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 :
  • NRI complex in Mumbai..!!!!! Quality wise some of the project in Pune are no different.

    NRI word used not for foreign Quality but for Foreign prices!!!!!! 1.5 -5 Cr. so called premium flats in pathetic condition in just 1 year.

    http://mumbaimirror.com/article/2/2010081120100811041724819a3d67511/Rs-5cr-houses-falling-apart-within-a-year.html

    VK
    CommentQuote
  • No one’s buying a house in and around Mumbai

    http://www.indianexpress.com/news/no-ones-buying-a-house-in-and-around-mumbai/658810/

    No one’s buying a house in and around Mumbai




    A staggering 96.3 million square feet of residential space — or about 80,000 homes — is lying unsold in the Mumbai Metropolitan Region (MMR), the highest-ever inventory pile-up for the area. Sales are down 38% over last year.
    Data compiled by real estate research firm Liases Foras show that at the end of June 2010, the unsold residential space in Mumbai, Navi Mumbai, Mira-Bhayander and Thane was nearly twice the 58.9 million sq ft that was available in the MMR in June 2008. Liases Foras CEO Pankaj Kapoor said if flats that are currently lying with investors, which will eventually return to the market are taken into account, another 50 million sq ft will be added to the unsold space.
    Analysts see in the glut a throwback to the circumstances that led to the realty slowdown of 2008-09. Builders are again looking to raise money through IPOs, and the pricing of flats is valuation- rather than sales-driven.

    “Besides high valuations, the 4% VAT and service tax on under-construction flats, and the huge difference between carpet area and notional super built-up area have created an unfriendly environment for home buyers,” Kapoor said.
    R V Verma, executive director of the National Housing Bank, said the recent increase in home loan disbursements has been offset in the metros, and particularly in Mumbai, by rising property prices. “The investor-centric approach is fueling speculation in prices,” he said.
    The average price of residential property in the MMR works out to Rs 7,747 per sq ft; in Mumbai itself it is an eye-popping Rs 13,798 per sq ft. A 1,000-sq ft carpet area flat in Kandivli, which cost Rs 70 lakh 15 months ago today costs Rs 1.6 crore, Kapoor said.

    CommentQuote
  • Originally Posted by aslamgen
    http://www.indianexpress.com/news/no-ones-buying-a-house-in-and-around-mumbai/658810/
    No one’s buying a house in and around Mumbai
    A staggering 96.3 million square feet of residential space — or about 80,000 homes — is lying unsold in the Mumbai Metropolitan Region (MMR), the highest-ever inventory pile-up for the area. Sales are down 38% over last year.
    Data compiled by real estate research firm Liases Foras show that at the end of June 2010


    Today's article in DNA about China property bubble gives similar figures:
    1. Of the newly, constructed apartments, it is estimated that 30% are lying vacant.
    2. Property developers light-up, vacant flats at night to give false impression of occupancy.
    3. There is no official-data as in USA of apartment sale & occupancy (%) in China.

    All points to the fact "It is not happening for property-developer/speculators" in China.
    The last 2.5 years I have seen, the same can be said about Pune RE.
    CommentQuote
  • Nice pics Rajesh. The best thing I liked is the clean water even on the sea...see how the situation is at Girgaon Chowpaty:o. People buy SEA FACING houses at Worli to find people sitting in row in the morning!!

    VK, nice article man. Sometimes I feel it is better to buy a SLK, invest 4Cr, earn 40L+/annum on this (10% with ease) & pursue your hobbies. It is much better than staying in crap INR 5Cr flat as shown in the article!!
    CommentQuote
  • RE Myths

    mady,

    To elaborate what you stated above, here are the articles which talk about Chinese RE & man, the Indian RE scenario is so similar to it.

    The ‘dark’ secrets of China’s property bubble:-

    Travel to any big Chinese city, and you’ll find row upon row of apartment towers — all immaculately constructed, but seemingly without a single occupant or any signs of habitation.

    At nights, their emptiness is even more striking: where you might expect apartment blocks to glitter with lights that establish human occupation, these towers stand as pitch-dark monuments that bear silent testimony to China’s property bubble.

    Getting official data on the number of ‘vacant’ apartments is a bit like groping in the dark. The National Bureau of Statistics, the official statistical agency, recently classified the ‘vacancy rate’ in China’s property sector a secret.But guesstimates, based on proxies for vacancy — such as the lack of power usage — put the number of vacant apartments at over 50 million!

    “There are 64.5 million flats in China that have reported no electricity usage for six consecutive months,”....

    Read more here:-

    http://www.dnaindia.com/money/report_the-dark-secrets-of-china-s-property-bubble_1421676
    CommentQuote
  • Home Loan Rate Hike

    The PSU banks have increased their home loan interest rates by 75 bps or 0.75%, this has been done to keep it in accordance with the hike in BPLR.
    With expected CRR hike in coming months, the interest rate hike will be even more.
    CommentQuote
  • Originally Posted by realacres
    The PSU banks have increased their home loan interest rates by 75 bps or 0.75%, this has been done to keep it in accordance with the hike in BPLR.
    With expected CRR hike in coming months, the interest rate hike will be even more.


    If you read times of india's Friday realty edition, u see that they have articles all through the year saying its good news for home buyers. they find something good.
    when the interest rate goes up, they will write, its an indication that the economy is improving and its a good time to buy
    CommentQuote
  • Originally Posted by aslamgen
    http://www.indianexpress.com/news/no-ones-buying-a-house-in-and-around-mumbai/658810/

    No one’s buying a house in and around Mumbai



    Here is one question to the seniors, knowledgable ppl on this forum and basically everyone.

