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 TheTruth
    The article is not bullish or bearish, it is childish :D

    A person who has 20 Lakhs in hand and getting Rs.50,000per month in hand is not able to buy a flat in apartment as he wish. Do you think this price will sustain?

    What does one thing have to do with another? Since when people started getting a permit to buy a flat anywhere after saving 20L and earning 50k per month?!


    So who has the permit to buy flats ?
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  • Originally Posted by ashish18
    So who has the permit to buy flats ?


    Doesn't require a permit. Only your budget and market conditions define your possible purchase. It's not a booze purchase that requires permit. I objected the writer for his childish views, don't take it personally.
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  • I would agree with The truth,
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  • Sorry I forgot to look at the title of the thread! I have nothing new to add to the discussion, and anything I say will be repetition of past many posts on such topics.

    The only point is, housing is not a right, and one cannot have house of his preferred size at his preferred location in his preferred cost. Most of the times, you have to adjust at least one factor out of 3 in order to get a deal. Those who want all 3 to fall in place, will most of the times end up having to compromise all three.
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  • Originally Posted by realacres
    But if I am correct, Kolte Patil is now giving possession without CC/OC. This means that their logic that since OC is not there, possession is not being given falls flat.
    Anyways, I don't have much insider info here as no one in my circle is looking at projects based in some tribal land (Wagholi, Kharadi, Hinjewadi etc.)

    Btw, why is the owner of Amit Enterprises writing lot of articles on RE & how good is Pune RE on websites like moneycontrol, & newspaper like sakal ? Even today, he feels Ambegaon (where Bloomfield is located) is like Singapore. :D

    Also, the TOI is publishing interviews of builders as articles rather than being written by their correspondent. Other aspect is that the 'Property Pages' which used to come with many newspapers have shrunk drastically in past 2 months.


    Kharadi - a tribal land :D - you probably have not been there for a while. In 10 years, it will be one of the best places to live and work in Pune... a lot better than congested and polluted non-tribal city areas. City areas are already so congested and polluted that people pray that we don't have pass through them... let alone live there. But just because they are in PMC and are part of the "City" some people feel they better than areas like Kharadi... I find that very funny.

    Wagholi and Hinjewadi will probably take longer than Kharadi but over a period of time they will also be preferred over congested and polluted city areas. Some of the the tribal lands of yesteryears are "Most Wanted" places to live and work these days... so will be Kharadi, Wagholi and Hinjewadi. Stay tuned and you will see it with your own eyes...
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  • Originally Posted by TheTruth
    Sorry I forgot to look at the title of the thread! I have nothing new to add to the discussion, and anything I say will be repetition of past many posts on such topics.

    The only point is, housing is not a right, and one cannot have house of his preferred size at his preferred location in his preferred cost. Most of the times, you have to adjust at least one factor out of 3 in order to get a deal. Those who want all 3 to fall in place, will most of the times end up having to compromise all three.


    I have same opinion as yours. I have seen people who complained of high prices 4 years ago and were waiting for prices to correct further (even though they had fallen by 20-25%) before buying. The prices have doubled in some areas and they are still waiting.

    Should people do bottom fishing for a place they want to live? I don't think so. Agreeing that prices are inflated in many parts of India and Pune but whether they will fall is anybody's guess. Those who want the "best of the deals" may end up signing one of the worst if they wait for too... long. I have seen several such people and I can only feel sorry for them.
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  • Originally Posted by realacres
    But if I am correct, Kolte Patil is now giving possession without CC/OC. This means that their logic that since OC is not there, possession is not being given falls flat.
    Anyways, I don't have much insider info here as no one in my circle is looking at projects based in some tribal land (Wagholi, Kharadi, Hinjewadi etc.)


    I don't know about 'Tribal land' thingy. I hate going to older and more established areas of Pune because of too much crowd and parking issues and genearl stink. Having vegetables and groceries available at 20 meters walk is not my priority but I am sure its for many.


    Also, the TOI is publishing interviews of builders as articles rather than being written by their correspondent. Other aspect is that the 'Property Pages' which used to come with many newspapers have shrunk drastically in past 2 months.


