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 Sharpj
    The outlook for the realty industry in Pune looks bright, with the city's builders getting gung ho about their projects. CREDAI, Pune launched the first of its property exhibition series on 6-8th August at the VITS Hotel, Balewadi displaying over 200 projects offering 1 BHK to 5BHK penthouses.
    Anuj Bhandari, exhibition committee chairman, CREDAI said, "We feel that the stock of good quality housing is low compared to the demand. People are now more confident of the economy and demand has returned to the realty industry. CREDAI Pune recently did a survey that showed the average ticket size was Rs 3025 per sq. feet. But supply is not able to keep pace with demand."
    The exhibition was inaugurated at the hands of the Mayor, Mohansingh Rajpal. Commenting on the exhibition the Mayor said, "A new generation of builders is building for the new generation of citizens. This younger generation of builders is doing a lot of good for the city. Pune needs increasingly young people participating in the development of the city. We need builders to take a more pro-active role in developing facilities for recycling of water, Rain Water Harvesting, sewage treatment as this will help reduce the load on PMC. In return the PMC offers a 10% reduction in property tax that will make a project more attractive to buyers."
    A move that Shantilala Kataria, vice-president CREDAI, Pune says had been initiated about five years back. "Even before the Government came out with sops for green initiatives, Pune's builders took it upon themselves to develop such projects. But now more and more members are seeing the benefits of eco housing to their customers and the city."
    Kataria said, "This is on account of shortfall of land availability. CREDAI, Pune has made a representation to the Urban Development secretary, T.C. Benjamin to make more land available by applying the same parameters of redevelopment for wadas and old city areas as they have done in Mumbai. Also the DP has not been approved leading to a lock-up of greater amount of developable land."
    Mayor Rajpal stated to the CREDAI members that the DP would be passed before October 15th this year. "I can assure you that the DP will be passed before Diwali. Whatever is required for the betterment for the city, I am ready to do." The Mayor asked CREDAI members to look at ways in which tourism could increase in the city and assist the PMC to develop projects such as cleaning up the river, development of a world class exhibition centre, museums and malls.

    All Bakwas statments given since sales is down.
    CommentQuote
  • TOI vs IE

    Originally Posted by Sharpj
    The outlook for the realty industry in Pune looks bright, with the city's builders getting gung ho about their projects. CREDAI, Pune launched the first of its property exhibition series on 6-8th August at the VITS Hotel, Balewadi displaying over 200 projects offering 1 BHK to 5BHK penthouses.
    Anuj Bhandari, exhibition committee chairman, CREDAI said, "We feel that the stock of good quality housing is low compared to the demand. People are now more confident of the economy and demand has returned to the realty industry. CREDAI Pune recently did a survey that showed the average ticket size was Rs 3025 per sq. feet. But supply is not able to keep pace with demand."
    The exhibition was inaugurated at the hands of the Mayor, Mohansingh Rajpal. Commenting on the exhibition the Mayor said, "A new generation of builders is building for the new generation of citizens. This younger generation of builders is doing a lot of good for the city. Pune needs increasingly young people participating in the development of the city. We need builders to take a more pro-active role in developing facilities for recycling of water, Rain Water Harvesting, sewage treatment as this will help reduce the load on PMC. In return the PMC offers a 10% reduction in property tax that will make a project more attractive to buyers."
    A move that Shantilala Kataria, vice-president CREDAI, Pune says had been initiated about five years back. "Even before the Government came out with sops for green initiatives, Pune's builders took it upon themselves to develop such projects. But now more and more members are seeing the benefits of eco housing to their customers and the city."
    Kataria said, "This is on account of shortfall of land availability. CREDAI, Pune has made a representation to the Urban Development secretary, T.C. Benjamin to make more land available by applying the same parameters of redevelopment for wadas and old city areas as they have done in Mumbai. Also the DP has not been approved leading to a lock-up of greater amount of developable land."
    Mayor Rajpal stated to the CREDAI members that the DP would be passed before October 15th this year. "I can assure you that the DP will be passed before Diwali. Whatever is required for the betterment for the city, I am ready to do." The Mayor asked CREDAI members to look at ways in which tourism could increase in the city and assist the PMC to develop projects such as cleaning up the river, development of a world class exhibition centre, museums and malls.


