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 realacres
    By buying 10 flats in Pune, why do you want to become senior citizen today. Man, rather than buy 10 flats go out, buy a yatch & chill in the seas &/or take a Merc SLK & drive down Cote-de-Azur, wonderful road across the seas & mountains:):bab (41):. Life is short, make the most out of it:).

    * If money has to be invested in RE, I would rather buy a single palatial house for self use rather than 10 junk flats.




    Yes buying 10 Flats is stupidity those ppl are not exploring any other good investment option like Stocks, MF or even some time they are not even thinking about giving quality education to there kids.

    Because these ppl thinks RE always go upward
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  • One of my friend was searching flat for rent. He got a broker and selected on flat, later on he knows the broker was son of the land lord.

    Another incident, when another friend finalize the flat then land lord was asking for the broker ship. He said I am broker as well as land lord give me broker ship

    Such type of people must have more than one flat because money is everything for them.
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  • Originally Posted by Saurabh01
    One of my friend was searching flat for rent. He got a broker and selected on flat, later on he knows the broker was son of the land lord.

    Another incident, when another friend finalize the flat then land lord was asking for the broker ship. He said I am broker as well as land lord give me broker ship .



    Eveee, yuk, disgusting. is all I can say.
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  • There are plenty of such guys.. I know of a broker an uneducated bum, but made it big on just broking and he also owns atleast 9-10 small 1 BHK's and he used to charge a brokerage even for renting out his own house... in the regular course of business..

    Originally Posted by RAJESHP
    Eveee, yuk, disgusting. is all I can say.
    CommentQuote
  • Real Estate Cash Flow Calculator

    Friends, I found this very interesting blog/article, just thought of sharing it...

    http://www.deepakshenoy.com/articles/realestate/realestatecf.htm
    CommentQuote
  • Originally Posted by eucalyptus.mp
    i know many ppl owing more than 3 flats in pune .. they highly rely on bachelors and students population in pune for rent .


    This confirms my belief that there are many investors in Pune.

    In this case, get ready for some action soon. If prices do not rise beyond 2008 peaks this year, I expect market getting bearish(read beginning of buyers market and end of sellers market) by end of this year.

    I feel most Investors bought in 2006 and all of 2007(my convenient assumption:D since, prices were beyond reach of common man early 2007 itself)

    There are 2 types of investors
    1) Very optimistic
    2) little optimistic.
    There is nothing like pessimistic investor, he will keep all his money in bank:D

    Some got possession and some are yet to get.

    Very optimistic Investors who got possession, wait for more appreciation. they give on rent, some test waters, by putting their flat on sale at very high rate. They wont reduce price, even when very poor response to their re-sale.

    Less optimistic Investors who got possession also some what test waters first few months, by putting their property on sale at little high rate. Some are able to sell, some who wont, reduce the price little below market price(read builder price) and keep waiting for buyer.

    Some are already burdened by EMI and waiting to get out, but still optimistic about prices and not willing to sell below cost. These people can stay in market roughly 6-9 months(again my convenient assumption:D), without selling and then go for distress sale. Fun starts here.

    More fun part is during such time, even genuine buyers disappear from the market, giving very hard time to these Investors.

    I expect market getting bearish by end of this year and 2012 best time to buy.

    Note: This is my personal opinion. I write what makes sense to me, and not to please some people.
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  • Massive drop in bank lending to real estate sector

    Man, look at this interesting piece of news.

    Recent Reserve Bank of India data on the flow of bank credit shows net credit inflows to the real estate sector at a measly Rs 842 crore for the 11 months ending February 2010; a massive drop compared with the Rs 33,617 crore lent during the same period up to February 2009. The sluggish growth in credit disbursement comes in the backdrop of a good number of real-estate companies restructuring of their loans or rescheduling their repayments through a special window that was kept open by the banking industry until June 2009. Pending repayment of these restructured loans, banks appear to be refraining from increasing their exposure to this sector.

    For more:-

    http://www.thehindubusinessline.com/2010/05/02/stories/2010050252080100.htm
    CommentQuote
  • Originally Posted by realacres
    Man, look at this interesting piece of news.

    Recent Reserve Bank of India data on the flow of bank credit shows net credit inflows to the real estate sector at a measly Rs 842 crore for the 11 months ending February 2010; a massive drop compared with the Rs 33,617 crore lent during the same period up to February 2009.

    Well I think it’s quite evident. Looking at the last few days IREF discussion its reflecting that. Fewer users are interested in exploring new schemes\launches as there are none.
    There are no new schemes and builder’s just wants to offload existing inventory by reducing supply. They can very well maintain price pressure. Exuberance of RE buyers have waned hopefully!!!