    When 'property pages' is inflated we talk about deluge of listings. When it shrinks we talk about recession. So 'heads' I win, 'tails' you lose kind of thinking.
    ---
    To me reduced properties on market means we are in second stage of RE bear cycle. However, in India, its difficult to predict how long each stage of the cycle lasts. There are way too many parameters...economic conditions that imrpove and deteriorate at the drpo of the hat, black money that nobody can clearly gauge or predict its reinsertion in mainstream, demographics, urban/rural divide and runaway inflation etc
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  • current slump in new launch was long awaited...we have made far many flats than needed for next 4-5 years....this slump will also throw many unwarranted local builders ( mostly fronts of small politicians) out of game and will retain only serious and big players who care for quality

    overall...consolidation in Indian RE is welcome
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  • Originally Posted by TheTruth
    The article is not bullish or bearish, it is childish :D

    A person who has 20 Lakhs in hand and getting Rs.50,000per month in hand is not able to buy a flat in apartment as he wish. Do you think this price will sustain?

    What does one thing have to do with another? Since when people started getting a permit to buy a flat anywhere after saving 20L and earning 50k per month?!


    Agreed.
    This stems from the wrong sense of entitlement. A guy, well below the age of 30, makes a rather long trip abroad and automatically assumes that he deserves the housing of his choice!!!
    Seriously? If a recently employed guy even thinks about buying his own property, it would mean that RE is cheap. Number of people with networth of 20 lakhs and monthly income of 50K is very large in India. And very large number of them live in small and badly kept houses.

    IT employment ceased to be very lucrative for last few years. Unless you break into higher echelons of the hierarchy. Or do something very special and niche.

    I am more worried that the guy actually gets something good for 50 lakhs and assumes EMI of 30K and his salary stops growing at 15% rate annually. With kids and spouses, expenses go up pretty high and fast. With 20K as income after EMI, how much he can afford? A small kid needs 10K per month. Society maintenance and property taxes can soak up Rs 3000 to 4000 per month. Electricity, cable and internet and cellphones cost a couple thousand more, maid charges rs 1000. I don't know why he thinks he can live on 20K.
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  • Originally Posted by TheTruth
    The only point is, housing is not a right, and one cannot have house of his preferred size at his preferred location in his preferred cost. Most of the times, you have to adjust at least one factor out of 3 in order to get a deal. Those who want all 3 to fall in place, will most of the times end up having to compromise all three.


    Why does one need to compromise on this when renting option is very much available at fraction of cost of ownership ? Bottom line, apart from what you said, how many buyers are there for 50L flats in market even if they are available 200 kms from city ??
    In the article, it lays more importance of affordability rather than location or size.
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  • Originally Posted by ykmadaan
    Kharadi - a tribal land :D - you probably have not been there for a while. In 10 years, it will be one of the best places to live and work in Pune... a lot better than congested and polluted non-tribal city areas. City areas are already so congested and polluted that people pray that we don't have pass through them... let alone live there. But just because they are in PMC and are part of the "City" some people feel they better than areas like Kharadi... I find that very funny.

    First of all, as an end user, I don't have time for 10 years especially when the builders today are demanding price as that of 2024. And seeing the DP plan pending for ages, I am in no mood to buy in such areas even if you are ready to give me on bond paper that this area will develop after 10 yrs or witness 500% appreciation in this time.

    Man, when I won't be buying in under-construction project, I can't even think of buying in PROPOSED DEVELOPED location :D. And again I wonder why you guys consider Pune city as peth areas. I don't stay there, nor shall I be staying in future, but surely calling areas like Aundh or K'ngr can't be called crap.

    Wagholi and Hinjewadi will probably take longer than Kharadi but over a period of time they will also be preferred over congested and polluted city areas. Some of the the tribal lands of yesteryears are "Most Wanted" places to live and work these days... so will be Kharadi, Wagholi and Hinjewadi. Stay tuned and you will see it with your own eyes...

    I don't stay in past, nor live in future. I prefer to stay & live where I am :- In present.
    Hope this makes it clear what I try to say.

