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 :
  • Todays Article in Times Property

    Guys have you read the leading article in times property supppliment today.
    The Article straight away starts quoting that the demand for real estate is skyrocketing while there is dearth od supply.:bab (63):

    While on the other hand all the while we have been discussing about the number of projects mushrooming all over the city.
    Above that the unaffordable rates keeping the buyers away.:bab (38):

    Looks like Times of India is degrading day by day.
    Their newpaper is full of news about articles on and raunchy pics.
    And they lobby with these builders to misguide the public about the real state of affairs.

    Isn't that the news paper intended to make the mango ppl aware of the real state of affairs.

    Times of India Sucks!! God knows When will there be a regulatory body to control this Media.:bab (3):
    CommentQuote
  • Buying a house? Home loans setto get dearer

    Nitin Shrivastava &Neelasri Barman
    Dec 03, 2010,Fri
    MUMBAI

    Buying a house is set to turn more expensive after the HDFC Bank quietly jacked up its retail prime lending rate (RPLR) on Wednesday. HDFC effected an aggressive hike of 75 basis points — a basis point is one-hundredth of a percentage point — in its RPLR, taking it up to 15%. There was no official announcement to this effect and the new rate was quietly put up on the company's website.

    The lender also increased the floating rate interest from 9.25% to 9.5% for housing loans up to Rs30 lakh, and from 9.5% to 9.75% for loans in the range of Rs30-75 lakh, for a period of 20 years.
    Following this, the equated monthly instalment for loans already disbursed by HDFC under its special home loan scheme will turn more expensive from the third year. Under the teaser-rate scheme, withdrawn on Wednesday, the company charged a fixed interest rate of 8.5% for the first year (till March 2011), 9.25% for the second year (till March 2012) and the applicable floating rate thereafter.
    ncidentally, ICICI Bank also announced the discontinuation of its teaser-rate home loan scheme on Wednesday. Its larger peer, the State Bank of India, chose to extend the scheme till December 31.
    "HDFC and ICICI Bank had withdrawn the special home loan schemes because now they have to maintain a higher provisioning on these loans. We are on a rising interest rates scenario. In such a scenario, offering lower rates is not feasible for these lenders," said Chaitra Bhat, analyst, LKP Securities.
    "SBI will be at an advantage only for the extra time they offer these loans. SBI also may have to take a call at some point of time on the feasibility of offering these loans," he said.
    Harsh Roongta, CEO, Apnapaisa.com, said a hike of 75 basis points in RPLR was a huge increase and would have a dampening effect on housing demand, more because it comes in close succession to the 50 basis points increase in September.
    CommentQuote
  • Originally Posted by kingmanish
    Guys have you read the leading article in times property supppliment today.
    The Article straight away starts quoting that the demand for real estate is skyrocketing while there is dearth od supply.:bab (63):

    While on the other hand all the while we have been discussing about the number of projects mushrooming all over the city.
    Above that the unaffordable rates keeping the buyers away.:bab (38):

    Looks like Times of India is degrading day by day.
    Their newpaper is full of news about articles on and raunchy pics.
    And they lobby with these builders to misguide the public about the real state of affairs.

    Isn't that the news paper intended to make the mango ppl aware of the real state of affairs.

    Times of India Sucks!! God knows When will there be a regulatory body to control this Media.:bab (3):

    TOIlet paper is no use for real news. For that check IE, honest & transparent newspaper :). Infact, the column which TOI has about property prices in the city will be far higher than real ones. Problem is TOIlet is considered as the newspaper for educated people (some people think so) & hence they subscribe to it. However, in reality, Indian Express, The Hindu & Statesman are the best English newspapers. Unfortunately, last 2 newspapers are not available in Pune :(.

    In terms of Marathi newspaper, Sakal is the one who promotes builders, hey, it is owned by NCP, so can't expect better, but when it comes to news, the coverage is good....this is what I have heard from Sakal readers, I don't know in reality though.

    Magicbricks is run by TOI, so they have to say goodie goodie things about builders.

    Btw, there is some Sakal Vastu exhibi going on at Engg Grounds, Shivajinagar. Did anyone visit it or planning to do so??
    CommentQuote
  • There are two overlapping property exhibitions one organized by Sakal (VASTU at coep ground) and other by Times of India at Le Meredian
    CommentQuote
  • Originally Posted by hitmady
    DB Realty fell from 426 to 240 and IndiaBulls RE from 206 to 148.6 in a month.
    People who bought these stock last month are sitting on loss of 30-50%. Market is still jittery about RE stocks.