    Seems last few days users are fighting furiously on social equality, stock market direction and which bank offers better home loan products.

    Oh and some disguised members are engineering new found love for same old schemes and water deficient areas with bridal optimism.
    Keep oiling guys otherwise those entire mega townships and 1000+ flat schemes will be ghost towns. We need to flush out inventories in titanic towers where basic safety cant be guaranteed as corporation is not equipped to do so.


    :)

    Well I think it’s quite evident. Looking at the last few days IREF discussion its reflecting that. Fewer users are interested in exploring new schemes\launches as there are none.
    There are no new schemes and builder’s just wants to offload existing inventory by reducing supply. They can very well maintain price pressure. Exuberance of RE buyers have waned hopefully!!!

    Seems last few days users are fighting furiously on social equality, stock market direction and which bank offers better home loan products.

    Oh and some disguised members are engineering new found love for same old schemes and water deficient areas with bridal optimism.
    Keep oiling guys otherwise those entire mega townships and 1000+ flat schemes will be ghost towns. We need to flush out inventories in titanic towers where basic safety cant be guaranteed as corporation is not equipped to do so.


    :)

    Well I think it’s quite evident. Looking at the last few days IREF discussion its reflecting that. Fewer users are interested in exploring new schemes\launches as there are none.
    There are no new schemes and builder’s just wants to offload existing inventory by reducing supply. They can very well maintain price pressure. Exuberance of RE buyers have waned hopefully!!!

    Seems last few days users are fighting furiously on social equality, stock market direction and which bank offers better home loan products.

    Oh and some disguised members are engineering new found love for same old schemes and water deficient areas with bridal optimism.
    Keep oiling guys otherwise those entire mega townships and 1000+ flat schemes will be ghost towns. We need to flush out inventories in titanic towers where basic safety cant be guaranteed as corporation is not equipped to do so.


    :)

    Well I think it’s quite evident. Looking at the last few days IREF discussion its reflecting that. Fewer users are interested in exploring new schemes\launches as there are none.
    There are no new schemes and builder’s just wants to offload existing inventory by reducing supply. They can very well maintain price pressure. Exuberance of RE buyers have waned hopefully!!!

    Seems last few days users are fighting furiously on social equality, stock market direction and which bank offers better home loan products.

    Oh and some disguised members are engineering new found love for same old schemes and water deficient areas with bridal optimism.
    Keep oiling guys otherwise those entire mega townships and 1000+ flat schemes will be ghost towns. We need to flush out inventories in titanic towers where basic safety cant be guaranteed as corporation is not equipped to do so.


    :)

    Well I think it’s quite evident. Looking at the last few days IREF discussion its reflecting that. Fewer users are interested in exploring new schemes\launches as there are none.
    There are no new schemes and builder’s just wants to offload existing inventory by reducing supply. They can very well maintain price pressure. Exuberance of RE buyers have waned hopefully!!!

    Seems last few days users are fighting furiously on social equality, stock market direction and which bank offers better home loan products.

    Oh and some disguised members are engineering new found love for same old schemes and water deficient areas with bridal optimism.
    Keep oiling guys otherwise those entire mega townships and 1000+ flat schemes will be ghost towns. We need to flush out inventories in titanic towers where basic safety cant be guaranteed as corporation is not equipped to do so.


    :)
    CommentQuote
  • Originally Posted by realacres
    Man, look at this interesting piece of news.

    Recent Reserve Bank of India data on the flow of bank credit shows net credit inflows to the real estate sector at a measly Rs 842 crore for the 11 months ending February 2010; a massive drop compared with the Rs 33,617 crore lent during the same period up to February 2009. The sluggish growth in credit disbursement comes in the backdrop of a good number of real-estate companies restructuring of their loans or rescheduling their repayments through a special window that was kept open by the banking industry until June 2009. Pending repayment of these restructured loans, banks appear to be refraining from increasing their exposure to this sector.

    For more:-

    http://www.thehindubusinessline.com/2010/05/02/stories/2010050252080100.htm


    This is a good news as now lesser new projects will be launched helping to maintain the present price levels :bab (48):. Thx to forum like this , service tax and builder's attitudes, buyers will prefer relsale . Also due to high land prices builders themselves are feeling the pinch on profit margins. Banks also sensed that and also due to pressure from RBI etc, have severely restrcited loans to builders.
    CommentQuote
  • Originally Posted by Sharpj
    There are plenty of such guys.. I know of a broker an uneducated bum, but made it big on just broking and he also owns atleast 9-10 small 1 BHK's and he used to charge a brokerage even for renting out his own house... in the regular course of business..


