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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  • Thx for the updates RA!
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  • Originally Posted by realacres
    It is official now:-

    The DP plan of Pune has been postponed to Dec 2011. Again, there is no guarantee that it will be done in this time frame & even if it is done by PMC, the state govt reserves the right to reject it.

    So, if some builder is talking blah, blah about DP stuff, tell him that DP won't come into existence before Dec 2011.

    Morale:- Avoid projects based on DP, as always.



    Currently most of development is going under the JNNURM fund. Government is going to scrap the JNNURM fund in the next PanchVarshiya Yojana because the huge corruption in the project execution.
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  • Originally Posted by Saurabh01
    Currently most of development is going under the JNNURM fund. Government is going to scrap the JNNURM fund in the next PanchVarshiya Yojana because the huge corruption in the project execution.



    I wonder which project could survive if we start scrapping projects based on prevalent corruption.

    CWG should never have happened.
    NO midday meal......no NAREGA.... Nothing.

    Govt Efforts should be to curb omnipresent corruption rather than scrapping projects.:bab (38):
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  • City builders, civic officials had tryst with TDR?

    Standing committee chairman Shinde demands probe into deliberations at meeting
    Abhay Khairnar
    Dec 14, 2010,Tue

    The Pune Municipal Corporation's (PMC) standing committee chairman, Arvind Shinde, on Monday accused a few PMC officials of holding a "clandestine" meeting with some builders in the city a few days ago.
    The deliberations, he insisted, revolved around transfer of development rights (TDRs) and waiving premium charges. "The late-night meeting took place in a posh hotel in Kharadi area and an MLA of the city played a vital role in arranging the deliberations," said Shinde.
    Although Shinde stopped short of naming the officials, he said the civic administration must probe the issue and find out which officials took part in the meeting. "All hotels have CCTVs. So identifying the officials should not be a tough task. An explanation must be sought from them about the need to attend such a meeting," he stressed.

    "The meeting was obviously organised to serve the interest of the builders' lobby. We condemn it and demand that the civic authorities take action against the officials," Shinde said.
    Shinde alleged that builders had submitted a proposal to provide them TDRs as they are willing to develop the main roads in the areas where they have their projects. In lieu of that the PMC should either give them TDR or waive the hefty premium charges that the builders have to pay to the PMC to develop projects.
    "There are several areas in the city where buildings have come up. But since there are no proper main roads, the demand for such houses is not high. If the builders make the roads, the demand and the prices of their properties will shoot up," sources added.
    Generally, the PMC refrains from giving TDRs for the construction of roads. If civic officials are to be believed, there is only one instance where a builder got TDRs for constructing such roads. It is the duty of the PMC to construct main roads.
    "The builders stand to benefit if they are either given TDRs or the premium charges are waived," standing committee sources added. "It is unethical for the officials to attend the meeting with builders."
    It is clear that by taking the benefit of TDRs, the builders will develop the roads going through their properties, Shinde said.
    "Building roads to increase the rates of projects of the builders should not be the priority of the civic body. There are many issues such as sewage treatment plants that should be given priority," he added.

    Source:- 3dsyndication
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  • To take a retrospect of 2010 , total 11.3 lakhs jobs got added to Indian market in whole of 2010

    Cos add 11.3L jobs in 2010, best in four years - The Economic Times

    Kinda reflects on the stable and upward RE prices in 2010.
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  • As we close the year 2010 biggies are once again on a hiring spree creating trouble for smaller/midsize cos

    TCS, Infosys, Wipro, HCL on hiring spree, smaller cos bear the brunt - The Economic Times

    The small/midsize firm have now no choice but to recruit more to fill the gap. Looks liek a positive sign to me for 2011.
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  • So hat does it means...everyone will jump in the bandwagon to buy house??

    but yeah demand may rise as more and more people can afford
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  • Originally Posted by kingmanish
    So hat does it means...everyone will jump in the bandwagon to buy house??

    but yeah demand may rise as more and more people can afford


    Answer to your question -- No
    Response to your statement - Yes :)

    But why a king bother to check out pauper's forum :D (or that is now the state of affairs)

    Have a nice weekend.
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  • Originally Posted by compuwalah

    But why a king bother to check out pauper's forum :D (or that is now the state of affairs)

    Have a nice weekend.


    Ha ha ha

    Raja ko praja ka khayal to rakhna hi padta hai

    By the way Happy weekend to all Cheers!!:bab (48):
    :bab (41):
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  • Originally Posted by compuwalah
    To take a retrospect of 2010 , total 11.3 lakhs jobs got added to Indian market in whole of 2010

    Cos add 11.3L jobs in 2010, best in four years - The Economic Times

    Kinda reflects on the stable and upward RE prices in 2010.


    Would be nice to know where this figure stands compared to the total unemployed educated youth in India :)
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  • Even more important to know - how much of our youth is uneducated and unemployable?
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  • Originally Posted by suryawork
    Would be nice to know where this figure stands compared to the total unemployed educated youth in India :)

    And besides this, one needs to find whether these are NEW employees or mere REPLACEMENTS for older ones who left or were given pink slips. Add to it that the incomes too must be shown compared to their peers. Creating 100,000 jobs with 2-3L/annum doesn't mean they can afford a house in major cities, but yes, FMCG, electronic goods will sell like hot cakes then.

    The real fig. is the one who can afford to buy RE in current levels. Mere additional job creation isn't sufficient for RE, though it is good for economy in general.
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  • Originally Posted by compuwalah
    To take a retrospect of 2010 , total 11.3 lakhs jobs got added to Indian market in whole of 2010

    Cos add 11.3L jobs in 2010, best in four years - The Economic Times

    Kinda reflects on the stable and upward RE prices in 2010.


    There is no way to authenticate these number, neither can these number tell you if 95% of these jobs are for freshers after kicking out some senior people with fat salary adding no big value.

    More visible and more direct and reliable indicator is rent of the housing. Dont know why people get carried away by these news and articles. If more people are coming to pune, rents will shoot up.

    As I said earlier if 50L flat fetches 25K rent I would buy it today. But if fetches only 12K I only willing to pay 25L for it.
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  • Debts of various RE builders

    Here is the chart which shows the debt of builders & the amount they plan to raise by IPOs. You will be surprised that they want to repay the debt on basis of IPOs itself.
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