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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  • awsome tips realacres.. thanks for sharing...

    One more tip for prospective buyers:
    Many people put themselves in a low negotiation position by mentioning their max budget upfront. Never mention your actual budget to brokers/builders.

    remember whether you buy a 20 lakh flat or a 80 lakh flat, its your money that you are paying.. so dont feel constrained in your negotiations.

    Always, ask what the builder/broker has to offer and then ascertain its value independently. If you see it is a good deal or can be made into a good deal, then proceed to negotiation... else look for other deals. Never reveal your numbers.... make it a thumbrule!
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  • Originally Posted by amit_2009
    awsome tips realacres.. thanks for sharing...

    One more tip for prospective buyers:
    Many people put themselves in a low negotiation position by mentioning their max budget upfront. Never mention your actual budget to brokers/builders.

    remember whether you buy a 20 lakh flat or a 80 lakh flat, its your money that you are paying.. so dont feel constrained in your negotiations.

    Always, ask what the builder/broker has to offer and then ascertain its value independently. If you see it is a good deal or can be made into a good deal, then proceed to negotiation... else look for other deals. Never reveal your numbers.... make it a thumbrule!


    Great tips Amit...Tis is very common & first question builder & brokers " what is your budget" & we just tell our budget without thinking a bit & then builder/broker can manipulate price to suit to our budget & which give him maximum profit....

    I must say that these are great tips shared by Amit & Real...I think if we could to follow half of these then also we can save at least 5-10% (and that 5-10% would be a good amount)...
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  • RE prices further down.

    Kapil Malhar, Baner is now down from INR 5400/sq ft last year to INR 4050/sq ft. This rate was told on P HONE & nego are possible once you are in the office. This means a price cut of 25% flat that too without nego.!!
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  • Unsustainable hikes

    http://www.expressestates.in/full_story.php?content_id=93887

    INFRASTRUCTURE DEFICIENCIES:-

    http://www.expressestates.in/full_story.php?content_id=93878

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  • Originally Posted by realacres
    ]http://www.expressestates.in/full_story.php?content_id=93890

    thx for the post

    thx for the post

    thx for the post

    thx for the post
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  • Thx for the post realacres...
    You always come up with great helpful posts !!!!

    I had seen a post with all the property price comparison from last few months to jul....

    Hope to see more such posts....(Although very few here can bargain like you do ;) ) ....we wud atleast get the idea of the prices....

    Thanks
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  • From One Recession to The Other

    Hi All

    Just read a report saying that the US banks are now again starting to repackage old debts and sell them in the stock market to reduce burden on them. This is the exact same reason why we had a recession on the first place.

    The cycle time between recessions is reducing so we will see very frequent waves economic cycles. Please buy houses with the idea of prepaying loan in the next 5-7 years. Thats the maximum a market will be up. The next recession is going to have a direct impact on Indian IT companies.

    We got lucky this time. Will not be lucky again..
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  • Just a question of timing!

    Originally Posted by akssenti
    Hi All

    Just read a report saying that the US banks are now again starting to repackage old debts and sell them in the stock market to reduce burden on them. This is the exact same reason why we had a recession on the first place.

    The cycle time between recessions is reducing so we will see very frequent waves economic cycles. Please buy houses with the idea of prepaying loan in the next 5-7 years. Thats the maximum a market will be up. The next recession is going to have a direct impact on Indian IT companies.

    We got lucky this time. Will not be lucky again..



    akssenti,

    You are bang on target about US banks still being in the doldrums - just like the entire US economy itself. They are only sinking deeper into the mire each day ...

    But I fail to understand why you come to the conclusion that markets will be up for the next 5-7 years! In my opinion, markets are staging a bear market bounce. As I have already mentioned elsewhere, the coming rally may take the DOW as far up as 11000 to 11500, though the more likely target is 10000+. The next leg down is expected to take the Dow to new lows (lower even than 6400 of last time), which could be as low as 5000. The reason for this is that the distressed mortgage market is expected to peak in late 2010 and the number of homes in foreclosures are expected to double from this stage!!!

    cheers
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  • Bears need to become bulls.

