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 realacres
    Btw, IT (income tax:D) dept are busy today raiding the premises of Lodha Developers in Mumbai in over 40 places:bab (34):. Read the story in tomorrow's newspaper.


    :bab (24): What a scoop man!
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  • 3 property deals that need extra thought

    A good link from livemint:-

    http://www.livemint.com/2011/01/03204838/3-property-deals-that-need-ext.html
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  • Delhi Police Recovers 1000cr From Large Scale Real Estate Frauds

    January 7, 2011
    IRN

    The economic slowdown resulted in large-scale frauds in the capital’s real estate sector and investigations led to recovery of over Rs 1,000 crores, Delhi Police said on Thursday. “A slow down in real estate sector led to large scale frauds with innocent investors wherein major builder companies defaulted on their commitments thereby causing huge losses to these investors,” Delhi Police Commissioner B K Gupta said.

    The Economic Offences Wing of Delhi Police’s Crime Branch took “stern action” against “unscrupulous” developers and builders to protect the interest of investors. “The Anti Land and Building Racket Section of EoW seized properties and bank accounts of fraudsters worth over Rs 1,000 crore,” Ranjit Narayan, Special Commissioner (Crime Branch), said. He said a massive drive was launched against land mafia who encroached unattended properties using forged documents.

    The EoW has arrested a total of 195 people last year in connection with various types of economic frauds. The spet wing investigated more than 1,400 cases besides enquiring into more than 2,990 complaints last year. “This year EoW also had a sustained focus to initiate action against multi-level marketing scams wherein gullible investors were duped by persons running such schemes,” he said.

    >> Seems the builders are now not sparing even the investors either.
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  • Speculative Supply

    :bab (35):The number of properties on sale is rising with fastest pace due to unsustainable prices. This is just a glance from Magicbrick’s. There are more sites which are not covered here, but one can add those offers as well as non-internet based offers.

    Total ads = 19,707
    Baner 1062
    Kharadi 2721
    Wakad 1434
    Hadpsar-28 1407
    Magarpatta 1226
    Pimpale Saudagar 1140
    Viman Nagar 1108
    Kalayani Nagar 890
    NIBM Rd 731
    Aundh 592
    Hadapsar-22 591
    Wanwadi 574
    Dhanori 559
    Undri 478
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  • Originally Posted by khbarilal
    :bab (35):The number of properties on sale is rising with fastest pace due to unsustainable prices. This is just a glance from Magicbrick’s. There are more sites which are not covered here, but one can add those offers as well as non-internet based offers.

    Total ads = 19,707
    Baner 1062
    Kharadi 2721
    Wakad 1434
    Hadpsar-28 1407
    Magarpatta 1226
    Pimpale Saudagar 1140
    Viman Nagar 1108
    Kalayani Nagar 890
    NIBM Rd 731
    Aundh 592
    Hadapsar-22 591
    Wanwadi 574
    Dhanori 559
    Undri 478


    Good one. Shows that buying and selling with profit will be very difficult.
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  • Originally Posted by khbarilal
    :bab (35):The number of properties on sale is rising with fastest pace due to unsustainable prices. This is just a glance from Magicbrick’s. There are more sites which are not covered here, but one can add those offers as well as non-internet based offers.

    Total ads = 19,707
    Baner 1062
    Kharadi 2721
    Wakad 1434
    Hadpsar-28 1407
    Magarpatta 1226
    Pimpale Saudagar 1140
    Viman Nagar 1108
    Kalayani Nagar 890
    NIBM Rd 731
    Aundh 592
    Hadapsar-22 591
    Wanwadi 574
    Dhanori 559
    Undri 478


    I do agree prices are high....but the above number might be misleading due to the fact that there will be multiple posting of the same property by different brokers. Add to it some of the deals might have been closed but are still lingering on the website.

    Having said that there might be more properties out there to be sold but not on the above list.

    VK
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  • Originally Posted by veeemkay
    I do agree prices are high....but the above number might be misleading due to the fact that there will be multiple posting of the same property by different brokers. Add to it some of the deals might have been closed but are still lingering on the website.