    It's NOT appropriate (financially) to call this guy uneducated. He seems for educated then ITG, who are highly-leveraged and slogging 12 hrs daily thinking about EMI :D

    I find some ITG really stupid, financially. What is the use of earning 10L p.a if one takes 80% loan for buying 25L house which is easily available on rent for 7K? EEK!
    CommentQuote
  • Originally Posted by compuwalah
    This is a good news as now lesser new projects will be launched helping to maintain the present price levels :bab (48):.

    Fact is even the current inventories far exceed the demand. Hence, if what is available on shelf is unable to get cleared out, I see no reason why current prices can hold even with existing inventory.
    CommentQuote
  • DPs of merged villages should be passed: Magar

    Credai Pune president says it will make affordable homes a reality
    Dinesh Thite
    May 06, 2010,Thu

    Confederation of Real Estate Developers' Associations of India (Credai) Pune president Satish Magar said on Tuesday that the development plans (DPs) of 23 merged villages in the Pune Municipal Corporation (PMC) should be passed immediately to prevent unauthorised construction and to increase the availability of land.

    He was talking to media persons about the trends in property market in the city. Credai Vice presidents Hemant Naiknavare, Shantilal Kataria and Rohit Gera as well as honorary secretary Nitin Nyati and joint honorary secretary Kishor Pate were present.

    Magar said that in order to make affordable housing a reality in the city, the DPs should be passed at the earliest, taxes on the industry should be reduced and the government should control land prices.

    The DPs for 23 merged villages were sent to the state government by the PMC for approval some years ago, but they have not been cleared yet.
    Magar said if the development plans were passed, then roads and other infrastructural facilities could be developed in the fringe areas of the city. This will help in increasing the land supply. He said the availability of land for construction in the city was very low and this was leading to the high prices of realty.

    At present, the real estate market in the city was moving in a forward direction but at a slow pace. The most important problem was land availability. Once the DPs are passed, there would be faster development with the supply of affordable homes.
    The recent imposition of taxes like 2.5% service tax and 1% value added tax (VAT) as well as increased stamp duty due to higher ready reckoner rates have together led to increase in property prices by Rs250 to Rs300 per square feet.

    Gera said that with job security back in the IT sector, the demand for houses was increasing. Naiknavare said there was an upsurge in demand compared to the market situation last year.

    Source:- 3dsyndication



    Based on this, I have some querries about the genuineness of Magar. Reasons:-

      When ULC was repealed, the same thing was said:- Reduction in land prices. In some cases, it did happen but the builders didn't pass on the benefit to the buyers,
      Builders are already selling flats at high rates just based on DP roads, PROPOSED plans etc. Now, when DP will be passed, it will make the builders hike the rates even more rather than reduce them as they will know about the infra well,
      Builders who purchased land cheap in 2000-03 too are charging high rates. Hence, I don't understand how low land prices will reduce prices of flats though it will be useful in case of group housing or building on own,
      Affordable Housing:- Conveniently used by the builders, though no one is stating what actual affordable housing means i.e. no defination. Remember, Mr.Singh of DLF once said that affordable housing means the flats in the range of INR 60-70L,
      Magar said:- "In order to make affordable housing a reality in the city, the DPs should be passed at the earliest, taxes on the industry should be reduced and the government should control land prices." But, he is not ready to give in to the demand that Govt should regulate RE prices. So, builders want land prices to be regulated (read keep them cheap) but not the flat prices.
      All in all, this is more for increasing the profit margins of the builders rather than benefit the buyers in reality:bab (34):.
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  • Originally Posted by realacres
    Credai Pune president says it will make affordable homes a reality


    That's the RE joke of this decade.

    Affordable means match-box type of flats that would ensure that the profit margins to the Builders remain at 200% to 300 % level.

    And all this by constantly harping (brain washing) on Quality, high land prices, high input costs, amenities (DPs, etc.)...
    CommentQuote
  • Originally Posted by realacres


      Affordable Housing:- Conveniently used by the builders, though no one is stating what actual affordable housing means i.e. no defination. Remember, Mr.Singh of DLF once said that affordable housing means the flats in the range of INR 60-70L.

      Runwal Euphoria at Kondhwa selling 2 BHK for 37 L as affordable housing - chota budget bada ghar
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  • Is anyone here following the Mumbai forum as well? I noted that the people there are not as bearish as we folks here! One thing is for sure, the rent:cost ratio in Mumbai (though thoroughly hated by some on the forum) is much better, in the range of 1:300-1:400 even at current prices, unlike in Pune.
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