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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  • Nomura: No more rate cuts till FY17

    With the second surprise 25 bps repo rate cut by the Reserve Bank on March 4, the policy rates have reached neutral and the average policy rate over the next three years should be around 7.4 per cent, says a report.

    “Based on our inflation and growth forecasts, and the Reserve Bank of India (RBI)’s inflation targets, we estimate that the average policy rate over the next three years should be around 7.4 per cent as the policy rates have reached neutral,” Japanese brokerage Nomura said in a note.

    They said interest rates have reached around neutral levels and expect policy rates to remain unchanged at 7.5 per cent until 2017 and that if the RBI cuts more then there will be rate hikes in FY17 to push inflation down to 4 per cent by March 2018.

    Terming the rationale laid out by Rajan for this inter-meeting cut as “very weak”, they said the real reason for the cut may lie outside the economic domain and could be a quid pro quo for the monetary policy framework, where the government has largely accepted the Urjit Patel committee recommendations.

    Nomura: No more rate cuts till FY17 | The Financial Express
    CommentQuote
  • Bonanza ahead: 10 million new jobs likely in 4 years
    More jobs,more income in hands of employees and could lead to higher demand for flats.
    For companies,increase in productivity and adoption of new technology is key to sustained growth.
    India has been having an increasing ICOR ratio and poor growth over the years indicative of an inefficient economy.
    Some interesting but well known info:(info is from an article in 2013)
    ""Asset-wise, 100 leading corporate companies in India directly and indirectly control almost 90 percent of the country’s assets, while one-third of the rural population is landless and destitute. The number of super-rich Indians earning more than Rs. 5 crore per annum and having highly valued durable assets is estimated at 125000.The upper crust of this super-rich section which is fully integrated with the comprador and most corrupt Indian regime has made this country the topper in black money generation. According to the Swiss Bankers Association India topped the worldwide list for black money and its “underground economy” is conceived to be several times larger than the so called official economy. The corporate-politician-bureaucrat nexus belonging to the super-rich, upper class has stashed almost $1500 billion--more than the national income of India--in Swiss banks alone. Taking into account the various tax
    .exemptions enjoyed by them, the effective tax rate on this super-rich comes to only around 15 percent while even in several capitalist countries in Europe, the tax-GDP ratio is more than 50 percent""

    My view:
    This paragraph gives a good reason why India is not developing as well as it should.
    RE alone cannot develop when economy is in doldrums.
    CommentQuote
  • Investment proposals don’t meet promises


    But this news says :- LIKELY.
    Agree to what you said in 'Your View'.

    Here is latest findings on such reports :-

    Investment proposals by corporates are generally associated with improving business sentiment and often linked with the possibility of job creation. The comparison of proposed investment with actual implementation and job creation in the past 23 years, however, shows that the actual delivery has fallen well short of the promise.

    Data from the department of industrial policy and promotion shows that between August 1991 and March 2014, the government received about 94,000 investment proposals. These proposals include Industrial Investment Intentions through Entrepreneurs Memorandum — IEMs (delicensed sector) and Direct Industrial Licences (licensable sector).

    Put together, these proposed the investment of more than Rs 102 lakh crore and were supposed to create 2.3 crore jobs. The data on actual implementation of these proposals shows that only Rs 5.1 lakh crore was actually invested and just 20.1 lakh jobs created. That's less than 5% of the proposed investments and 8.9% of the promised jobs.



    Investment proposals don’t meet promises - The Times of India
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  • Surge in banks NPAs

    Oriental Bank of Commerce Q3 net profit falls 91.3%

    Higher  provisions  drag net profit to Rs19.56 crore from Rs224.30 crore a year ago

    Net non-performing assets (NPAs) rose to 3.68% versus 2.91% last year, while gross NPAs rose to 5.43%, compared with 3.87% a year ago. Fresh addition to NPAs was Rs.1,342.46 crore in the quarter, as against Rs.1,043 crore in the year-ago period.

    NPA slippage have been quite high during the quarter, which affected profitability, besides the one time write-off.

    “Provisioning and NPAs were high, indicating that the stress during the quarter was high,” Agrawal said. “There was also a management change in the quarter and a little bit of clean-up can be attributed to that.”

    Oriental Bank of Commerce Q3 net profit falls 91.3% - Livemint


    Bank of Baroda Q3 net down 69 per cent

    Bank of Baroda, India's second-biggest lender by assets, has reported a 69 per cent fall in quarterly profit due to higher provisions for bad loans and a surge in tax expenses.

    "Bad loans were difficult to contain and that growth in bad loans was unlikely to slow significantly in the next two quarters," Executive Director Ranjan Dhawan said.

    Bank of Baroda Q3 net down 69 per cent on higher provisions - Business Today


    PNB's gross NPAs jump to 6% in Q3

    Analysts expect asset stress to stay, as most of the build-up emanates from recast portfolio

    PNB's gross NPAs jump to 6% in Q3 | Business Standard Financial X-Ray


    Bank of India Q3 net plunges 70% as bad loans jump

    Bank of India, the country's fourth-biggest lender by assets, reported a 70% fall in quarterly profit as bad loans jumped.

    Bank of India Q3 net plunges 70% as bad loans jump | Business Standard News


    Sharp rise in NPAs forces DBS Bank to trim India loans business

    Bank has changed its loan monitoring process and is avoiding lending to some sectors such as infrastructure

    Sharp rise in NPAs forces DBS Bank to trim India loans business - Livemint


    Bad loans rise at three mid-sized state lenders

    Indian Overseas Bank, a state-run lender, reported its second straight quarterly loss on Thursday as bad loans surged.