    +1. Add to it that even when Sens-ex hit from 15k to 20k, the RE scrips hardly moved. Their performance was already poor than benchmark index, & the further fall makes their performance ever poorer than ever.

    The biggest effect of this is postponement of IPOs of cos like Lavasa, KUL, etc. Many cos wanted to clear their debts by listing, but as their plans now have flopped, they will be forced to take loan either from PEs, HNIs at much higher rates or reduce the rates to clear inventory.

    Even for small builders, access to bank credit will now be difficult, so this scam has impact on all builders irrespective of whether they are listed entity or not.
    CommentQuote
  • Originally Posted by puser
    There are two overlapping property exhibitions one organized by Sakal (VASTU at coep ground) and other by Times of India at Le Meredian

    And there are same builders in both exhibi or different ones. I thought that Le Meridian exhibi is meant for premium properties this time, don't know whether all the projects are showcased or not.:bab (38):

    Btw, Puser, are you planning to visit either of exhibi? Did you visit the one at Empress garden?
    CommentQuote
  • Originally Posted by realacres
    And there are same builders in both exhibi or different ones. I thought that Le Meridian exhibi is meant for premium properties this time, don't know whether all the projects are showcased or not.:bab (38):

    Btw, Puser, are you planning to visit either of exhibi? Did you visit the one at Empress garden?


    no, i am not visiting any of them, there is no reason for it:D
    CommentQuote
  • Realty Firms On The IPO Trail In A Bind

    Following news show in how big mess RE cos are, though many deny openly, the bankers tell the real story.

    Wed Dec 01, 2010
    mydigitalfc.com

    REAL estate companies that have lined up initial public offerings (IPOs) find themselves caught between a rock and a hard place. The outing of the bribe-for-loan scam has battered many listed companies' share prices. So unlisted companies have to think over and over again if they intend to force their IPOs on the market.
    On the other hand, they have a heavy debt burden, the primary reason for them to go public.

    Some have put their IPOs on hold. Ambience is one of them. Others such as Lodha Developers say they will wait and watch until the adverse publicity the sector has drawn blows over.

    Almost all of them have large parcels of land, to develop which fresh lines of credit are essential. Unlike the last IPO cycle in the real estate sector in 2006-08 when companies were raising money for expansion by acquiring land, this time around it is for expansion and repayment of debt. The total outstanding debt of the unlisted realty companies with IPOs in the works is Rs 15,000 crore. According to these companies, of this money, Rs 4,200 crore will be used to repay debt. But bankers say that a larger quantum of repayments than what is stated in the detailed red herring prospectuses of the companies will be demanded from some of the companies.

    A senior Ambience official claimed the company's "debt is self-sustaining" and it was generating enough cash flows through sales as prices had become reasonable.

    If IPOs do not go through, a large portion of the 290 million sq ft of residential and commercial space supply from these companies will get delayed, further impacting their financial position, according to an HDFC securities real estate report filed in September.
    Anurag Singhvi, chief financial officer of Lodha Developers, sees the market as very volatile.
    "The confidence is weak. We will take a call in January on the IPO," he said.


    As per the prospectuses of nine real estate companies, 55 per cent of the funds planned to be raised will be utilised in completing construction of projects, more than 30 per cent in repayment of debt, and the remaining for either purchase of land or "some miscellaneous activities".

    "The objective of the current fund raising cycle appears different from the last cycle (in 200608). At that time companies utilised almost double the amount (60 per cent of the proceeds) stated in the red herring prospectuses in land acquisitions," said the HDFC report.

    Banks are unwilling to extend fresh lines of credit to real estate companies. Unless they show robust cash flows in their books, the companies will be forced to slash prices and generate sales.

    For example, Emaar MGF carries a debt of Rs 4,689 crore, of which Rs 614 crore will be used for repayment and Rs 627 crore for redemption of preference shares. The company says it has a window of one year to launch the IPO from the date of receiving approval from the Securities & Exchange Board of India (Sebi).
    Emaar MGF had filed the draft prospectus with Sebi in September in which the IPO size was reduced to Rs 1,600 crore from the earlier ambitious Rs 3,850 crore.

    In an email response Emaar MGF denied any role in the bribe-for-loan scam and said it did not foresee the scam having an adverse impact on its IPO.