    Having said that there might be more properties out there to be sold but not on the above list.

    VK


    Even if you consider that 1/3 ads are legit, the number comes to roughly 6500. I expect that the houses for sale not listed online will be a sizable number. Plus there will be ads on other websites/newspapers etc.

    I think it would be safe to make a conservative total estimate of 10,000. This is huge. Considering the current rates, I doubt how many of these apartments will find buyers.
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  • Originally Posted by nikhil_05
    Even if you consider that 1/3 ads are legit, the number comes to roughly 6500. I expect that the houses for sale not listed online will be a sizable number. Plus there will be ads on other websites/newspapers etc.

    I think it would be safe to make a conservative total estimate of 10,000. This is huge. Considering the current rates, I doubt how many of these apartments will find buyers.


    Few more facts (I have verified it):
    1) You will find most of the ADs by broker x, y, z.
    Let's say broker X has posted 100 ADs.
    Out of 100, few are duplicates and few are fake (so they get the inquiry call). Only 5 to 6 are genuine post.

    2) Let's say if broker X has posted genuine post but seller is just wanted to chk the market value but not intersted in transaction. (They just wanted to chk if anyone is ready to give me 75 lacs for my 3 bhk :)).

    What I want to convey is let's not get into this disc as no one can give correct prediction here.

    Thanks,
    Jigar
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  • Everyone can interpret data by looking at limiting the view of it which suits best with him/her belief :). But its a good discussion.
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  • Where r u wiseman, missing yr. inputs ? They r great reads .
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  • Originally Posted by jigarshah
    Few more facts (I have verified it):
    1) You will find most of the ADs by broker x, y, z.
    Let's say broker X has posted 100 ADs.
    Out of 100, few are duplicates and few are fake (so they get the inquiry call). Only 5 to 6 are genuine post.

    2) Let's say if broker X has posted genuine post but seller is just wanted to chk the market value but not intersted in transaction. (They just wanted to chk if anyone is ready to give me 75 lacs for my 3 bhk :)).

    What I want to convey is let's not get into this disc as no one can give correct prediction here.

    Thanks,
    Jigar



    Yes, these numbers do not say anything, nor does any survey results or any news article means.

    ONLY reliable indicator is rent. I do not know why people tend to Ignore this and get carried away with fancy numbers and new articles.

    Good luck.
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  • RE financiers demanding more

    Even a layman knows that there is direct relationship between risk & return. Now when sophisticated inventors (PE funds) are demanding 24% one can imagine the current market risk associate with RE OR is it may be confirming downfall.

    "Gone are the days when banks sanctioned real estate loans by the dozen to shore up growth numbers. With the bribes-for-loans controversy, PSU banks are not as keen to lend to real estate, and this is forcing developers to turn to private equity funds and financiers paying as much as 24% interest on some loans.":bab (22):


    http://www.moneycontrol.com/news/cnbc-tv18-comments/funding-cramps-developers-costcap-rises-to-25-_512732.html

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  • Is Rent a leading indicator of market ?

    Unfortunately, rent is not a reliable indicator due to sotic laws in India. If India abolish these sotic Law, rent will become the leading indicator. But the day this happen, real estate market will crash as market will get flooded with rental properties & long term leasing options in residential. :bab (38):
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  • Is there any source where we get information about registrations done in Govt. department?

    It would be interesting to know how many actual deals were done YoY/QoQ/Month-Over-Month in each locality or PMC in total.
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  • Originally Posted by khbarilal
    Unfortunately, rent is not a reliable indicator due to sotic laws in India. If India abolish these sotic Law, rent will become the leading indicator. But the day this happen, real estate market will crash as market will get flooded with rental properties & long term leasing options in residential. :bab (38):


    rent is the reliable indicator from my viewpoint... we can consider the rents getting offered to the new customers... i agree that age old rental agreements are not an indicator but the new agreements are good examples.
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