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 bhuvang
    Hi Venky,

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

    Delhi saw 2% fall and more marked downturn. It will stay like this.

    Mumbai RE might start performing much earlier.

    Once stocks boom a lot of interest in flats is likely. A 2 year lag between start of stock bull is probable before real estate picks up.

    Mumbaikars do stocks much much much more than Delhi and their salaries and jobs also linked to business performance.
    CommentQuote
  • With Jaitley and his minister nudging,

    we might see some minor rate cut despite inflation remaining defiant for these three months.

    Expect money flows into RE once stocks have satiated the investors.

    With 49 % FDI in insurance, a positive step for investment in the country.
    CommentQuote
  • Originally Posted by Venkytalks
    Delhi saw 2% fall and more marked downturn. It will stay like this.

    Mumbai RE might start performing much earlier.

    Once stocks boom a lot of interest in flats is likely. A 2 year lag between start of stock bull is probable before real estate picks up.

    Mumbaikars do stocks much much much more than Delhi and their salaries and jobs also linked to business performance.


    Don't know from where you got 2% stat, but in retail market (North west Delhi to be specific), rates have gradually started moving up for new supplies. Primary reasons -
    1. Old supply of new flats/floors from local builders is coming to end.
    2. Almost all distress sales are garnered by brokers/financiers before it actually reached end consumers.
    3. New supply is coming only on-demand basis.
    4. Tremedous holding power of Delhites or atleast those who invested their black money in RE.
    5. Forming of new govt.
    I garnered all this information personally by continous visit to many dealers over 4 months.
    CommentQuote
  • Originally Posted by bhuvang
    Don't know from where you got 2% stat, but in retail market (North west Delhi to be specific), rates have gradually started moving up for new supplies. Primary reasons -
    1. Old supply of new flats/floors from local builders is coming to end.
    2. Almost all distress sales are garnered by brokers/financiers before it actually reached end consumers.
    3. New supply is coming only on-demand basis.
    4. Tremedous holding power of Delhites or atleast those who invested their black money in RE.
    5. Forming of new govt.
    I garnered all this information personally by continous visit to many dealers over 4 months.

    I missed a zero in 20 !

    Prices fell end 2013 and first half 2014.

    Now prices stable.
    CommentQuote
  • Originally Posted by Que Sera
    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.


    Amit Sereno gave 2.5 times returns ?? How when project itself is not with Amit ?
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  • State Bank of India aims to cut bad debt with record online property auction

    India’s largest bank, the State Bank of India (SBI), will hold a record online auction this weekend to sell repossessed property like flats, warehouses and offices worth a total of nearly $200 million as the state lender seeks to chip away at its $10 billion mountain of bad debt.
    The SBI auction will be the biggest nationwide online sale to date and is a rare public move to turn distressed loans into ready cash.

    UNDER PRESSURE

    India’s state-owned banks have all have experienced a jump in bad loans over the past two years as borrowers, particularly companies, struggled to service loans when the economy slowed.


    With less cash from the government and new global prudential rules on the horizon, Indian banks are under increased pressure to clean up their balance sheets.
    SBI’s sale pulls together more than 300 pieces of property from two dozen Indian cities in what its advertising described as a “mega e-auction” of prime commercial and residential properties, many of which were put up as collateral by fledgling entrepreneurs.


    State Bank of India aims to cut bad debt with record online property auction this weekend | The Financial Express


    ^^ First auction from 1 bank & properties worth around INR 1250 Cr on auction.
    This is precisely what was being said, rising NPAs will force banks to take over properties, auction them off & squeeze supply to new projects, builders & investors which will hammer RE further south.
    CommentQuote
  • Changes in Benami Act will block black money in realty

    The government today said the proposed amendments to the Benami Act will enable confiscation of such property, prosecution of offenders as also help deal effectively with the menace of black money within the country.

    "This law will enable confiscation of benami property and provide for prosecution, thus blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate," Minister of State for Finance Jayant Sinha said in a written reply in the Lok Sabha.

    Sinha said the Budget has also proposed amending the Income-Tax Act to prohibit "acceptance or payment" of advance of Rs 20,000 or more in cash for purchase of immovable property.

    Changes in Benami Act will block black money in realty: Jayant Sinha - The Economic Times
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  • Realty isn’t a good pick

    Owning real estate has always been a passion with Indians. Little do we realise that most of the middle class Indians end up having their own home as the single biggest chunk in their wealth. It also happens that most do not count the house they live in as ‘wealth’.

    It used to be said by wise men that the best form of insurance is to invest in two homes one to live in and one to give us rent, so that there is income when we stop our earning cycle.

    Today, the second home is the worst form of wealth destruction that is happening (apart from our fetish for a particular yellow metal).Pre-tax rental yields in today prices are less than three per cent in most metro cities. And this sub-three is on ready-to-occupy properties. When you go in for under-construction properties or buy property on EMI, you have to factor in the interest cost which pushes the property price beyond your agreement price. And from this rental yield, you pay property tax, maintenance etc and income-tax on the rentals.