    Lalit Kumar Jain, chairman & managing director of Kumar Urban Development, said, "We are preparing ourselves." He said his company had until March to decide on the IPO timing. Of the Rs 450 crore that the company hopes to raise through the IPO, Rs 200 crore will go in repaying debt.

    But the HDFC report said, "high debt-equity weighs on the books of the companies." Therefore much more money could be spent on repaying debt than stated. Else, operating cash flows would be consumed just in repaying debt, the report said.

    Although the repayment amount stated in the prospectuses is Rs 4,200 crore, "we believe this amount will significantly increase if the supply from these players is not absorbed," said the report. From the use of funds stated in their prospectuses, the IPOs are expected to bring the companies' debt-equity ratios down to 0.7, thus de-risking their balance sheets, says the HDFC report.

    "The remaining debt of Rs 7,000 crore is by way of debentures in which we presume all financial entities would have exposure. We derive comfort that banks' unsecured exposure is just 3 per cent of the total loans lent to large listed players (0.7 per cent of the total system's loans). The working capital exposure for the same players accounts for 10 per cent of total bank loans," the report noted.

    The companies with an IPO lineup account for just 7 per cent of the consolidated commercial real estate exposure of the banking sector, according to RBI data.

    The total exposure of the banking system to real estate sector as on September 24 was Rs 1,01,662 crore. Of this 70 to 75 per cent of the loans were given to companies largely reliant on internal accruals and bank debt.
    CommentQuote
  • Originally Posted by realacres
    However, in reality, Indian Express, The Hindu & Statesman are the best English newspapers.:(.



    UNFORTUNATELY HINDU IS A COMMUNIST PAPER AND OTHER 2 ARE SOc-ial-st BENT OF MIND

    sorry caps lock by mistake
    CommentQuote
  • Property Price to fall

    Check the link below, as posted on Housing scam thread which shows how builders have no option but to clear inventory ASAP to survive leading to dip in property prices. This is from Zee Business:-

    http://www.youtube.com/watch?v=c_yWFd0r5EQ

    It shows how credit to builders is drying up & post home loan scam, the situation becomes even worse for builders.

    In other news, in Mumbai, 14,000 luxury flats are coming up in Lower Parel alone in next 1-2 yrs which is far more than the demand here is. This would lead to dip in property prices.

    Here are some more nos. which I have got:-

    Total flats in Delhi-NCR = 97,000
    Sold = 54,000
    Vacant = 43,000

    Total flats in Mumbai = 1.26 L,
    Sold = 46,000
    Vacant = 80,000


    Similar is the case even with cities like Pune, huge supply, but no demand. The home loan scam has dried up builders' financing options & the recent interest rate hikes by banks for home loans means EMIs becoming more costlier for borrowers as well.

    Infact, today itself, after HDFC, ICICI has hiked the home loan interest rates by 50 bps or 0.5% w.e.f. 06 Dec 2010. SBI has said that they too will be rising interest rates in coming weeks.

    Good part though :- The deposit rates on FD is going to go up by 25-50 bps as well, so good for depositors. Man, in current times, cash is the king:).
    CommentQuote
  • Originally Posted by realacres
    Check the link below, as posted on Housing scam thread which shows how builders have no option but to clear inventory ASAP to survive leading to dip in property prices. This is from Zee Business:-

    http://www.youtube.com/watch?v=c_yWFd0r5EQ

    .



    Man this Zee news network is funny. Once on Zee news, they were telling news of how they exposed some fake currency notes racket somewhere in Nashik or some where...

    This is what he says...
    "Sab taraf sannta chaya hua hai, sadke khali hai, sab log Zee news dekh rahe hai" LOL:D:D I stopped watching Zee news from then.

    One more channel some NDTV/IBN I think, was telling how some one could hack in your bank account easily. They showed that dude, open the "view source" on the browser, once on the login page, and change something there. That was the biggest one..:D:D:D
    CommentQuote
  • Originally Posted by Venkytalks
    UNFORTUNATELY HINDU IS A COMMUNIST PAPER AND OTHER 2 ARE SOc-ial-st BENT OF MIND

    sorry caps lock by mistake


    I think Hindu is the best newspaper with no crap.
    They do not depend on Por.n to sell their paper and the content is pretty good too.

    But howcome is it Comminist ?? I didn't get that .

