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 mangoman2012
    Hi RP,

    Whatever I want may not happen. that is immaterial. For example I want 300% crash in RE. I want Arvind Kejriwal to be PM.

    But I think what will happen is

    1. Middle Class, Upper Middle Class fight against builder/broker mafia will be on rise.
    2. This pricing out of common man in RE market is big mistake broker folks have done and the sufferers are again common man turned brokers/investors.
    3. 2015 will be marked by panic sales in RE. Next big event atleast in Indian scenario is budget. I am waiting for that.
    4. We all kind of agree that a minimum 20% crash has happened already from the peak. This will look like a child game when the real panic sales started.
    5. All will talk about the negatives of substandard apartments,long term value etc from hereon.
    6. Middle class will petition to Modi that RBI is responsible because builders will deflect the blame on RBI as the sole reason for slump.
    7. RBI will be forced to cut rates, then to our horror we will find still they wont be any buyers because Job growth is simply not there.
    8. RBI cannot cut hugely because Rupee is going to nosedive to 70 odd level if you try to cut more.
    9. Amrikans will ask their money back in this year surely....markets gonna to tank....

    MARK MY WORDS


    Ok Marked :)
    Will revisit (if am still on IREF) these in 2016.
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  • What I meant is -3 to 6 months research that too with not much interest(with loads of conditions on buying that too with timing of the year etc) is not enough to conclude the status of RE.

    I know people who are searching for years and always rigid not to show flexibility and reject every buying opportunity. I myself have walked away several deals in 2007- 2010 which I repent. And believe me more than 10 follow ups from some builders. Shall I say since I was more rigid and not willing to flex and hence it was buyers market all those years. Now I look at it and feel that actually it was time pass. Since no transaction/deal happened it does not count towards anything.


    Originally Posted by oldschooler
    Marketing and followup has been their since ages, it has become more prevalent in RE in recent years...Also the re-sellers doing follow up is no marketing, its their eagerness to sell. To me deciding on whether its a buyers market or a sellers market is based on the answer to a simple question...Who is willing to flex more to get the deal done? (remember its not about whether the deal is done or not)....

    Now depending on which side of the fence you sit you can draw your own conclusions..I for sure have seen more flexing from sellers to close the deal...Again this my conclusion on my experience of house hunting in Pune...
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  • Indian economic 'slowdown'

    Indian economic 'slowdown': Big bang reforms fail to take off, Modi magic protagonists should 'rethink' now

    With the Indian economy officially slowing down to 5.3 percent (though experts calculated it earlier at 5.1 percent) during July-September 2014, from 5.7 per cent in the previous quarter, and credit growth hitting a 13-month low in September, Prime Minister Narendra Modi's promise to oversee a revival when he swept to power in May is beginning to be questioned.

    One of the most influential American dailies, "The Wall Street Journal" has said, with India’s economic growth decelerating, doubts have surfaced "about how quickly the country’s new government can deliver on pledges to end a nearly three-year slump and transform the world’s second-most-populous nation into a manufacturing powerhouse."

    "The Indian economy doesn’t quite look poised to return to the near-double-digit growth seen in the 2000s. Exports fell 5 percent year-over-year in October. In September, production of consumer durable goods—motorcycles, televisions and the like—was down more than 11 percent from a year earlier."

    Anjali Verma, an economist at PhillipCapital, has been quoted as saying, “The concern is that at the ground level, there is no material change taking place. In our interactions with companies, earlier they were telling us that activity would pick up early this year, then they said in the second half and now some are saying it may not happen until next fiscal year.”

    Meanwhile, top British daily "Financial Times" has also noticed that the slowdown may not end so easily as earlier expected.