    I have simple logic:-

    There are no bulls in current market, only bears. The markets would look good only when bears jump in i.e. when bears become bulls. Do I see this happening soon? Not at all. Economy won't recover before 2011-12 as per current scenario. The China hyped story uncovered recently just shows how inflated the books of nations' economy are, let alone companies. Pumping in money will give short term benefits, but will increase the fiscal deficit which becomes uncontrollable if relief package fails to deliver & also makes access to credit difficult for corporates as well as individuals. We not only have to think about international markets but domestic ones too which have been worse affected due to poor monsoons this year.

    Pune RE boomed only on IT & speculators. In Bangalore too the scenario is the same. However, in Bangalore the prices of several projects were reduced by atleast 40%. DLF cut it's prices from about INR 3500+/sq ft to INR 2200/sq ft which 2 weeks ago stood at INR 1850/sq ft.

    If Bangalore can give for INR 1850/sq ft (DLF, not some pandu builder), why can't Pune especially when Bangalore is overall better than Pune. Same goes with Delhi-NCR.
    There exists high disparity between the median incomes of Puneties & RE prices. If these don't match, RE will fall, infact it is already falling. It is only the 'THUD' sound we are waiting for;)!!

    I reiterate, RE prices have only one way to go:- SOUTH.
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  • Originally Posted by wiseman
    akssenti,

    You are bang on target about US banks still being in the doldrums - just like the entire US economy itself. They are only sinking deeper into the mire each day ...

    But I fail to understand why you come to the conclusion that markets will be up for the next 5-7 years! In my opinion, markets are staging a bear market bounce. As I have already mentioned elsewhere, the coming rally may take the DOW as far up as 11000 to 11500, though the more likely target is 10000+. The next leg down is expected to take the Dow to new lows (lower even than 6400 of last time), which could be as low as 5000. The reason for this is that the distressed mortgage market is expected to peak in late 2010 and the number of homes in foreclosures are expected to double from this stage!!!

    cheers


    By up i meant better than 8000...:) I have no clue about stock market man.. just know that even the most complicated things work on a simple logic...

    For example, banker may never steal 10 Rs kept in front of them. They will however convert bad debts into stock and bonds and sell it. They believe its not stealing but being clever and its public reponsibility to be aware of what they do. As long as we measure companies by only wall street number and not their actual contribution we will continue to suffer. Coke is singularly responsible for health and obesity issues in most parts of developed and developing world but has an amazing stock price.

    By the same logic market will get better because that is what these idiots will push towards in the short time. Over the long time we are headed for global disaster. I don't want recession to come again soon, because i don't care a Sh** for falling real estate prices if i don't have a job.

    So in summary i dont know if market will rise fall and sink totally. :)
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  • Don't forget! It all started with unaffordable RE!!!

    Originally Posted by realacres
    I have simple logic:-

    There are no bulls in current market, only bears. The markets would look good only when bears jump in i.e. when bears become bulls. Do I see this happening soon? Not at all. Economy won't recover before 2011-12 as per current scenario. The China hyped story uncovered recently just shows how inflated the books of nations' economy are, let alone companies. Pumping in money will give short term benefits, but will increase the fiscal deficit which becomes uncontrollable if relief package fails to deliver & also makes access to credit difficult for corporates as well as individuals. We not only have to think about international markets but domestic ones too which have been worse affected due to poor monsoons this year.

    Pune RE boomed only on IT & speculators. In Bangalore too the scenario is the same. However, in Bangalore the prices of several projects were reduced by atleast 40%. DLF cut it's prices from about INR 3500+/sq ft to INR 2200/sq ft which 2 weeks ago stood at INR 1850/sq ft.