    The property fan will say that I have not accounted for the ‘capital appreciation’ that happens. One thing I can say. In general, the prime properties give us compound returns lower than the best stocks would give. And in buying a house, if you have made a mistake, the sum is too large. The entire money is at risk. It is not likely that you will put such an amount into shares of a single company.

    Today, we are better off putting money in a liquid fund as opposed to investing in a second home. Recently, I came across someone who bought a flat for around Rs 70 lakh. He started with payments in 2006 and after a delay of four years, got possession in 2013. If I take a SB interest for his payments to the builder, the cost balloons to nearly Rs 135 lakh. You can buy the neighbouring flat for a price of `90 lakh. And the rental in that place is under Rs 35,000 per month and the maintenance is close to Rs 1 lakh per year. In addition there are property taxes to pay. It is likely that the selling price of real estate in that location may stagnate for the next 10 to 20 years! So, think.

    In fact, once we get enough supply of flats on rentals, it may make financial sense not to own even one house. Stay on rentals for as long as possible. The capital appreciation, if it happens is more biased towards some pockets in each city and is not a universal rule.

    Many times, we get obsessed with land and gold. Just pause and do an analysis. In the above case, if the flat is sold now for `90 lakh (there would be capital gains to be paid, where there is a real erosion of wealth and interest on EMIs, etc) and the amount put into a bank deposit, the return would be closer to 10 per cent per annum.

    Instead of a second home, if the money is invested in to four or five high quality shares, the total returns are bound to be higher. Of course, like real estate, the selling has to happen at a time of the seller’s convenience to maximise value. Capital appreciation in good shares is also available. Also, as the flat grows older and older, the price starts to drop relative to newer properties in the same location. So a lot of gains remain on paper. Shares become more enjoyable, the older they are. My experience tells me that if you pick up four to five good names of companies that have been around for more than ten years, you will make money. And in shares, we do not have to pay capital gains if the holding is greater than a year.

    Yes, there are stories of ‘spectacular’ returns real estate. But they are the lucky ones who had money to invest long ago. ‘Spectacular’ returns are exceptions. There are many more stories where retail investors have regretted their decision to buy a house, Ultimately, factoring in interest, holding costs etc, real estate investment is not a great option.

    Of course real estate brokers and consultants will talk you in to buying a house. And you look at this with emotion rather than with reason. Think and do not take impulsive decisions. Not owning a home is no big deal. Rental markets are expanding.

    Realty isn
    CommentQuote
  • Originally Posted by realacres
    India’s largest bank, the State Bank of India (SBI), will hold a record online auction this weekend to sell repossessed property like flats, warehouses and offices worth a total of nearly $200 million as the state lender seeks to chip away at its $10 billion mountain of bad debt.
    The SBI auction will be the biggest nationwide online sale to date and is a rare public move to turn distressed loans into ready cash.

    UNDER PRESSURE

    India’s state-owned banks have all have experienced a jump in bad loans over the past two years as borrowers, particularly companies, struggled to service loans when the economy slowed.


    With less cash from the government and new global prudential rules on the horizon, Indian banks are under increased pressure to clean up their balance sheets.
    SBI’s sale pulls together more than 300 pieces of property from two dozen Indian cities in what its advertising described as a “mega e-auction” of prime commercial and residential properties, many of which were put up as collateral by fledgling entrepreneurs.


    State Bank of India aims to cut bad debt with record online property auction this weekend | The Financial Express


    ^^ First auction from 1 bank & properties worth around INR 1250 Cr on auction.
    This is precisely what was being said, rising NPAs will force banks to take over properties, auction them off & squeeze supply to new projects, builders & investors which will hammer RE further south.

    yeh and they managed to sell only 100 crores worth of residential.so 1150 crores goes to asset reconstruction.SBI is having bad day selling property.how builders manage to sell I wonder !!!
    SBI sells only 130 properties in e-auction of 300 assets - Moneycontrol.com
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  • Loans worth Rs 55,000cr may turn bad by March 31

    Loans worth Rs 55,000cr may turn bad by March 31

    Banks have identified 74 large projects that have either turned into non-performing assets or where promoters have delayed paying the installments, putting at stake the future of loans worth close to Rs 55,000 crore that have been disbursed.

    These projects together envisaged an investment of close to Rs 3.5 lakh crore, with banks having already sanctioned over Rs 67,000 crore, sources familiar with the development told TOI. Banks, especially public sector players, are already dealing with record levels of bad debt.

    Estimates worked out by the lenders suggest that there is a need to pump in Rs 5,000 crore over the next fortnight to "regularize" the accounts, which means payment of dues will ensure that the loans remain "standard" keeping the health of banks as well as future lending to the promoters intact.

    And, they span across sectors - from power to roads, ports and steel - and include marquee names such as Essar, GMR, GVK, Lanco, Avantha and the Jaiprakash Group, apart from a handful of public sector companies such as Neyveli Lignite and Tamil Nadu Electricity Board. A number of the projects such as Lanco Amarkantak and S Kumar's Maheshwar Hydel have been stuck for years.

    At a time when there is little sign of a pick up in investment in large projects, getting those in the pipeline for years is critical to boost demand for goods and create jobs, a key promise on which Modi managed to get majority in the Lok Sabha elections.