    * PS:- Tribal areas meaning is subjective. Someone who has come from Andaman-Nicobar island forest will find Wagholi or Shirval as great places, but those who have experienced better quality of life in good location & has travelled within & outside the country will call Kharadi as super-junk. Just putting some EONs or calling some dumb street as Billionaires Boulevard doesn't mean Warren Buffet is coming to stay on PROPOSED road !!
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  • Originally Posted by Baruch
    current slump in new launch was long awaited...we have made far many flats than needed for next 4-5 years....this slump will also throw many unwarranted local builders ( mostly fronts of small politicians) out of game and will retain only serious and big players who care for quality

    overall...consolidation in Indian RE is welcome

    Agree to large extent man. Apart from this, small builders who just to make quick bucks enter RE with no long term vision for their business will be out of business & also those who have some land & become builders will be out. With drop in RE sales & prices coupled with consolidation, market will mature in better way & illegal constructions will also drop dramatically. However, what needs to be seen is these remaining builders don't make a cartel, else it will again back-fire in long run. Perhaps builders need to see how telecom or DTH industry has grown & matured over the years.

    Originally Posted by NG2012
    IT employment ceased to be very lucrative for last few years. Unless you break into higher echelons of the hierarchy. Or do something very special and niche.

    And still builders & speculators are betting on this sole factor. Man, imagine HJW with poor increase in capacity in IT park, same goes around Kharadi. What happens to thousands of flats lying vacant ? Builders while building in past few years built thinking that IT growth shall remain in excess of 30% YoY & they will be buy & build cheap & sell high. All these calculations have gone waste.

    Buyers bought on PROPOSED road & DP plan, while builders built on PROPOSED IT growth.

    I am more worried that the guy actually gets something good for 50 lakhs and assumes EMI of 30K and his salary stops growing at 15% rate annually. With kids and spouses, expenses go up pretty high and fast. With 20K as income after EMI, how much he can afford? A small kid needs 10K per month. Society maintenance and property taxes can soak up Rs 3000 to 4000 per month. Electricity, cable and internet and cellphones cost a couple thousand more, maid charges rs 1000. I don't know why he thinks he can live on 20K.

    +1
    Now see, this shows that the person who has 20L in hand & earns 50k/month can't buy a flat, with your calculations considered, even 70k looks less.
    As it was rightly mentioned in Biz India mag earlier, that to buy a flat in Pune today, min salary required is 15-16L/yr.

    Now question arises, how many people earn 16L/yr salary, of which how many are yet to buy home & how many of those who earn 16L/yr but are not interested in buying one.
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  • Mumbai finds no takers for super-luxury Rs 100-crore palatial flats

    For six years now, the project, earlier known as Lotus Villa, has not sold a single unit.

    Te palatial 15,000 sq ft duplexes in the under-construction 55-storey Sasen building on tony Napean Sea Road offers the country’s costliest residences at Rs 100-120 crore each. But for six years now, the project, earlier known as Lotus Villa, has not sold a single unit.
    Since the 2006 boom, similar islands of super-luxury residences carrying price tags of over Rs 20 crore each have come up in the city. However, almost half of these remain unsold, reducing new launches to a trickle, according to data compiled by real estate research firm Liases Foras.



    The city has a total marketable supply of 1,000-odd apartments spread across 27 premium residential projects priced at Rs 20-100 crore each. According to the available data, 85 per cent of such projects were launched between 2006 and 2010. Over the last two years, just one new project — 1972 Omkar in Worli — has been launched in the Rs 20 crore-plus segment.

    The pattern of unsold stock repeats itself across big ticket projects that are on offer from listed players like Indiabulls Bleu in Worli, D B Realty’s Orchid Heights and Orchid Turf view in Mahalaxmi and Razzak Heavens by Orbit group on Napean Sea Road.

    Pankaj Kapoor, MD of Liases Foras, said at today’s rate of absorption, it will take another 100 months (over eight years) for the existing stock to be sold. “The ideal rate of absorption in a healthy market should not be more than 20 months. In fact, our data on unsold super-luxury houses is an underestimation. If the stock being held by investors rolls back into the market, the inventory pile-up will be much higher,” he said. (Isn't this similar to Pune RE ?)