    If Bangalore can give for INR 1850/sq ft (DLF, not some pandu builder), why can't Pune especially when Bangalore is overall better than Pune. Same goes with Delhi-NCR.
    There exists high disparity between the median incomes of Puneties & RE prices. If these don't match, RE will fall, infact it is already falling. It is only the 'THUD' sound we are waiting for;)!!

    I reiterate, RE prices have only one way to go:- SOUTH.



    To bring back the perspective from 2007 era ... Let us not forget that all of this started with so-called sub-prime lending (or at least, sub-prime was blamed for it!).

    Today, a majority of people have been led to believe by the spin-doctors in Govt, that the worst is over. Let us seeif it really has ...

    First of all the problem with Alt-A loans and even prime loans has far overshadowed sub-prime. So, the disease has reached every level of the mortgage market in the US. Sub-prime is no longer the problem. Alt-A is!

    In 2008, around 2 million homes were supposed to be underwater (loan amount greater than value of house). In 2010, over 48% of all homes with a mortgage is supposed to become underwater, which is over 20 million homes. And at that time, people will have even lower incentive to pay their mortgage and instead walk away as they will be in far weaker financial position given the job loss situation.

    Then there is commercial RE lending. In 2007 there was no problem. Today the estimate is that 60% of all commercial loans are at risk of default by 2010-11. And the Commercial market is even bigger than the residential market!!!


    And here is the latest news about the 350 billion given in bailout to the banks so far to remove the toxic mortgage debt paper from their vaults into the FEDs. Elizabeth Warren, the Chairperson of the oversight committee has recently said that only maybe 35 billion of this money has gone into purchasing the bad debts. The banks have used that money to instead cover their losses (otherwise losses shown would have been much higher and many banks would have been bankrupted!). So, the trillions of bad paper is still lying in the banks and are probably having an even lower value than in 2008. So, when these come up to the market, many, many banks (especially the big ones) are likely to go belly up!

    So, rest assured, ladies and gentlemen. The worst is very much still to come and will probably do so in 2010. After-effects of these would probably happen till 2011-12.

    While we may not get hit as badly as America, rest assured that this recent bullishness will vanish as quickly as morning mist when the Sun comes out!

    Be careful.

    cheers
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  • Dear realacres

    Dear realacres

    I must congradulate u for your inspirational original ideas. You possibly couldn't have copied it from anywhere else for example - Internet! Your vast knowledge on the subject of real estate is not only obvious from name but also your heavy input in most threads at frequent interval. I wonder how you find time to go to so many individual constriction sites and comment on their progress. I can only call it your dedication and hard work. I hope we Puneites continue to bless from your eye-opening suggestions and thought provoking ideas. Bravo real acres!!
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  • More proof that the Margins for builders are still pretty high and even thought they were probably selling at lower rates still they made so much money as to justify increase in salaries.

    "India Inc was on a savage cost cutting drive in the latter half of 2008-09 . Salary cuts and job losses became the order of the day. However, the big bosses of at least 4 major real estate companies such as Unitech, HDIL, Anant Raj Industries and Ackruti City took home nearly 2-10 times hike in remuneration compared to an year ago."

    VK
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  • RE gone up everywhere

    Hello Members,

    While I like and wish and think that the prices will come down a lot, one
    thing perplexes me, can anybody answer that.

    We are thinking that Indian, particularly Pune builders are holding onto
    the prices irrationally and they have jacked it up to irrational level
    themselves in first place.

    However, RE going up irrationally (200% to 300%) has happened world over
    in last 4 years. This cannot be done by a cartel (there cannot be such
    a wide spread cartel that is). It probably means it went up due to
    the economic principles (demand-supply-affordability-stability).

    So why blame Pune builders only (or why hold them responsible).

    Even in US, the prices have not gone down too much (please check R2I
    forum blog discussing RE prices in bay area). The prices do need to come
    down, but how and when god only knows.

    I am just seeking answers from members who have better data, analysis or
    thoughts on this.
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