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?

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  • Originally Posted by Sj2013
    Now tell me how can I believe 31% drop in sales in Pune?

    We all have access to the tools to get real number of transactions (read actual sale deeds) but you put the link which has mostly investors data.

    Why do you give half info ?? Do you know difference between sale deed & actual sales ?? As said before, sale deed can be of any property, not only flat. And details you posted was of entire Maharashtra & not Pune. And just to inform, even if one needs to get property transferred in someone else's name, they need to do sale deed even without actual sale taking place. Eg. Father giving flat to his daughter etc.

    Can you post details about flat sales in Pune YoY ??
  • Originally Posted by innerpeace
    Thank you SouthSea for this data. So if one relates RE to IT, they need to consider income statistics with pricing. If new jobs are created, those are not in 10L to 20L+ range. Those will always be less than that. Few jobs offer this pay range to mass engineers. So if prices of mid-to-high tier housing (75L to 1cr +) are soaring upwards, then only 1.30% can afford those houses. I know guys who are earning less than 4L and opted for 80L house + registration will eventually end up screwed up lives and selling soul to banks/builders. (like No Smoking John Abraham movie)

    Only guys getting profits in this game are:
    1. Corrupt govt who can use tax money for fraud n all n give less to society
    2. Banks who give loans to tax payers and help builders become richer.

    Your chart is wonderful example of realistic view of tax revenue .

    +1 man.
    BOLD is exactly what has happened in most of the buyers who over-leveraged thinking RE prices will only go up & are now in a soup.


    Situation is now even bad as inflation has increased from 2011. So even if people earning in 20L+ remains same, net savings have dropped.
    Anyways, these people are very miniscule & hence RE can't expect any support from them. Also, it is not necessary that all people in this category are in RE market also.
  • Originally Posted by herohiralal
    CPI down to 5.52%

    Over to you Mr Rajan. Cut the damn rates or do a manmohan and go mute for the next 6 months

    LoL. :D
    Man, inflation is falling just due to one reason :- Drop in oil prices. And it is naive to depend on only this single factor alone to jump to any conclusion, especially in the wake of rising NPAs.

    Btw, if a person takes loan of 50L for 20 years, what will be difference in EMI even if interest rates come down by 1%,1.5%, 2%.... ??? Please share the numbers.

    Man, jumping to some conclusion based on monthly data is not good idea. One needs to wait atleast for 3 quarters to get more clear picture. Just see, after a month or two of increase in car sales, it has again dropped for second month in a row. Most importantly, commercial vehicles, which are indicator of real economy haven't picked up.

    Car sales dip 2.55% in Oct as festive purchases remain subdued

    SIAM says unless there is some real economic growth, auto sales may not rise, going forward

    Car sales dip 2.55% in Oct as festive purchases remain subdued | Business Standard News
  • World in indefinite depression

    We are in global depression which started in 2007 and is going to continue indefinitely, Jim Rickards, economist and author of “Currency Wars: The Making of the Next Global Crisis,” told RT.

    Depressions are structural, monetary solutions are cyclical: you cannot solve a structural problem with a cyclical remedy - monetary policy will not work. What it could do eventually is cause inflation. So far people say: “Where is the inflation?...We printed trillions of dollars, there is no inflation”. That is because we would have had deflation, extreme deflation, but for the money printing. It did produce inflation to the extent that it offset the deflation… The world is in depression, we are not getting out of it.....

    So they are putting all money in real estate and also wealth management products, these are structure products like CDO’s but they have real estate behind them. Their sponsors raise money in these funds; give you a wealth management certificate. And then they take money and put it into real estate. But the real estate is not producing, it is all speculation, it is all a bubble. That bubble will collapse.

    ‘World in indefinite depression’ - Panorama | Armenian news

    ^^ Understood why mere lowering of interest rates won't help ??
  • 1% - Rs. 4166 , 1.5% - Rs.6250 , 2% - Rs.8333 ---> are the differences in EMI..
  • Originally Posted by realacres

    Why do you give half info ?? Do you know difference between sale deed & actual sales ?? As said before, sale deed can be of any property, not only flat. And details you posted was of entire Maharashtra & not Pune. And just to inform, even if one needs to get property transferred in someone else's name, they need to do sale deed even without actual sale taking place. Eg. Father giving flat to his daughter etc.

    Can you post details about flat sales in Pune YoY ??

    Can I say that the chart you pasted here is for actual sale deeds?

