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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Global recovery may be slow, weak: Infosys

    A news from the horse's mouth:-

    The chairman of Infosys Technologies, India’s No. 2 -services exporter, said a recovery from the global financial crisis may be slow and weak, and early signs of an emergence from the worldwide recession cannot be taken for granted.

    http://www.livemint.com/2010/06/12165615/Global-recovery-may-be-slow-w.html
    CommentQuote
  • Mumbai property prices to rise, realty stocks on fire

    http://beta.profit.ndtv.com/news/show/mumbai-property-prices-to-rise-realty-stocks-on-fire-73499?u=1126

    now only the ambanis and khans can afford a house in Mumbai then :) or may be...frends will start sharing the cost of the purchased flat!!

    Just pray Pune builders don't start taking a cue from this event and hike the prices in Pune by making it Mumbai Annexe..
    CommentQuote
  • Originally Posted by realacres
    This news is of Pune. Man, more than 50% of flats don't have CC:bab (45):.

    http://epaper.indianexpress.com/IE/IEH/2010/06/06/ArticleHtmls/06_06_2010_581_031.shtml?Mode=1


    Hi Real... correct me if i am wrong but many times PMC gives completion certificate almost 6 months later .. maybe internal issues and corruption.. but usually builder gets an occupancy certificate which is enough to give possession and confirms usability of the said premises for end users.

    So i think if people are taking possessions without CC, it should be ok but if they are taking possessions without OC, it is an issue...
    CommentQuote
  • Check the link below in Pune MIrror today

    http://www.punemirror.in/index.aspx?page=article§id=62&contentid=2010061420100614022834270fda79e64§xslt=

    It gives the registration figures Q1 2010.. seems the registrations have increased considerably.

    Not sure but does registration in the government office happens immediately as the flat is booked or is there a time lag like 3-4 months.

    Any comments Guys.

    VK
    CommentQuote
  • Originally Posted by punerebuyer

    So i think if people are taking possessions without CC, it should be ok but if they are taking possessions without OC, it is an issue...

    Dear punerebuyer,
    CC (Completion Certiticate) & OC (Occupancy Certificate) both mean the same thing. When the developer submits all relevent NOCs he obtains OC. On the basis of OC, the developer can issue the final Possession letter to flat purchasers. Till he receives the OC/CC he can provide provisional possession for furniture purpose.
    CommentQuote
  • so as per the article 27000 flats have been sold in the last 5 months. It is also not surprising that Jan-May 09 had the lowest bookings as the worst news about the world economy was hitting the news wires every day and the stock market sentiment was rock bottom all over the world.

    The US NRI effect in December-Jan didn't pan out as well in early 09, so it appears most NRI's stayed out of the market.

    if the trend of registrations in the next five months continues NRI's who visit in December will be in for a price shock.

    If Pune builders drop prices by 20%, they will sell out in no time however no builder it appears wants to reduce his profit margin
    CommentQuote
  • Originally Posted by Jitu_Sir
    Dear punerebuyer,
    CC (Completion Certiticate) & OC (Occupancy Certificate) both mean the same thing. When the developer submits all relevent NOCs he obtains OC. On the basis of OC, the developer can issue the final Possession letter to flat purchasers. Till he receives the OC/CC he can provide provisional possession for furniture purpose.


    Thanks Jitu

    So since you have also given provisional possessions so far, have you also not received a CC/OC yet? When are you planning to get it? or is it also dependent on the approval of the revised plan?
    CommentQuote
  • Originally Posted by punerebuyer
    Thanks Jitu

    So since you have also given provisional possessions so far, have you also not received a CC/OC yet? When are you planning to get it? or is it also dependent on the approval of the revised plan?

    Dear punerebuyer,
    We had given provisional possessions since we had applied for OC till 7th floor. This is called part completion.
    CommentQuote
  • Originally Posted by veeemkay
    Not sure but does registration in the government office happens immediately as the flat is booked or is there a time lag like 3-4 months.

    Any comments Guys.

    VK

    The records are kept straight. However, these figs are not only from the builders but these include resale, transfers as well. Now what needs to be seen is of the total sales, how many were resales & how many were bought directly from the builders. Also, as the price is not mentioned in the figs. the avg selling price can't be known in this way as well:bab (35):.
    CommentQuote
  • Originally Posted by veeemkay
    Check the link below in Pune MIrror today

    http://www.punemirror.in/index.aspx?page=article§id=62&contentid=2010061420100614022834270fda79e64§xslt=

    It gives the registration figures Q1 2010.. seems the registrations have increased considerably.

    Not sure but does registration in the government office happens immediately as the flat is booked or is there a time lag like 3-4 months.

    Any comments Guys.

    VK

    Everyone know that TOI and Pune Mirror are the mouthpiece of builders. We can not believe the news provided by them. For the last 1 month they continuously printing some article on real estate and showing that it is booming very fast and prices are increasing and bla bla bla, that is because prospective buyers will get panic and will start booking on the prices asked by the builder as builder lobby won't wish to price correction.
    Even in recession times(1 yr back) it used to print article like that :D
    But we know the reality that property market is going downwards and undersale happenning. Builders are quoting high rates and when nobody is there to purchase at their rate the are calling individual and negotiating rates.
    I request all buyers not to caught in TOI's or builders net:bab (3):
    Negotiate on rates to builder and if not satisfied just walk-out after quoting your rate, if they see you are really interested, they will call u back :D Yesterday i visited some sites in baner there r so many projects running but very less buyers in sites and many were in negotiating mood.
    CommentQuote
  • Originally Posted by pnb_2k
    Yesterday i visited some sites in baner there r so many projects running but very less buyers in sites and many were in negotiating mood.

    And in some cases, there is no-one except for office boy in the office:D. In one case, the watchman gave me the brochure:D.

    Btw, if you observe, in many cases the no. of salesreps have dipped, & they haven't improved even post Oct-Nov 09.
    CommentQuote
  • Below is the reason a lot of seniors ask buyers to be selective and careful about underconstruction property and buying property at launch.

    PAL group dupes investors in Gurgaon and Faridabad building projects, dugs only a hole on a construction site in 5 Years

    http://www.mid-day.com/news/2010/jun/150610-PAL-group-Faridabad-Gurgaon-project.htm

    VK
    CommentQuote
  • Originally Posted by veeemkay

    PAL group dupes investors in Gurgaon and Faridabad building projects, dugs only a hole on a construction site in 5 Years
    VK


    So Builders literally 'ditch'ed the buyers!
    CommentQuote
  • I'm going to say this as many times I can get a chance, in interest of the New users on this forum who happen to come till this point to read this thread.

    Please stop buying under construction properties. If only this is stopped, you will see that the prices will automatically start correcting.

    - By the time the building nears completion, the builders will be hand to mouth to pay their 'EMI's' to housing finance companies or mafia's or politicians.

    - To recover their money, they will get desperate to make a sale.

    - When wanting to make a sale they will ensure that there is no stone left unturned to provide all facilities to the consumers as promised on their brochures.

    This will automatically increase competition. Increase in competition means prices reaching the common man.

    I just wish that somehow everybody starts understanding this and sanity starts prevailing.
    CommentQuote
  • RE is one of the few businesses where one buys a product (flat) before it is completed. It’s like booking a car when it is on the assembly line; or booking to buy food grains when the farmer start sowing the seeds.

    Why can't the Builders themselves approach the Banks, construct the apartments and then sell the finished products instead?

    We, as buyers, take loan, fund the Builder, pay Bank interest on the loan, whereas the Builder enjoys a nice merry-go-round (with free funds, price as dictated by him, etc.).

    Not Fair
    CommentQuote