure on fiscal deficit: Fitch

    The setback faced by the Congress Party in State elections could potentially raise the political pressure on the Government’s near-term fiscal goals, according to Fitch Ratings.

    “The Government has articulated a strong commitment to fiscal consolidation. But this commitment may be tested further as the deficit-reduction goals are stretched, and a steeper political struggle to pull in more votes may hinder the full scope of expenditure restraint,” said the credit rating agency in a statement.

    Observing that the state of public finances is an important factor in India’s sovereign ratings, Fitch said the State election results might be read as increasing the risk of policy slippage.

    “An evident anti-incumbency trend against the Congress could mean an increasing likelihood of political pressure to limit expenditure cut-backs.

    “This would help support economic recovery in the run-up to the national elections which must be held by May 2014. But it may raise some doubt about the Government’s ability to meet its stated near-term fiscal goals,” the agency said.

    The Government’s fiscal deficit has already reached 84 per cent of its target in the first seven months of the fiscal year, against 72 per cent over the same period last year, implying a weaker fiscal position.

    Fitch assessed that unless revenues increase significantly in the remaining months of the fiscal year, greater expenditure curbs may be needed to meet the deficit target.

    “At the same time, significant fiscal policy slippage is not a certainty. There is not much time before general elections for a shift in policies to gain more traction with voters.

    “We will assess the campaign pledges, and the implications for the post-election fiscal outlook. A more definitive medium-term fiscal framework will only emerge once the next Government is formed,” the agency said.

    Fitch observed that amidst the monetary authorities’ anti-inflation policy bias, appropriate fiscal policies have a greater chance of shoring up the country’s savings-investment imbalance. This could lower the current account deficit, and help alleviate another key pressure point for the credit profile.

    The Union Government has stressed its strong commitment to lowering the fiscal deficit to 4.8 per cent of GDP by the end of the fiscal year (ending in March 2014).

    Moreover, in the last fiscal year it also demonstrated its ability to take difficult measures to trim expenditure towards the end of the fiscal year, and to meet its deficit target.

    (This article was published on December 10, 2013)
    CommentQuote
  • Originally Posted by StraightDriv
    RA-One

    As the bulls fondly call you:D

    I can not fathom why would you quote me and said all that you did

    Did you mis-quote?:bab (50):

    It happens...rahen do bhai..;)


    I'm sure RA does not bad mouth anyone. He generally ignores. So cheer up! :)

    cheers
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  • Property prices in Mumbai, Delhi highly overvalued: analysts

    Home sales in India slowed this year and unsold inventory with builders has increased as economic growth in the broader economy has decelerated quickly to half the 10 percent rate it was running at before 2008.

    But the main problem, in a country where almost one-quarter of the population earns less than 50 cents a day, is the price.

    "In some of the key markets in the country property prices are sky high," said Sachin Sandhir, managing director at RICS South Asia.

    Indeed, a 2,000 sq.ft (185.8 sq.metre) apartment in the posh South Mumbai neighbourhood of Malabar Hill costs more than $2 million. That is not far from the average three-bedroom unit in Manhattan, New York City, which costs around $2.6 million.

    INTEREST RATE RISES BITING

    The Reserve Bank of India's determination to bring down broader inflation in the economy has also slowed the market.

    The RBI hiked its benchmark repo rate twice in September and November as it tries to rein in soaring prices and there is an outside chance it could tighten again at a meeting next week. It even nudged hesitant commercial banks to pass on the increases to borrowers.

    A home loan of up to Rs. 30 lakh from the country's largest home finance company, HDFC, now costs 10.5 percent per year, up 35 basis points since the start of the year. A bigger loan costs more.

    Buying a house in India has traditionally been a sentimental decision, not for investment. But soaring prices in recent years has led a growing middle class to turn to real estate as a means of generating wealth.

    Unsold inventory of development properties aimed at that new type of buyer is now a cause for concern, say analysts.

    "How can someone take a long-term loan without income growth or guarantee?" asked Samantak Das, chief economist at Knight Frank India. "Inventory pressure on developers in Mumbai and Delhi is actually going up."

    According to Knight Frank research, it takes nine quarters for developers in Mumbai to sell existing inventory, almost twice the five quarters it took in December 2011.

    New launches in the city plummeted over 40 percent compared to peak levels in 2010 as developers focused on selling current inventories, according to their recent report.
    CommentQuote