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 tarcap
    What?

    Buyers still owe 80% !

    Let me try to count how many of my friends booked in 2009 / 2010 period and what their current situation is,

    1) People bought in 2009 - cost of 2 BHK was 45 lacs
    2) Assuming 10L downpayment + 35 Lacs Loan
    3) Average IT guy saving per month 50K (single income)
    4) If Double income then savings become 1 L per month
    5) Total savings in 4 years - at least 25 Lacs (most conservative estimate)

    By the way, most of my friends are double income IT households who save more than 1L per month.

    Some of them have repaid their home loanes fully and have moved on to next property loan already.

    Hinjewadi is full of such examples.

    and this is only about salaried class, dont even try to calculate for business men and investors.


    I do agree. I see many people having 5+ yrs of exp drawing 10+ LPA. 5+ exp. means most of them are married for sure. I would safely take 50% of them as double income category. Reason being there is good hold of female population in this category. No female would like to marry a person who is not earning at all.

    Just see at your office and check you will realize this.
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  • ^^ To add to the news above, as per the latest census, the population of Pune is 33L.
    As per report by Gera, vacancy of flats is around 2.5L. Now considering 4 persons/house, the inventory can hold 10L people.
    If we add investor flats, the number will increase further dramatically further.

    tarcap says 12L/yr is normal savings for people. If this is the case, why such a high inventory (unsold flats from builders) of flats ?? Also note that this fig is only upto Mar 14. With dwindling sales last quarter, the number is bound to increase.

    My simple question to RE bulls :-

    If RE is indeed in good shape, why is inventory rising ??
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  • Originally Posted by Sj2013
    I do agree. I see many people having 5+ yrs of exp drawing 10+ LPA. 5+ exp. means most of them are married for sure. I would safely take 50% of them as double income category. Reason being there is good hold of female population in this category. No female would like to marry a person who is not earning at all.

    Just see at your office and check you will realize this.

    Man, please don't generalise that all wives work or they will continue to work till the end of home loan tenure. And even if they work, how many save 12L/yr ?? And yes, taking loan based on double income is not a good idea, especially if both are in same sector.
    Rest I have answered in post above.
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  • Originally Posted by realacres
    I wonder that if 1L/month or 12L/annum is the savings, why aren't cars like Skoda Superb, VW Jetta, Hyundai Elantra seen in large numbers in Hinjewadi ??


    Answer is simple: Because all the money is going into real estate
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  • Originally Posted by realacres
    ^^ To add to the news above, as per the latest census, the population of Pune is 33L.
    As per report by Gera, vacancy of flats is around 2.5L. Now considering 4 persons/house, the inventory can hold 10L people.
    If we add investor flats, the number will increase further dramatically further.

    tarcap says 12L/yr is normal savings for people. If this is the case, why such a high inventory (unsold flats from builders) of flats ?? Also note that this fig is only upto Mar 14. With dwindling sales last quarter, the number is bound to increase.

    My simple question to RE bulls :-

    If RE is indeed in good shape, why is inventory rising ??


    What a weak argument.

    Rising inventory has no direct relation to a real estate bubble. Rising inventory just means that builders think they will sell more flats this year than last year. These guys are far more intelligent than you and me. They will not just launch projects for nothing. Real Estate was and will remain a profitable business in India.

    Moreover, what rising inventory you are talking about? Are there official statistics available from a credible agency or is it just something that you perceive.

    As for 2.5 Lacs vacant apartments in Pune, consider this,

    Only the top IT companies will hire 2.5 L new employees in this year. Assuming 20% of new hires will end in Pune, we can knock off 50K apartments.

    Please add to this,

    -- number of investors
    -- number of jobs that will be created in automobile, manufacturing, pharma sector
    -- guys who are at onsite and have enough money for downpayment now

    I would say, 2.5 Lacs suddenly looks like a small number now.
    CommentQuote
  • Originally Posted by realacres
    ^^ To add to the news above, as per the latest census, the population of Pune is 33L.
    As per report by Gera, vacancy of flats is around 2.5L. Now considering 4 persons/house, the inventory can hold 10L people.
    If we add investor flats, the number will increase further dramatically further.

    tarcap says 12L/yr is normal savings for people. If this is the case, why such a high inventory (unsold flats from builders) of flats ?? Also note that this fig is only upto Mar 14. With dwindling sales last quarter, the number is bound to increase.

    My simple question to RE bulls :-

    If RE is indeed in good shape, why is inventory rising ??