    Two newspapers

    Same news .. same person different headlines......:bab (3):
    For one it is a leader and for one Gangster ;)


    Kothrud NCP leader shot dead

    Times of India - ‎Aug 14, 2010‎
    http://timesofindia.indiatimes.com/city/pune/Kothrud-NCP-leader-shot-dead/articleshow/6313196.cms


    vs
    Gangster Sanjay Marne murdered

    Indian Express - ‎Aug 14, 2010‎

    http://www.indianexpress.com/news/Gangster-Sanjay-Marne-murdered/660451
    CommentQuote
  • Originally Posted by frugality
    Two newspapers

    Same news .. same person different headlines......:bab (3):
    For one it is a leader and for one Gangster ;)


    Kothrud NCP leader shot dead

    Times of India - ‎Aug 14, 2010‎
    http://timesofindia.indiatimes.com/city/pune/Kothrud-NCP-leader-shot-dead/articleshow/6313196.cms


    vs
    Gangster Sanjay Marne murdered

    Indian Express - ‎Aug 14, 2010‎

    http://www.indianexpress.com/news/Gangster-Sanjay-Marne-murdered/660451


    Thats ok... its simply because IE is calling a gangster as a gangster while TOI is highlighting that the Gangster is a NCP leader... they are basically making NCP look bad as well .. this is a best utilization of the opportunity for congress... :bab (34):

    no comments on scorpio chaps... Facts dont change,
    - This person was NCP leader
    - This person got killed because of gangwar
    - No one will ask questions on how a person with such background because NCP leader... :bab (5):
    CommentQuote
  • Interest rate hike

    Originally Posted by pcpune
    Yeh, even I got the same news and confirmation from a guy who works in PMC, its down to like 500-1000 houses registrations per month from 2000-3000 earlier - in Jan-Mar period....

    Well, its important now that banks keep the interest rates high, developers will need to blink...however - lets ask for transparency in deals rather than the price - as this is what has affected all of us much more....

    The interest rate thing is already there:-

      SBI has increased the deposit rates today which will lead to higher lending rates,ICICI has increased the lending rates by 0.50% today which will come into effect after 1 day i.e 18th Aug 2010.



      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.
      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.
      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.
      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.
      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.
    CommentQuote
  • Originally Posted by pcpune
    Yeh, even I got the same news and confirmation from a guy who works in PMC, its down to like 500-1000 houses registrations per month from 2000-3000 earlier - in Jan-Mar period....

    Well, its important now that banks keep the interest rates high, developers will need to blink...however - lets ask for transparency in deals rather than the price - as this is what has affected all of us much more....


    I guess not, because developers will still sustain, they have enough money and buyers hv missed the chance again to buy :o only time will tell what would happen
    CommentQuote
  • Originally Posted by realacres
    The interest rate thing is already there:-

      SBI has increased the deposit rates today which will lead to higher lending rates,ICICI has increased the lending rates by 0.50% today which will come into effect after 1 day i.e 18th Aug 2010.



      Both these lead to the same conclusion:- Higher interest rates on home loan. Also, there will be another hike from RBI in Sep which will lead to even higher interest rates & I won't be surprised if the home loan interest rates hit double digits.

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..

      They were in double digit last year ...recession is there since couple of years..nothing impacted much..
    CommentQuote
  • I know Pune developers will not come down by more than 10-20% even if the interest rates rise to above 10%, however the last time this happened - the pressure of clearing the inventory was only for 2-3 months, and again the banks blinked reducing the interest rates, also the govt announced the stimulas.

    I firmly believe - FORCE = Pressure * Time, and hence interest rates high for like 6 months to 1 year, WILL surely make the builders blink.

    Anyways, for me, even if they blink, it makes absolultey no sense to buy speically in Pune/Mumbai/NCR...