    Why would a father do a gift deed by paying 2% stamp duty in Maharashtra? He can easily transfer the tittle without paying stamp duty by just doing a will in favor of his daughter.

    Why are you unnecessarily adding type of transaction which are very low in numbers and diverting the focus to less important things.

    Let us agree a sale means a "sale deed" which is registered after paying registration and stamp duty fees.
  • Originally Posted by Sj2013
    Let us agree a sale means a "sale deed" which is registered after paying registration and stamp duty fees.

    Ok, even by going by this, what are the number of registrations of FLATS IN PUNE YoY ??


    As of now, interest rates will be held & only in FY 15-16 so cuts will be seen. However, if we consider the rates today, do you think 4k is going to be such a big changing point that many people will jump in to buy RE ?? I don't think people are avoiding to buy RE just because they are falling short of about 50k/yr. Had this been the case, post 80CC increase, RE sales should have increased, which hasn't happened.

    And if bank too lower rates, FD money will go into better yields like bonds & with new basel3 norms to be kicked in, banks can't afford it. Infact, just last month, Chanda Kochar of ICICI said the same that they don't have much scope to lower interest rates.
  • Originally Posted by realacres
    Ok, even by going by this, what are the number of registrations of FLATS IN PUNE YoY ??

    I can easily pull that numbers for you and for all here but if you look little closer to the chart you pasted here, it says "pre sales" what does that mean? Is it another type of deed happening at revenue deptt.?
  • Builders & Real Estate Bulls Theory Proved Wrong

    Originally Posted by herohiralal
    Depends on how the banks play it. Some banks might not reduce the home loan rates for existing customer and only offer attractive rates for new home loan customers. But if rates were to fall by 2 to 3 % then companies will certainly benefit. Interest expense will come down by anywhere between 10 to 20% and that will boost cash flow.

    Here is how much JP Associates would save. Depends on how willing banks are to reduce rates but if rates to reduce then expect politicians to exert pressure on banks to lower rates.

    SBI has base rate which is 10% and a spread of 10 basis point. It is difficult for SBI to reduce spread to 0 or lower as that means borrowing below base rate which is against RBI and against the concept of base rate.

    So if RBI changes key rates somewhere in future, SBI has to reduce it's base rate. Reduction in base rate will give benefits to existing borrowers as well.

    If spread is more say 100 basis point or higher, SBI or any bank would just reduce the spread and give benefit of rate reduction only to new borrowers.
  • "Reserve Bank of India Governor Raghuram Rajan may become a victim of his own success."

    Thats like giving Modi for the crash in global oil prices :)

    Convincing India Inflation Still a Threat Is Rajan

    "Rapidly cooling inflation is building the case for the Reserve Bank of India (RBI) to cut interest rates as soon as its next monetary policy meeting on December 2, say economists."

    India data builds case for rate cut before Christmas -
  • CommentQuote
  • CommentQuote

  • Disagree.

    Right now India has good inflow of dollar. Cutting repo will cause higher inflow and Rupee will appreciate not depreciate.

    Cutting later on is more risky. If there is insufficient dollar inflow at time of cutting the Rupee will surely depreciate.

    Better to cut when the going is good.
  • Originally Posted by wiseman
    The crux of the issue is the use of the term "afford" by Hero. Sure, the Banks are currently helping them afford the homes.

    Issue is, given the shaky job scene, will they be able to "afford" these homes all the way through the next 10-15 years as the rupee gets clobbered, Indian IT gets increasingly uncompetitive arbitrage-wise, these expensive homes get depreciated and perhaps illiquid and the buyers suddenly find they have a white elephant in the living room.

    Unaffordable is unaffordable, whichever way the banks make it look.

    Lets see how it goes.


    also the price to rent ratio is just too damn high. this signifies that there is less end consumer demand in the market.

    now that the sales transactions have dropped effectively meaning that the investors are out of the market and equities giving spectacular results, who in their right minds would put money in RE right now?

    nifty itself has given 40% return and the fact that there are no long term capital gains tax, you are free to enjoy 100% of your return.

    Indian RE is in for a long period of stagnation. People who have bought their properties hoping that they will be a huge crowd of sellers are finding it the hard way that selling your property at times like these is the worst and most stressful way to get your notional returns.
  • I agree. The price to rent ratio is too high.

    Equity has always yielded better long term post tax returns than RE. And equity, unlike RE, does not impose the dilemma of re investing in equity or reinvesting in NHAI bonds, within 6 months of sale.

    People who buy property easily forget that it is much more difficult to find a buyer for property than it is for their equity.