    The offer of sky villas with sundecks, terraces, private elevators, pools, gyms, walk-in closets, spas and concierge services, with some projects throwing in an unhindered sea view, has failed to generate even a fraction of the budget housing segment demand.

    “Affordable housing always has genuine takers whereas super-luxury projects are purely hype created during the boom period,” said Ashok Narang, real estate consultant dealing in premium South Mumbai properties.

    Sarjan Shah, MD of Satellite Group, admitted that the overall slump in the economy has hit the super-luxury segment the hardest. Kapoor said the slump lays bare the fact that creation of real estate in Mumbai is linked to capital flow, not to demand and actual sales. According to Department of Industrial Policy and Promotion data, FDI in the realty sector peaked at Rs 14,027 crore in 2010. The year saw the maximum number of super-luxury projects in Mumbai.

    Mumbai finds no takers for super-luxury Rs 100-crore palatial flats - Financial Express
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  • Originally Posted by realacres

    Now question arises, how many people earn 16L/yr salary, of which how many are yet to buy home & how many of those who earn 16L/yr but are not interested in buying one.


    I am dying to know. But its impossible to get that statistics. Govt has stopped publishing income tax statistics so we do not know how many people this year filed taxes for more income than 20 lakhs income. Now, that number may not tell us everything, but we can still imagine the state of affairs in the world of high-salaried jobs.
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  • the deadly touch of Midas

    Activists are calling for limits on investors that will help create new housing stock
    London, February 3:
    There was a time when Hackney, in East London, was considered the somewhat “edgy” borough to live in — with its relatively low cost of living it drew artists, musicians, and others seeking a central refuge from prime London’s pricey housing market. No longer.

    Over the past nine years, and despite the housing market crash in 2007, the borough has seen property prices soar at the fourth fastest rate in London — up 88.7 per cent — according to research by real estate agents Savills. Only Kensington and Chelsea, the City of Westminster, and Hammersmith and Fulham — boroughs that are home to such internationally well-established areas as Mayfair and Knightsbridge — surpassed it. A three-bed penthouse on trendy Shoreditch High Street could cost you around £3.75 million ( Rs. 38.3 crore), while a four-bedroom flat further north near fast-gentrifying Victoria Park could set you back £1.5 million ( Rs. 15.3 crore). It’s been apparent for some time now that despite tough lending conditions, and government spending cuts, London’s property market has begun racing forward once again.

    London house prices rose on average by 11 per cent in 2013, and are set to rise by 7 per cent on average in each of the next five years, according to a report published by the Ernst and Young Item Club on Monday. The average price of a house in London could reach £600,000 ( Rs. 6.1 crore), it said, warning that the capital’s housing market was beginning to show “bubble like conditions.”

    Call for action

    “London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern,” warned Andrew Goodwin, senior economic advisor to the Item Club.

    And as prices rise, there have been increasing calls for government action, in the face of mounting evidence that London, and its suburbs, have become increasingly unaffordable. According to a report published last week by Tom Copley, a member of the London Assembly, over a fifth of Londoners spend more than half their salaries on housing. Charities have warned that a mix of rising housing costs (soaring house prices have also impacted the rental markets) and cuts in welfare benefits have pushed a record number of homelessness.

    However, the solution is proving particularly divisive. While some have attacked “Help to Buy” a government scheme that helps people onto the property market, others have argued it’s foreign investment piling into the top of the market that is at fault.

    Civitas, a think tank, is now calling for limits to be placed on foreign investors, similar to those already in place in Australia, which require them to go through the Foreign Investment Review Board, and only as long as their investment creates new housing stock. “The UK property market is being used as an investment vehicle for the global super rich while hundreds of thousands of young residents are being priced out of the market and rents are eating into more and more of people’s salaries,” it said in a report published on Monday.

    However, others argue that it will do little to impact the market outside prime central London. In areas such as Fulham, which saw the third fastest rate of growth in London, overseas investors comprise just around a fifth of the market, against over 50 per cent in central London, says Lucian Cook, head of residential property research at Savills, who argues that foreign investors could prove essential in creating an affordable rental market in the capital.

    “Any limits on foreign investors aren’t going to get to the heart of the problem.”

    (This article was published in the Business Line print edition dated February 4, 2014)
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