    Loans worth Rs 55,000cr may turn bad by March 31 - The Times of India
    CommentQuote
  • Mumbai realty developers' debt rises

    Land purchases and big projects, amid dull sales growth, among the reasons

    New land acquisitions, big property projects and private equity buyouts are pushing up debt levels of Mumbai-based real estate companies.

    Net debt of developers such as Oberoi Properties, which had remained debt-free for a long time, and of Godrej Properties, which followed a joint development model, has risen in the past three quarters due to negative cash flow. According to Kotak Institutional Equities, Godrej Properties' net debt rose from Rs 1,839 crore in this financial year's first quarter (Q1) to Rs 2,474 crore in Q2 and Rs 2,605 crore in Q3.

    "Slow sales in residential and commercial property in the older projects and high capital employed in commercial have consistently resulted in GPL (Godrej Properties) reporting negative operating cash flow and, hence, rising debt," said Samar Sarda, an analyst with Kotak Institutional Equities Research, in a recent note.

    According to the Kotak report, Oberoi Realty's net debt rose from Rs 555.9 crore in Q1 to Rs 690 crore in Q2 and Rs 792 crore in Q3. It had negative cash flow from operations in 2013-14 and in the first nine months of 2014-15, Sarda expects high expenditure in the Oasis joint venture in Worli without sales being a key reason for this.

    Overall, listed Mumbai developers are battling higher inventory levels. They have unsold under-construction area worth Rs 53,400 crore, a Kotak report said, adding developers have Rs 36,800 crore in coming launches, almost half of these from south-central Mumbai.

    Developers are not able to sell assets faster and cash flow improvement is not happening as the real estate sector is yet to recover
    , said Udasi of Tata Asset Management.

    http://www.business-standard.com/article/companies/mumbai-realty-developers-debt-rises-115031600045_1.html

    ^^ And still RE will perform well as per RE bulls!!
    CommentQuote
  • Originally Posted by FedupBuyer
    yeh and they managed to sell only 100 crores worth of residential.so 1150 crores goes to asset reconstruction.SBI is having bad day selling property.how builders manage to sell I wonder !!!
    SBI sells only 130 properties in e-auction of 300 assets - Moneycontrol.com


    SBI is not a seasoned seller like builders.

    They should have hired builders as advisors/managers to the auction. Advisor would then advice SBI to provide loan to builder's accomplices who would then come to auction and bid up prices to current builders fantasy levels.

    SBI would recover full price and thus their loan outstandings. They would also rotate their loan book from NPA to PA.

    Builders will have their price levels maintained.

    Auction would have been a huge success and will prove that these NPAs were only a flash in the pan and most RE is in sound shape.

    Buyers will continue to keep getting screwed.

    Instead these bumbling bankers in SBI went in for genuine price discovery!!! What an outdated idea in this era of eternal bailouts and screw the savers !!! :D

    cheers
    CommentQuote
  • Originally Posted by wiseman
    SBI is not a seasoned seller like builders.

    They should have hired builders as advisors/managers to the auction. Advisor would then advice SBI to provide loan to builder's accomplices who would then come to auction and bid up prices to current builders fantasy levels.

    SBI would recover full price and thus their loan outstandings. They would also rotate their loan book from NPA to PA.

    Builders will have their price levels maintained.

    Auction would have been a huge success and will prove that these NPAs were only a flash in the pan and most RE is in sound shape.

    Buyers will continue to keep getting screwed.

    Instead these bumbling bankers in SBI went in for genuine price discovery!!! What an outdated idea in this era of eternal bailouts and screw the savers !!! :D

    cheers


    Food for thought indeed !

    Poor clueless ba*****s in SBI !
    CommentQuote
  • Originally Posted by wiseman
    SBI is not a seasoned seller like builders.

    They should have hired builders as advisors/managers to the auction. Advisor would then advice SBI to provide loan to builder's accomplices who would then come to auction and bid up prices to current builders fantasy levels.

    SBI would recover full price and thus their loan outstandings. They would also rotate their loan book from NPA to PA.

    Builders will have their price levels maintained.

    Auction would have been a huge success and will prove that these NPAs were only a flash in the pan and most RE is in sound shape.

    Buyers will continue to keep getting screwed.

    Instead these bumbling bankers in SBI went in for genuine price discovery!!! What an outdated idea in this era of eternal bailouts and screw the savers !!! :D

    cheers


    This is actually what happens in all foreclosure auctions. Since Banks are not allowed to lend for such properties, a mango man cannot bid for them. These properties are bought by brokers/builders in all cash basis.
    CommentQuote
  • Under continued stress, new residential project launches decline by 12% in 2014’

    Even as the government’s latest projected GDP growth numbers for 2014-15 pegs the growth rate at 7.4 per cent, the real estate sector is far from deriving benefit out of it and according to a report released by Cushman & Wakefield, the number of new residential launches in 2014 declined 12 per cent from 1,74,400 units in 2013 to 1,53,000 units in 2014 across the eight major cities.

    http://indianexpress.com/article/india/india-others/under-continued-stress-new-residential-project-launches-decline-by-12-in-2014/
    CommentQuote