    I was looking another flat for investing in cities like Ahmedabad & Nagpur - where decent 2 BHKs are still avaialble for 10-15 lacs, VERY MUCH WITHIN CITY LIMITS....
    CommentQuote
  • Originally Posted by punerebuyer
    Thats ok... its simply because IE is calling a gangster as a gangster while TOI is highlighting that the Gangster is a NCP leader... they are basically making NCP look bad as well .. this is a best utilization of the opportunity for congress... :bab (34):

    no comments on scorpio chaps... Facts dont change,
    - This person was NCP leader
    - This person got killed because of gangwar
    - No one will ask questions on how a person with such background because NCP leader... :bab (5):


    Nowdays, there is hardly any difference between gangster and a leader :bab (45):.
    CommentQuote
  • EMIs set to go up as SBI, ICICI raise lending rates

    The State Bank of India (SBI) and ICICI Bank on Monday raised lending rates by 0.5%, a move that will push up home loan EMIs apart from auto and consumer loans.

    http://www.dnaindia.com/india/report_emis-set-to-go-up-as-sbi-icici-raise-lending-rates_1424458
    CommentQuote
  • Flat booking cancellation costs a lot

    A good link which illustrates how big are the costs if you decide to cancel the booking. Good link from mint.

    http://mintmoney.livemint.com/featured/2010/08/flat-booking-cancellation-costs-a-lot/
    CommentQuote
  • Housing Societies Will Soon Own Their Land

    Some good news for house buyers as they will own the land & not the builders :) :-

    Mon Aug 16, 2010

    Even more than three years after the amendment was made by the state legislature in the Maharashtra Ownership Flats Act, 1963 making the builders mandatory to transfer the ownership of the land to the society, its implementation has not started.
    But the government now says the implementation of the act, which calls for the transfer in the form of conveyance deed, will be started within a couple of months.:)

    Chief minister Ashok Chavan on Friday reviewed the preparations to implement the Act, which was amended in April 2007. The rules, required to offer power to the competent authorities for the implementation, have also been finalised.

    Officials from housing, co-operation and stamp & registration department apprised the chief minister of the preparations. They also put forward the need to streamline the old documents in the stamp duty offices and additional machinery and staff in the co-operation department.

    An official from the chief minister's office said that once these requirements are met with, the implementation is expected to start in couple of months. "From the date we accept the application from a society, its disposal is needed to be completed in six months. There are nearly 60,000 housing societies in the city and suburbs alone that are eagerly waiting for the conveyance to be done," the official said.

    About the delay in implementation, the official said: "Drafting of rules took first one year after the amendment. It was followed by the publication of proposed rules for suggestion and objections in August 2009. We received 76 suggestions and objections. It took us time to tabulate and study them," he said.

    The official clarified that the housing department had turned down the builders' demand to exclude the big layout from the restrictions. "The builders' contention was that it would prove a hurdle for them in using the transferable development right in the subsequent constructions. But the Supreme Court ruling in Jayantilal Institute case is very clear and balanced for both the sides," he said.:)

    The punishment for the errant builder has been increased to 1 year from 6 months, and the fine from Rs10,000 to Rs50,000.
    CommentQuote
  • Originally Posted by realacres
    Some good news for house buyers as they will own the land & not the builders :) :-

    Mon Aug 16, 2010

    Even more than three years after the amendment was made by the state legislature in the Maharashtra Ownership Flats Act, 1963 making the builders mandatory to transfer the ownership of the land to the society, its implementation has not started.
    But the government now says the implementation of the act, which calls for the transfer in the form of conveyance deed, will be started within a couple of months.:)

    Chief minister Ashok Chavan on Friday reviewed the preparations to implement the Act, which was amended in April 2007. The rules, required to offer power to the competent authorities for the implementation, have also been finalised.

    Officials from housing, co-operation and stamp & registration department apprised the chief minister of the preparations. They also put forward the need to streamline the old documents in the stamp duty offices and additional machinery and staff in the co-operation department.

    An official from the chief minister's office said that once these requirements are met with, the implementation is expected to start in couple of months. "From the date we accept the application from a society, its disposal is needed to be completed in six months. There are nearly 60,000 housing societies in the city and suburbs alone that are eagerly waiting for the conveyance to be done," the official said.

    About the delay in implementation, the official said: "Drafting of rules took first one year after the amendment. It was followed by the publication of proposed rules for suggestion and objections in August 2009. We received 76 suggestions and objections. It took us time to tabulate and study them," he said.

