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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  • The Indian Story is holding good ....

    Lets hope it remains so...
    Attachments:
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  • Originally Posted by frugality
    The Indian Story is holding good ....

    Lets hope it remains so...

    And today the entire global markets have crashed:bab (35):. Man, more than markets, I am worried about inflation:(. Anyways, July will be the month to watch out for, reasons:-

      Base rate will come into effect for banks,
      RBI may revise the interest rates,
      Latest DP of Pune will be available for scrutiny,
      The banks won't be able to offer different interest rates to new customers. Now all the customers, old+new will have same interest rates which will add some transparency to the banking sector lending.
      Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .Btw, all the opposition parties are planning for Bharat Bandh on coming Monday as protest against rising inflation. So, don't keep any work pending for this day .
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  • Originally Posted by realacres
    Here is a survey which was done in Dec end 09- early Jan 10. The prices have been put up here. You may agree or disagree with the nos. but the fact remains that buyers want reduction in prices before they can jump in.

    can you quote the source??
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  • Indian equity markets are anyways controlled by a handful of people. No major moves in the world markets and Indian markets went up by almost 10% from the lows in May. The movements in Indian market either way are so fast and at such a rapid pace that a common man/retail investor will hardly have any time to react.

    Money power rules and it is more true in India as if you have money you can make everything work in your favour - markets, law, judiciary, rules and regulations anything...
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  • Originally Posted by chinmay686
    can you quote the source??

    It was published in IE & was done by some agency which carried out survey from more than 4000 samples.
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  • Few new flats under Rs 50 lakh, half over a crore

    An article which clearly shows a presence of big RE bubble, it's again from Indian Express:):-

    http://epaper.indianexpress.com/IE/IEH/2010/06/28/ArticleHtmls/28_06_2010_521_020.shtml?Mode=1
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  • 10 15%??

    The article says that a 10-15% correction is bound to happen because of unaffordability.
    So a 50L flat will cost 45L and become affordable?
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  • :D
    Originally Posted by rahulms
    The article says that a 10-15% correction is bound to happen because of unaffordability.
    So a 50L flat will cost 45L and become affordable?


    That is more then the expectation ... a JLLM spokesman is builders puppet.....
    He is acknowledging it that in itself is huge surprise ....

    If any builder speaks ..
    - Prices will go higher ...
    - 20 % rise from these levels ...
    its like Maruti increases price each month and then says expect 20% more price increase :)
    bhaaeee .. bhaaeee ..bhaaeee ..:bab (61):

    and think about buying Maruti at the price of Toyota Camery ....:D
    which most of Metro buyers are doing .....
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  • Originally Posted by frugality

    and think about buying Maruti at the price of Toyota Camery ....:D
    which most of Metro buyers are doing .....


    Quite apt analogy.. at least for pune.
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  • Builder Defaults

    For all the boomers here who say that builders won't reduce rates or sitting on pile of cash etc. look what happened to Runwal Builders, the one who are developing Runwal Seagul, Hadapsar. This builder has been termed 'Defaulter' by the banks. Though he has made some payment, the tag shall always be there with him.

    * Now where in media did this come? Thanks to PBAP. There are many other cases as well, but never get published. Those who want to confirm this can speak with any major banks, including LIC-HF:bab (34):.
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  • Originally Posted by realacres
    For all the boomers here who say that builders won't reduce rates or sitting on pile of cash etc. look what happened to Runwal Builders, the one who are developing Runwal Seagul, Hadapsar. This builder has been termed 'Defaulter' by the banks. Though he has made some payment, the tag shall always be there with him.

    * Now where in media did this come? Thanks to PBAP. There are many other cases as well, but never get published. Those who want to confirm this can speak with any major banks, including LIC-HF:bab (34):.


    So where these Builders stash so much money that they earn?
    BTW, there was a news item on TV today about underworld wanting to
    control Mumbai RE (after some hiatus since 1999).

    If it is applicable to Pune RE as well, then buyers may have shelve out some more ‘psf’ cash to satisfy these new players too.
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  • कराच्या जाळ्यात बिल्डर

    Originally Posted by enduser
    So where these Builders stash so much money that they earn?
    BTW, there was a news item on TV today about underworld wanting to
    control Mumbai RE (after some hiatus since 1999).

    If it is applicable to Pune RE as well, then buyers may have shelve out some more ‘psf’ cash to satisfy these new players too.


    Govt is thihking to have betterment tax on builders developing proprty alongside the metroline in mumbai...Now it is obvious that builders will "vasool" this tax from customers but how much builders will increase the rates? afterall there is some limit.

    There is an interesting article about this in maharashtra times.
    http://www.indianrealestateforum.com/newreply.php?do=newreply&p=88261

    Pasting some extract here...