    C O U N T E R V I E W: Indian economic 'slowdown': Big bang reforms fail to take off, Modi magic protagonists should 'rethink' now
    CommentQuote
  • Wondering this are signs of further Rupee devaluation (e.g. Turkey devalued their current by 18% recently and other country may have to follow the suit).
    CommentQuote
  • Originally Posted by mangoman2012
    Hi RP,

    Whatever I want may not happen. that is immaterial. For example I want 300% crash in RE. I want Arvind Kejriwal to be PM.:bab (59):

    But I think what will happen is

    1. Middle Class, Upper Middle Class fight against builder/broker mafia will be on rise.
    2. This pricing out of common man in RE market is big mistake broker folks have done and the sufferers are again common man turned brokers/investors.
    3. 2015 will be marked by panic sales in RE. Next big event atleast in Indian scenario is budget. I am waiting for that.
    4. We all kind of agree that a minimum 20% crash has happened already from the peak. This will look like a child game when the real panic sales started.
    5. All will talk about the negatives of substandard apartments,long term value etc from hereon.
    6. Middle class will petition to Modi that RBI is responsible because builders will deflect the blame on RBI as the sole reason for slump.
    7. RBI will be forced to cut rates, then to our horror we will find still they wont be any buyers because Job growth is simply not there.
    8. RBI cannot cut hugely because Rupee is going to nosedive to 70 odd level if you try to cut more.
    9. Amrikans will ask their money back in this year surely....markets gonna to tank....

    MARK MY WORDS


    #9 Markets have already tanked...so at least one prediction has come true :) :bab (59):

    At the current rates most of the buyers are priced out of the market. there is a demand and supply mismatch at various levels. the people who can afford to buy property already have 4-5 villas and bungalows here and there are wont be interested in a buying a 2bhk in the middle of nowhere developing area with no social infrastructure.

    some kind of regulator has to come up in RE to prevent nefarious practices of the builders.
    CommentQuote
  • Phadnis builder goes bankrupt

    Phadnis builder has defaulted on loan of 58.3 Cr taken from Central bank of India and lot of its assets have been taken over by Central Bank of India.
    This is the same builder of Eastern Ranges, Keshavnagar & Green Square at Baner-Sus.

    Notice can be seen at bottom right in the link below :-

    http://epaper3.esakal.com/6Jan2015/Enlarge/PuneCity/Pune1Today/page5.htm
    CommentQuote
  • I have no idea about Bangalore RE.
    I am tracking Pune RE mainly and somewhat Thane RE. And majority of the developing areas were able to give 15% YoY return in last 5 years. I have myself seen many deals happening at double the rate in span of 5 to 6 years.


    Originally Posted by southsea
    @Tushar - You are earning 4.5 % on someone else's money.
    Look at Bangalore for example. Prices are stagnant for 7+ years now (NHB). The banks are earning 8-9% of someone else's slog.
    I cannot speak for the whole of Bangalore, but near where I stay, apartment prices are more or less flat for last 4-5 years.

    @Compu - Stark example of how buying early and locking in the price can also be seriously detrimental.
    CommentQuote
  • Banks struggle with bad loans will worsen if economy falters further, warns RBI

    Risks to India’s banking system continue to remain at elevated levels on concerns of further deterioration in the asset quality, the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR) released on Monday.


    Even though the liquidity scenario in the banking system has improved during March-September, risks arising out of deterioration in asset quality and soundness of banks remain, the central bank said.


    “Risks to the banking sector have not changed much since the publication of the previous FSR,” the RBI said. The central bank releases FSB once in every six months taking stock of the overall functioning of the financial system through a series of stress tests conducted among banks.


    As Firstpost had noted earlier, delay in economic recovery has already begun to reflect on the balance sheets of banks as companies are unable to recover even after banks offered loan recasts facility.


    In short, despite the loan restructuring facility provided by banks to troubled companies, not a single company has managed to successfully exit from the CDR mechanism in the last six months. On the contrary, the bad loan pile has only grown bigger. This is evidently a bad trend and signals what is in store in the future unless recovery takes place.