    UCO Bank and Allahabad Bank, two other state-run lenders also saw their bad loan ratios widening.

    Bigger state-run banks such as Bank of Baroda, Punjab National Bank and Union Bank have also seen their bad loans rising in the December quarter.

    Bad loans rise at three mid-sized state lenders | Reuters

    ^^ All these factors simply indicate that real estate shall continue to remain in doldrums.
    CommentQuote
  • When is it likely that the RE scenario in India will improve? What factors are going to help that? Can there be any downward price movement in Mumbai?

    Please reply to this post.
    CommentQuote
  • Nishantrb,
    When more buyers become choosy over projects-they look for legal papers,sanctions and not at brochures and DP.
    The declaration of RE being Industry and appointment of RE regulator and passing of strong RE bill.
    But present government is not even talking of it.
    There will be downward movement in Mumbai in next 6 months.
    Pressure of unsold inventory and debt repayments will force builders to cut prices and their profits to genrat cash from idle flats remaining unsold.
    It is a matter of time.
    CommentQuote
  • Originally Posted by vaibav123
    Nishantrb,
    When more buyers become choosy over projects-they look for legal papers,sanctions and not at brochures and DP.
    The declaration of RE being Industry and appointment of RE regulator and passing of strong RE bill.
    But present government is not even talking of it.
    There will be downward movement in Mumbai in next 6 months.
    Pressure of unsold inventory and debt repayments will force builders to cut prices and their profits to genrat cash from idle flats remaining unsold.
    It is a matter of time.


    for under construction units, the builders often change the proposed plan.

    they will keep on building smaller and smaller units but keep the price the same.

    the pyschological effect that i bought a 1bhk for 50 lakhs will do the trick as people will not really compare the carpet area they used to get earlier as compared to the carpet areas of these new flats.

    in really old flats, 1bhks had carpet areas of 700 to 800 sq ft. the new ones with concepts like superbuiltup area and obscene loading percentages, the carpet area comes out to be 400 to 500 sq ft. also the ceiling height has been reduced so as to cram more apartments in less space.
    CommentQuote
  • ""n really old flats, 1bhks had carpet areas of 700 to 800 sq ft. the new ones with concepts like superbuiltup area and obscene loading percentages, the carpet area comes out to be 400 to 500 sq ft. also the ceiling height has been reduced so as to cram more apartments in less space.""
    Absolutely right.
    i stay in Churchgate area in an old flat.
    The flat is as big as tow present 3 BHK flats though pretty old but surprisingly in decent condition after so many decades of Mumbai weather.
    Concept of super built up,100% terrace then 50% terrace are all concepts which ensure the builder gets more bang /sq ft.
    Buyer is at loosing end as such.
    Lesser living area but much higher costs.
    CommentQuote
  • Originally Posted by Nishantrb
    When is it likely that the RE scenario in India will improve? What factors are going to help that? Can there be any downward price movement in Mumbai?

    Please reply to this post.

    There will be no price increase.

    But no falls either. No movement for at least 2 years in Mumbai
    CommentQuote
  • Originally Posted by AcreStaker
    I completely agree. And it seems unlikely that lowering of corporate tax from 30% to 25% will have such a dramatic impact.

    It will have dramatic impact in 2018 IF it happens.

    but right now corporate tax increased 0.6%

    Dramatic downward impact is also visible right now.
    CommentQuote
  • Oops.. Sorry to bust the gloom and doom atmosphere.. But I am having a great morning.. And wanted to spread the cheer


    MUMBAI: ASK Property Investment Advisors has exited two Pune residential projects with a more than twofold return on the Rs 70 crore it invested three years ago. 

    Read more at:
    http://economictimes.indiatimes.com/articleshow/46522363.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
    CommentQuote
  • Originally Posted by Que Sera
    Oops.. Sorry to bust the gloom and doom atmosphere.. But I am having a great morning.. And wanted to spread the cheer


    MUMBAI: ASK Property Investment Advisors has exited two Pune residential projects with a more than twofold return on the Rs 70 crore it invested three years ago. 

    Read more at:
    ASK’s realty fund exits two Pune residential projects - The Economic Times


    The investment in Amit Enterprises' Serano project returned more than two-and-half times at Rs 75 crore at exit.

    ^^
    they made 2.5 times in three years... now we know why Amit projects are overpriced. A very average project being sold at very high prices. Another railway bogie layout.
    CommentQuote
  • Smart investors have already exited RE few months back.
    CommentQuote
  • Semi reputed or non reputed developers have already started to cut prices as they are the ones who worry the most about their sales.
    Branded developers on the other hand do not worry because they have multiple income source from many of their ongoing project.
    Also they get funded easily. Lodha group recently raised Rs.540 Crore from Kotak Realty fund for their Palava Project.

    These major developers are the ones who control the market and hold on to the prices. Even they have investor backing in case anything goes wrong. And even if there is a little downward movement, people won't think twice and buy immediately as the prices come down. This, in turn will create demand again in the market and push the prices up.

    All in all, even if there is any correction, it won't last long and prices will rebound again.

    For a major correction to happen, all the branded developer must slash their prices, investors should stop backing them and funds like kotak realty funds must stop providing them finance. In that worst case scenario, RE prices may see a heavy correction which I think is not possible in current economic scenario .
    CommentQuote
  • Originally Posted by Venkytalks
    There will be no price increase.

    But no falls either. No movement for at least 2 years in Mumbai


    Hi Venky,

    Don't know about Mumbai, but it seems tables have gradually started turning in Delhi (not NCR).
    CommentQuote