    मुंबईत सध्या अंधेरी व चेंबूर या दूरच्या उपनगरांतही घरांचे भाव कोटींच्या घरात गेले आहेत. हे भाव कोटींच्या घरात जाण्याचे कारण काय याचे उत्तर कुणाजवळही नाही. बिल्डर त्यांचा कंपू करून मागणी असलेल्या भागात सतत भाव वाढवित असतात. घरांच्या किमतीवर कुणाचेही नियंत्रण नाही. अनेक उद्योग ग्राहक संरक्षण कायद्यात येतात; पण बिल्डरांच्या उद्योगाला कोणताच कायदा लागू नाही. बिल्डरांनी घराच्या बांधकामात कोणते सामान वापरावे, त्याचा दर्जा काय असावा याचे प्रमाणीकरण करणारी कोणतीही यंत्रणा नाही. एवढेच नाही तर बिल्डरांनी घराचे जे क्षेत्रफळ जाहीर केलेले असते त्याच क्षेत्रफळाचे घर ग्राहकाला मिळते असेही नाही. त्यामुळे घरबांधणी हा एक अफाट पैसा मिळवून देणारा उद्योग झाला आहे. घरांसाठी वीज, पाणी, रस्ते यांची व्यवस्था सरकारने करायची आणि या सुविधांचा फायदा घेऊन बिल्डरांनी घरांच्या किमती वाढवायच्या असा प्रकार गेली अनेक वषेर् अव्याहतपणे चालू आहे. त्यामुळे बिल्डरांवर बेटरमेंट टॅक्स लावण्याचा सरकारचा विचार स्वागतार्हच म्हणावा लागेल. पण बिल्डर हा कर आपल्या खिशातून न भरता तो ग्राहकांवर लादण्याची शक्यता आहे. तसे झाल्यास ही घरे सामान्य माणसांच्या आवाक्याबाहेर जाण्याची भीती आहे. पण घरे न परवडण्याइतकी महाग झाल्यास त्यांची विक्री होणे अवघड होत जाईल. त्यामुळे घरांच्या किमती व बिल्डरांवरील कर यांचे काही सूत्र असणे आवश्यक आहे.
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  • contd....

    And the article also reads about companies shifting to Navi Mumbai and outskirts due to sky rocketed rates in South Mumbai...

    दक्षिण मुंबईतील अनेक कार्यालये आता वांदे-कुर्ला संकुल, अंधेरी-कुर्ला मार्ग व नव्या मुंबईकडे हलू लागली आहेत. त्यामुळे आता दक्षिण मुंबईकडे धावणाऱ्यांची संख्या न वाढता स्थिर राहील असा अंदाज आहे. तसे झाल्यास मुंबईतील महागड्या घरांची मागणी कमी होऊन उपनगरांतील घरांची मागणी वाढेल. त्यामुळे बिल्डरांना ठराविक मर्यादेपलीकडे घरांच्या किमती वाढविता येतील असे वाटत नाही. मध्यंतरी मुंबईत गिरण्यांच्या जमिनी अफाट किमतीत काही बिल्डरांनी विकत घेतल्या. त्यामुळे व्यावसायिक जागांना खूप मागणी आहे असे चित्र निर्माण झाले; पण प्रत्यक्षात दक्षिण मुंबईतील जागांचे भाडे परवडत नाही म्हणून त्या भागातील अनेक कार्यालये उत्तर मंुबईत गेली आहेत. एवढेच नाही तर परदेशी वकिलातींनीही उपनगरात आपली व्हिसा कार्यालये नेली आहेत. थोडक्यात, जागांचे भाव कसेही वाढवले तरी लोक घरे घेतील असे समजण्याचे कारण नाही. त्यामुळे बिल्डरांना बेटरमेंट कर लावल्यानंतरही मध्यमवर्गाला व निम्न मध्यमवर्गाला परवडतील अशा किमतीत घरे बांधावीच लागतील. कारण या व्यवसायात नफा अफाट आहे.
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  • Originally Posted by home123
    And the article also reads about companies shifting to Navi Mumbai and outskirts due to sky rocketed rates in South Mumbai...

    Due to poor quality life in Indian metros, gradually good doctors/engineers/teachers will exit India to help aging population in US, Canada, Japan ?
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  • Originally Posted by home123
    थोडक्यात, जागांचे भाव कसेही वाढवले तरी लोक घरे घेतील असे समजण्याचे कारण नाही.

    +1.

    Today morning I met my neighbor who had gone to Singapore to meet his son. He stayed there for over 3 weeks. And he told me that a 3BR flat in 18 floor building costs just a tad under INR 1Cr:). Add to it that the buildings are constructed by Govt, he said not a single leakage seen. Infra, I won't discuss, it is well known.

    Man, 3BR for under 1Cr & this is Singapore, & there are some who pay this amount in Pune at Balewadi & Kharadi:D.
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