    Vacancy is not 2.5L but it is gross stock which includes sold units as well

    read
    "
    The assessment of the overall gross stock (defined as projects under construction and ready projects with more than 5% unsold stock and more than 10 units)
    "

    As per this report for Pune region - unsold inventory is only 66,279 units as of June 2014. which includes Chakan, Kondhawa, Pradhikaran, Wagholi, etc


    check out - http://www.gera.in/media-room/news-details/2014/08/06/gera-pune-realty-report-jan-june-14-revises-price-increase-expectation-for-2014-to-be-in-the-region-of-10-to-14
    CommentQuote
  • Originally Posted by realacres
    Man, please don't generalise that all wives work or they will continue to work till the end of home loan tenure. And even if they work, how many save 12L/yr ?? And yes, taking loan based on double income is not a good idea, especially if both are in same sector.
    Rest I have answered in post above.


    We are talking only about IT community for time being here. We are not generalizing it for all the classes.

    There are many doctors whose wives are not working but we still generalize
    "A physician/dentist prefers girl with equivalent qualification as life partner"

    right

    The trend is catching fast in IT as well
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  • Originally Posted by Sj2013
    Vacancy is not 2.5L but it is gross stock which includes sold units as well

    read
    "
    The assessment of the overall gross stock (defined as projects under construction and ready projects with more than 5% unsold stock and more than 10 units)
    "

    As per this report for Pune region - unsold inventory is only 66,279 units as of June 2014. which includes Chakan, Kondhawa, Pradhikaran, Wagholi, etc


    check out - Property in Pune & Goa | Flats in Pune | Builders in Pune | Apartments in Pune for Sale


    Inventory levels were 1.3-1.4 lakhs till Dec 2013 in Mumbai Metropolitan Region which is a huge area..Pune's unsold inventory has to be less than half of that atleast (my assumption)..
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  • Originally Posted by realacres
    Man, please don't generalise that all wives work or they will continue to work till the end of home loan tenure. And even if they work, how many save 12L/yr ?? And yes, taking loan based on double income is not a good idea, especially if both are in same sector.
    Rest I have answered in post above.



    you will be surprised by the sheer number of such ppl..... not sure what you for living but i can couint atleast 30-35 guys in my company

    btw 2.5 laks unsold seems unreal ......
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  • Reality

    People don't go on any rosy picture given by analyst, bldrs or investors.

    What I see on ground here in NE Pune,
    LOTS and lots of vacant flats and even shops.
    Bldrs ready to bargain very much if you are serious.

    Bldrs must be starting to feel the impending squeeze
    All aspirants are linning up to BJP with their coffers and pedigree good works and good words
    from the powers to be.

    If any one serious these are the best time to bargain and get good deals.

    Last election time I could get 20% + discount without showing even the check book.
    You also have to get to talk to the right man not the 2 month employed salesman
    sitting on the front desk.

    For investors stay away from RE, Time seem to me even worse than last time.
    I would not bank on IT people-don't know a right from any wrong on money matters or any
    time in hand as long as they have the 'X60' advantage.
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  • Reality-II

    Now don't label as a bear,
    I m a realist.

    A trip to Mall/PVR easily sets you back by more than 1000 bucks, (only tickets)
    Now the decreased foot falls give the WARNING bells that the people have started to cut
    back on their discretionary spends. It also shows the sentiments/mood of this young energetic crowd. They are not going to go over the top and buy highly priced houses
    at times like these despite there needs and emotional security blah blah !.

    Aamchi Pune

    Another false garb the bldrs/investors use
    Pune is falling way behind Bangaloru/Hyderabad.
    One does not have to roam the streets, only look out the airplane window
    You will see the huge works going on Metro/ ring roads/bldgs etc.
    Now compare the RE prices and living standards, daily spends
    You start getting the distorted picture existing here.
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  • @tarcap - "Assuming 20% of new hires will end in Pune, we can knock off 50K apartments."

    The average new employee gets about 3.5L pa in the IT industry. I am not sure how these are going to 'knock off' an apartment. Unless you mean to say rent an apartment?

    I repost below some data that I had posted here a few months back. The tax data is from 2011. But with the slowdown, etc I dont think the numbers would have changed a lot. Maybe 5-10% +.

    Originally Posted by southsea
    In 2011, Only 4L people in India declared an income of more than 20L. Assuming that 75% of these are salaried people, and say 25% of them are from IT, that gives about 75K people in IT with a relatively high income.
    Assuming this is split across Bangalore, Chennai, Hyderabad, NCR, Pune in that order, Pune may have around 5-10K IT employees with the 20L+ salary.
    I have said it before, IT is not big enough to either create or break the RE market (atleast the high end market - homes costing Rs60L+
    CommentQuote
  • Originally Posted by southsea
    @tarcap - "Assuming 20% of new hires will end in Pune, we can knock off 50K apartments."