    Banks struggle with bad loans will worsen if economy falters further, warns RBI - Firstpost
    CommentQuote
  • Real estate sentiment drops for first time in 5 quarters

    Stakeholder sentiment in real estate has dropped for the first time in five quarters, a new survey has found.

    According to the ‘Real Estate Sentiment Index for October–December 2014’, released by Knight Frank India and FICCI on Tuesday, real estate sentiment across all zones has witnessed a major dip during the fourth quarter of the annual year 2014, and investor confidence has taken a hit owing to oversupply within the residential space.

    In the residential space, increasing illiquidity caused by dipping transaction numbers and delayed economic revival have weighed down the market.

    Survey: Real estate sentiment drops for first time in 5 quarters | Business Line
    CommentQuote
  • Originally Posted by tushart
    I have no idea about Bangalore RE.
    I am tracking Pune RE mainly and somewhat Thane RE. And majority of the developing areas were able to give 15% YoY return in last 5 years. I have myself seen many deals happening at double the rate in span of 5 to 6 years.


    Rather than giving returns for past 5 years, please give it on YoY basis.
    2009-10, 2010-11.....
    Also, please do take into consideration the holding cost as well.

    This will give more correct picture.
    CommentQuote
  • Originally Posted by realacres
    Rather than giving returns for past 5 years, please give it on YoY basis.
    2009-10, 2010-11.....
    Also, please do take into consideration the holding cost as well.

    This will give more correct picture.


    Hey RA no amount of analysis is enough to convince the bulls that the tide has changed...like wise no amount of past data would convince people like me that the party will continue...Only time will tell who was on the correct side of the fence...

    If people think that since real estate gave x% returns in past, the returns in the future will remain so, then we really cannot challenge their thought process...as they say "to each their own"


    For now we will have to leave with the differences...
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  • Its absolutely clear that days of irrational exuberance are over. If one can get even the
    inflation beating return be thankful incase of flats.
    Investors beware.
    CommentQuote
  • Originally Posted by tushart
    I have no idea about Bangalore RE.
    I am tracking Pune RE mainly and somewhat Thane RE. And majority of the developing areas were able to give 15% YoY return in last 5 years. I have myself seen many deals happening at double the rate in span of 5 to 6 years.


    NHB data from Bangalore is flawed. It considers pretty much only the areas that have developed. Not much "growth" in such areas. The real growth last decade happened in Bangalore south, and currently Bangalore north is being promoted ( near the airport ). None of these areas are reflected in NHB data. I know some folks who put in 15-20L in 2003 time frames in these areas and today sitting on 1.5 to 2 crores worth property !
    CommentQuote
  • But gm c the development there. Elevated road from Airport (KIAL)
    right upto Mehkari circle like a flyover from Nashik Phata to Yerwada bridge.
    Kaveri water supply etc.
    Man u don't have a decent road in Pune. Bangalore has surged way ahead &
    Prop prices are pricier here. People are still living in past halo . Prop prices high
    only due black monies generated by Mumbai
    CommentQuote
  • https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/8303-why-not-to-buy-a-flat-in-pune-at-current-prices/page38?t=10724&page=38

    I am adding periodic updates on above thread. For summary

    Had he purchased in 2010 Jan - Total price 55L with loan 25L
    Had he purchased in 2011 Jan - Total price 65L with loan 35L (Ended up buying costly car no increase in savings )
    Had he purchased in 2012 May - Total Price 80L with loan 40L
    Had he purchased in 2013 Jan - Total Price 90L with loan 40L (Impressive he was able to add 10L to his savings in 1 year)
    If he decides to purchase 2013 May - Total Price 1.08 cr with 56L Loan - Well this has become impossible now.
    If he decides to purchase today (2014 Dec) - 1.15 cr




    Originally Posted by realacres
    Rather than giving returns for past 5 years, please give it on YoY basis.
    2009-10, 2010-11.....
    Also, please do take into consideration the holding cost as well.

    This will give more correct picture.
    CommentQuote