    The official clarified that the housing department had turned down the builders' demand to exclude the big layout from the restrictions. "The builders' contention was that it would prove a hurdle for them in using the transferable development right in the subsequent constructions. But the Supreme Court ruling in Jayantilal Institute case is very clear and balanced for both the sides," he said.:)

    The punishment for the errant builder has been increased to 1 year from 6 months, and the fine from Rs10,000 to Rs50,000.


    This is gr8 news for buyers. Quite surprising how CM which supposrts builder lobby has taken such decision. Any hidden agenda.
    CommentQuote
  • Note the ridculous fine amount!

    Originally Posted by mahesh pune
    This is gr8 news for buyers. Quite surprising how CM which supposrts builder lobby has taken such decision. Any hidden agenda.
    CommentQuote
  • Yes such meager fine amounts, only encourages them to do more cheating. That is why I wonder is this is good news or bad newsbab (45):
    CommentQuote
  • Property Oversupply can Lead to another Real Estate Bubble

    With India’s real estate market brimming with new launches, investors need to exercise caution while choosing projects. Leading private equity investor Gaurav Dalmia , founder chairman of realty-focussed Landmark Holdings that is investing $225 million in specific projects, feels speculative buying can act as a downtrend. In an interview Dalmia tells why he feels some pockets of real estate market may tumble in the coming months.

    Developers continue with new projects even as prices remain high. Do you see demand taking a dip?

    Demand is not low though speculative sales made earlier reflect a big downtrend. I think demand continues to be strong, but the situation of oversupply has restarted. As to where this will lead within the next year, I can only say ‘Bubble 2.0’. The market is doing well, but it will not stay healthy because of oversupply.

    While the government is planning a housing start-up index (HSUI), are there any indicators for oversupply?

    Many good projects are not getting mortgages because speculative buyers are not borrowing. With this disconnect, there is oversupply. Looking at certain markets, I’m not surprised there has been a correction, not in terms of price… but sales velocity has slowed down. Sales velocity is not low, but is less than earlier. My hunch is that over 60 per cent sales are speculative.

    Does oversupply translate into price corrections?

    There was a 25-30 per cent correction (in prices from two years ago). Funds are investing, but more selectively. Investors are also paying attention to existing investments. Prices in Delhi-NCR are too high for the average buyer. There is a mismatch between purchasing power (which is more real) and asset prices. The millions of buyers with their purchase price will affect asset prices in the long term.

    What are the key parameters you consider when making an investment?

    We look at the demand-supply situation. Demand is easy to forecast. Oversupply is what we worry about. In smaller cities, one or two sectors drive the market. If those go down, demand can suffer even though long-term trends may be very healthy. A developer’s project may have good location, good valuation… but not implementation. In the end it’s an implementation game, not an investment game…. (however) compared to one year ago we are not finding better deals now. We cannot measure (the amount of money we have put in) as we continually rotate our investments. We have invested in 22 projects where (returns) range from 15-35 per cent.

    What about your investors (those who have invested in your fund), what kind of expectation do they have?

    They still have expectations of at least 20 per cent returns that one can make in emerging economies. While no market that is comparable to India, Brazil, China, and even Vietnam have similar trends. In India, suburbs may struggle until infrastructure is created.

    Do you think a real estate Regulator Bill will benefit the industry?

    The licencing process in India is not transparent… it is dirty and cumbersome. You can’t have a (national) policy that will correct it. The problem is state-level legislation. A real estate regulator will ensure what (a developer) has promised in a contract is delivered to a consumer, nothing more… If you are running a den, you won’t want to have cops around.

    As an institutional investor, do you have a say in the timely execution of projects?

    We certainly do. The developer is also trying to (complete a project) quickly because his money is locked in. It’s just a question of if he is lifting his eye off the ball to play something else. I don’t think developers deliberately delay projects.

    Source:- IRN, 13th Aug 2010 I don’t think developers deliberately delay projects.

    Source:- IRN, 13th Aug 2010 I don’t think developers deliberately delay projects.

    Source:- IRN, 13th Aug 2010 I don’t think developers deliberately delay projects.

    Source:- IRN, 13th Aug 2010 I don’t think developers deliberately delay projects.

    Source:- IRN, 13th Aug 2010
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