    The average new employee gets about 3.5L pa in the IT industry. I am not sure how these are going to 'knock off' an apartment. Unless you mean to say rent an apartment?

    I repost below some data that I had posted here a few months back. The tax data is from 2011. But with the slowdown, etc I dont think the numbers would have changed a lot. Maybe 5-10% +.


    Southsea: A new launch project takes at least 3 to 4 years before it gets some good bookings. Till then its only air.

    Similarly, a new joinee in an IT company with 3.5L is not going to buy right away. He / She will earn 7 L after 4 years and 10L after 7 years. So, look at these hires as potential buyers.

    As a thumb rule, people who passed from IT engineering college in 2005 / 2006 will,

    1) Be married by now
    2) Would have at least had 1 onsite stint
    3) Would have at least saved 15 Lacs for down payment
    4) Would have already booked / or will look forward to book an apartment anytime now.

    Do a check within your circle. You will see that majority has done these things by now.

    Cheers.
    CommentQuote
  • I agree with Investec I dont see a major correction or a huge crash that people have been talking about in this thread. Instead it will undergo a time correction. People (sellers) have this tendency to hold on to a price no matter what.
    As a buyer, I would even settle for a time correction. This when adjusted for inflation is nothing but a price correction.

    Originally Posted by wiseman
    If that was aimed at me, thank you for compliment.

    But the lack of crash so far is due to something I've been harping for quite some time now. Jobs are still not under threat of mass liquidation.

    Assuming that most buying has happened in the 2009 onward period, it is safe to assume that so far most payments of EMIs have gone towards interest leaving behind a thin level of equity in the property itself (meaning buyers still owe banks 80%+ of the price of the property).

    There is evidence gaining that the next 2-3 years may see another 2008 event, but this time more severe and with the job market taking a big hit (I wouldn't want to see it but its beyond anyone's control).

    So don't be too sure about there being no price crash. When jobs start going out of window in large numbers and prices have already stagnated for 2-3 years, terror will follow and time will be ripe for crash in RE. Its happened before and its not only very ugly for the people who are stuck, but it leads to a longish period of total disinterest for RE among the masses.

    Let us wait and see and not write off this phase altogether as geo-political and economic situation is not at all good and tensions are rising all over because of the loooong (6 years an counting) wait for recovery.

    cheers
    CommentQuote
  • Originally Posted by tarcap
    What a weak argument.

    Rising inventory has no direct relation to a real estate bubble. Rising inventory just means that builders think they will sell more flats this year than last year. These guys are far more intelligent than you and me. They will not just launch projects for nothing. Real Estate was and will remain a profitable business in India.

    Moreover, what rising inventory you are talking about? Are there official statistics available from a credible agency or is it just something that you perceive.

    As for 2.5 Lacs vacant apartments in Pune, consider this,

    Only the top IT companies will hire 2.5 L new employees in this year. Assuming 20% of new hires will end in Pune, we can knock off 50K apartments.

    Please add to this,

    -- number of investors
    -- number of jobs that will be created in automobile, manufacturing, pharma sector
    -- guys who are at onsite and have enough money for downpayment now

    I would say, 2.5 Lacs suddenly looks like a small number now.



    You cannot hold Real to an exacting standard of "show me solid data to back your argument" and then merrily say ...

    All IT guys with 5 years experience earn more than 10+LPA and all of these will be married so they must be saving 12 LPA, etc, etc.

    Can you also trot out the statistics to back these sweeping numbers?

    IT itself is a very broad spectrum with salaries for 5 years experience ranging from 5L in some companies to 20L in a few others for very select people.

    Maybe you should check the Annual REports of various IT companies from the high end (TCS, etc) to the low end (???) and check out average salaries per employee to see how accurate these numbers are.

    Besides, does Pune only have mostly 5+ years and upwards of IT people in large numbers who can afford 12L SAVINGS per annum. And how did you arrive at the broad number that Pune hires 20% of these 2.5L new hires.

    Lastly, to have 12L savings, I'm thinking family salary (assuming both are working in IT and doing very well - much fewer than the big numbers you are trotting out) would be a combined 25 LPA where after removing around 6L as tax and 7L as family expenses you will end up with 12 LPA.

    Do you really think IT companies grow money on trees?

    Everyone should argue from the same level. Please share your data for the number of people with more than 5Yrs experience how many form family units with 25L combined salaries, their savings post expenses, etc.

    And data to show how IT companies will hire 2.5L employees (NET of firing) this year and what proportion of these will directly start earning 12LPA to be counted in the numbers you are saying will earn 12LPA (even ONE of these 2.5L freshers will earn 12LPA?).

    Then we can all do the math and figure out if 2.5 L units look small or big.

    cheers
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