    TOI = TOIlet ha ha ha lolzzzzz
    good one...I agree completely :)
    CommentQuote
  • Originally Posted by kingmanish
    One more channel some NDTV/IBN I think, was telling how some one could hack in your bank account easily. They showed that dude, open the "view source" on the browser, once on the login page, and change something there. That was the biggest one..:D:D


    NDTV everyone watches for Fun. "Yamraj ka darwaza mil gya hai.Ji haan yahi hai Yamraj ka darwaza " and they showd some stone cave in a hill :D
    "Himesh reshamiya ko le jaayenge Alien " :D:D hahahah

    But It's sad that I can't name even a single channel with some serious news. CNN IBN , Headlines Today all have reverted to cheap means :bab (63):
    CommentQuote
  • Half-a-dozen real estate IPOs face delay

    Raghavendra Kamath & Ashish Rukhaiyar / Mumbai November 27, 2010, 0:00 IST

    The mega real estate loan scam could delay the initial public offers (IPOs) of over half-a-dozen real estate developers because of poor investor sentiment, said bankers and analysts tracking the sector.

    “It will be very difficult for real estate entities to raise money through IPOs at this juncture,” said Gyan Mohan, executive vice-president and head, investment banking, IDBI Capital Markets.


    According to Prime Database, which tracks primary capital markets, eight real estate companies have got the final approval from the market regulator to launch IPOs. These include Raheja Universal, Lodha Developers, Lavasa Corporation and Kumar Urban Development. Together, they were looking to raise Rs 9,500 crore.


    “Though it has been said that this is not a systemic risk, investor sentiment has been impacted. The sector was anyway facing transparency issues,” said Mohan.

    The IPOs are crucial for these developers to repay debt. For instance, New Delhi-based BPTP was planning to use a fourth of the IPO proceeds of Rs 1,500 crore to lower debt.

    “I do not think any property developer will bring out a public issue in the current financial year. Those who try IPOs and QIPs (qualified institutional placements) will have to undergo a lot of scrutiny and due diligence in the coming days,” says Amit Goenka, national director, capital transactions, Knight Frank India.

    Developers like Lodha agree. “The markets are still volatile and previous issues have not done very well. We may take a view in the new year,” said Abhisheck Lodha, managing director of Lodha Developers.

    The benchmark BSE Sen has fallen 2.3 per cent, or 448 points, since November 19.

    To tap elsewhere

    Due to delay in raising funds through selling equity and from public sector banks, the cost of borrowing for real estate companies will rise and developers may have to borrow more from private banks, non-banking finance companies and private equity (PE) firms, bankers say.

    At present, property developers borrow at between 10.5 per cent and 14 per cent, depending on their credit profile. This may rise by 50-100 basis points.

    “Conditions are quite adverse for the real estate sector. In debt, the cost of funds is based on the perceived risk. The riskier the assets, the higher is the price. Even RBI has increased the risk weight for real estate loans,” said a head of fixed-income capital markets at a foreign investment bank.

    RBI increased the standard asset provisioning by commercial banks for teaser home loans from 0.4 per cent to two per cent, capped the loan-to-value ratio at 80 per cent and increased the risk weight on loans of more than Rs 75 lakh to above 125 per cent in the November 2 monetary policy.

    Goenka says though private lenders will increase rates, private equity firms cannot increase their return expectations from developers, as they’ve already been asking for 25 per cent returns.
    CommentQuote
  • Check out...

    http://www.mydigitalfc.com/companies/repayment-blues-hit-realty-prices-378
    Repayment blues to hit realty prices



    Article Link

    Real estate companies, which are already under severe financial strain, have to make a bullet repayment of over Rs 14,000 crore in the next two months to banks. This will force builders to cut prices of real estate stock, especially residential units, to boost cash flows to help them repay dues.

    The huge repayment burden in December and January was created when many banks restructured real estate loans for one and a half years in June 2009 under the Reserve Bank of India’s (RBI) special dispensation. “This is falling due in the next two months,” said a senior executive of a bank, who did not want to be named.

    But a senior banker from a public sector bank said, “Real estate companies will have to drop prices and sell properties so that there is a regular cash flow into their books.”

    The problem started when developers began to jack up prices, stifling sales at lower rates. This hit cash flows of developers. Banks aggravated the situation by helping developers to roll over debt by recording repayment on the due date and granting a fresh loan to the same company the next day.

    This helped the bank to continue the account as a standard asset while the developer got funds with no pressure to lower property rates and generate cash flows. Now, banks are watching their real estate exposure and implementing strong checks.

    http://indiahousingbubble.blogspot.com/
    CommentQuote