    Some members have pointed this out and i do believe there is a connection. The property rates in Mumbai are out of reach of many. Including some who have decent salaries. A lot of these guys see PUNE as an option. As long as property rates in Mumbai are touching 80 lacs to 1cr in even average suburbs. Pune property will have boyant demand. I find this a very important link. What do the others think?

    VK
    CommentQuote
  • Originally Posted by veeemkay
    Here is one question to the seniors, knowledgable ppl on this forum and basically everyone.

    Some members have pointed this out and i do believe there is a connection. The property rates in Mumbai are out of reach of many. Including some who have decent salaries. A lot of these guys see PUNE as an option. As long as property rates in Mumbai are touching 80 lacs to 1cr in even average suburbs. Pune property will have boyant demand. I find this a very important link. What do the others think?

    VK


    Partially true, (but pune prices are also unaffordable - that is I can buy e.g. say 50 lakh apartment in Pune, but the question surmises is it worth to buy at this rate, at this time, at this location?)
    CommentQuote
  • Gujarat to develop airport like ST bus stations

    http://timesofindia.indiatimes.com/city/ahmedabad/Airport-like-depots-for-ST-buses-soon/articleshow/6290084.cms

    Not much has changed since those days, but expect a total transformation in the next two years as six GSRTC depots give you the feel of a mall. India’s third largest realty firm Ackruti City Limited (ACL) will develop six international standard bus terminals as part a public-private partnership (PPP) project with the Gujarat government.

    ACL has already hired two Singapore-based architecture firms —Woods Bagot and Space Matrix — to design the terminals with the latest public amenities. The Rs 300 crore project includes existing bus stations in Ahmedabad (Gita Mandir) and Vadodara. Another four new locations will be developed in Ahmdedabad (near Subhash bridge), Surat (Adajan), Vadodara (Makarpura) and Mahesana.

    The new designs promise the atmosphere of an airport. Just that you will catch a bus to go to your destination, not an aircraft! Of the 2.30 lakh sq mt land earmarked for the project, ACL will use 70 per cent for bus terminals, including circulation area for buses and public amenities. The developer will construct commercial spaces on the remaining space, ACL sources told TOI.
    Read more: Airport-like depots for ST buses soon - Ahmedabad - City - The Times of India http://timesofindia.indiatimes.com/city/ahmedabad/Airport-like-depots-for-ST-buses-soon/articleshow/6290084.cms#ixzz0wIKAhapt
    CommentQuote
  • Hi,

    This new govt rule on WAT & Service Tax, how is it applicable to those who have already signed the agreement a year back??
    CommentQuote
  • Real, I can vouch for Gurgaon and Dwarka for sure - at night 30% windows are blank in the best occupied towers.

    Worst occupied have every window blank. Yet each flat is selling for 1Cr.

    Basically, India and China are having the same buy for the child syndrome - people have money and they buy a flat for their small children and keep it locked for future use - if any.

    All of Sohna Road Gurgaon is like this - people buy a flat they dont need and keep it locked because if they rent it out they get dispossessed (Punjabis, Haryanvis, UPwalas and Biharis being the way they are - they will squat for 10 years without paying rent)

    If people are not law abiding, this is what will happen. Flats will be locked, people will live in Juggis.

    India has a bad record of protecting property owner's rights after independence. This is the consequence.
    CommentQuote
  • Originally Posted by veeemkay
    Here is one question to the seniors, knowledgable ppl on this forum and basically everyone.

    Some members have pointed this out and i do believe there is a connection. The property rates in Mumbai are out of reach of many. Including some who have decent salaries. A lot of these guys see PUNE as an option. As long as property rates in Mumbai are touching 80 lacs to 1cr in even average suburbs. Pune property will have boyant demand. I find this a very important link. What do the others think?

    VK

    I have simple question to you:-

    Nashik is more cheaper than Pune, so if Pune RE prices becomes unaffordable, will you but at Nashik??:bab (39):

    Man, the fact is this type of thinking is done by investors & not end users. As said before, had I been in Bangalore, I would have been doing interior works by now, so does that mean that I buy in Bangalore?? No, especially when it is for self use.

    The bottom line is RE is out for investors....even those who jumped last year are now complaining...think about end users then. Had there been good sales why would builders put up 2+ yr old projects at exhibis held recently at VITS, Balewadi?? Think..
    CommentQuote
  • Originally Posted by aditi sharma
    The new designs promise the atmosphere of an airport.

    And here in Pune, PMC & PMPML are deciding whether to buy buses with doors on left hand side or right hand side for past 1 year:o.

    This is the thing which is Gujarat far ahead than rest....quick decision & proper implementation....& junk Italian Congress doesn't like that & hence sends it's dog (read CBI) to Gujarat .

    Venky,

    I came to know from people in Delhi that areas like CP, Raisina still have debris lying around...& in some areas the digging work hasn't even started, let alone lifting of debris. Do you think the work (infra) will be completed before CWG??

    * CWG = Congress Wealth Games Man, Kallu has made crores, infact he can now even put Sharad Pawar to shame....however, he doesn't know how to eat quietly like Pawar & Co.:D:bab (45): Btw, alongwith Mani Shankar Aiyar, I will be the most happy person if these CWG fails :) & hope these games turn out to be a big failure.
    CommentQuote
  • Black Hole

    After Pune Games,

    Kalmadi is trying for bigger and bigger fish

    Olympics will be for future course MEAL.

    Kalmadi is still a lot smaller than Powor & Co

    C the IPL & Singapore citizen haw - haw

    The news has died down man,

    Where is that Tehelka & Do people now have truth.

    These people should be sent to IIAM to teach mass managnt.

    B r i l l i a n t
    CommentQuote