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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  • Rental income method

    :bab (60):Out of various RE valuation models, rental income method is one.
    Formula : appraisal price= Rental income / Interest Rate
    For an example
    Monthly rental = 12,000
    Annual rental = 144,000
    Appraisal price = 144000/0.095 = 15,15,789

    Explanation: If one will invest 15lakh, which can give 9.5% return he can pay rent out of investment return. If some one is smart enough, s\he can invest in asset which can give more return than 9.5%, it will be more profitable.
    NOTE: Today, lots of banks are offering 9.0% interest on 5 year deposit.

    The formula is also called as perpetuity formula.

    In current market, the rentals supply is much more restricted due to sotic laws, once the law changes there will be abandon supply & rent will fall dramatically. So the future rental incomes have downward bias. Also, once the law gets abolished, lot of long term leasing options will be available which will perfectly hedge the example explained.

    The old rental agreements do not have any consideration because as per law the tenants own the property. And the original landlords are not even collecting the miniscule rent.


    “Rahil tyascha Ghar aani kasale tyachi Jamin” :bab (20):
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  • HAVE A PEACEFUL LIVING

    As BhagwatGita says:

    What is yours today was with someone else yesterday.
    And will be with someone else in day to come…
    The only thing you have is your life.
    So leave life peacefully and happily.

    In a days time of 24 hours no one gets more than that how rich or poor you are.

    Many people toll too hard burn their blood to earn money and make property more than he needs and during this entire process he fails to live..
    And by the time he realized it’s too late...

    Everyone knows this but in this fast moving world fails to realize it…


    So ONE LIFE TO LIVE… HAVE A PEACEFUL LIVING…
    CommentQuote
  • Well said

    Originally Posted by Saurabh01
    As BhagwatGita says:

    What is yours today was with someone else yesterday.
    And will be with someone else in day to come…
    The only thing you have is your life.
    So leave life peacefully and happily.

    In a days time of 24 hours no one gets more than that how rich or poor you are.

    Many people toll too hard burn their blood to earn money and make property more than he needs and during this entire process he fails to live..
    And by the time he realized it’s too late...

    Everyone knows this but in this fast moving world fails to realize it…


    So ONE LIFE TO LIVE… HAVE A PEACEFUL LIVING…

    Hmm, for a moment, I thought I was on Aastha forum:D. Man, what you say is completely true but can be understood well by only those who understand themselves (self) well.

    Problem is many look at themselves from the eyes of society ....if I do this, what will she say, if I do that what will he say:o....

    Ever tried to call your own number?? It will say, the no./subscriber is busy, please try later. Same is the case with life, people have time for everything but not for themselves.
    CommentQuote
  • Originally Posted by realacres
    Hmm, for a moment, I thought I was on Aastha forum:D.

    I have not time for Aastha :)
    CommentQuote
  • Originally Posted by Saurabh01
    I have not time for Aastha :)


    But you can utilize same morning time slot to do Naashta just kidding. But as doctors advice people taking proper breakfast are less likely to gorge on soe unhealthy stuff.

    But whatever you said (and topped over by realacres) is true. Barring few basic necessities in life, rest all desires are creation of your own mind. People value everying else more than two most invaluable things -
    time and self. Guess since they are free ...
    CommentQuote
  • Originally Posted by compuwalah
    But you can utilize same morning time slot to do Naashta just kidding. But as doctors advice people taking proper breakfast are less likely to gorge on soe unhealthy stuff.

    But whatever you said (and topped over by realacres) is true. Barring few basic necessities in life, rest all desires are creation of your own mind. People value everying else more than two most invaluable things -
    time and self. Guess since they are free ...


    My life was good before start of home hunt. As I started thinking to buy a flat(coop is more appropriate ) I lost my chain aur neend :bab (38):
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  • Realty sales fall over high prices

    Money Today, Chandralekha Mukerji / 18:39 , Jan 13, 2011

    You will come across projects with offers such as stamp duty waive off, free parking and so on," said Shaleen Silori, research analyst with ICICI Securities.

    If you plan to buy property in any under-construction project, the developer might offer you further discounts. The findings of a survey by ICICI Securities Ltd shows high property rates led to a decline in the absorption rate, or the number of units sold, with Mumbai witnessing the sharpest fall between August and November. The city witnessed a drop of almost 44.7% during the period. "As there is pressure on pricing, developers would be under pressure to bring down their sales realization by 15%. However, they will not bring down their basic sale price. So, you will come across projects with offers such as stamp duty waive off, free parking and so on," said Shaleen Silori, research analyst with ICICI Securities.

    The report said absorption rate picked up in the first half of 2010 but declined in the past two-three months. Pune and Delhi-National Capital Region (NCR) followed Mumbai with a fall of 26.6% and 11.7%, respectively. However, Bangalore, Kolkata and Ahmedabad are expected to see an increase in absorption rate, the findings say. The survey on demand-supply and pricing trend was conducted in eight cities including Delhi-NCR, Mumbai, Bangalore, Chennai, Pune, Hyderabad, Kolkata and Ahmedabad. Developers said price correction was not a general trend. "It depends on the developer and the project portfolio," said Rohtas Goel, chairman and managing director, Omaxe Ltd. "The geographical spread of the projects, construction progress and developer customer base determines whether the rates should be revised or discounts should be given." The survey also says developers in Mumbai and Delhi-NCR will likely witness moderate-tolower sales as projects becoming unaffordable even as supply increases in the two regions. It says the perception of prices being higher among the respondents of the survey is increasing sequentially since August.

    SURVEY FINDINGS - Realty sales fall in Mumbai, NCR over high prices
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  • Originally Posted by Saurabh01
    As BhagwatGita says:

    What is yours today was with someone else yesterday.
    And will be with someone else in day to come…
    The only thing you have is your life.
    So leave life peacefully and happily.

    In a days time of 24 hours no one gets more than that how rich or poor you are.

    Many people toll too hard burn their blood to earn money and make property more than he needs and during this entire process he fails to live..
    And by the time he realized it’s too late...

    Everyone knows this but in this fast moving world fails to realize it…


    So ONE LIFE TO LIVE… HAVE A PEACEFUL LIVING…


    Baba Ranchoddas chanchad ki jai..!!!!!! But what you say makes a lot of sense atleast for myself.

    Originally Posted by realacres

    Ever tried to call your own number?? It will say, the no./subscriber is busy, please try later. Same is the case with life, people have time for everything but not for themselves.


    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):

    Real.. why do you call urself????????:bab (59):
    CommentQuote
  • Slight change to formula ...

    Originally Posted by khbarilal
    :bab (60):Out of various RE valuation models, rental income method is one.
    Formula : appraisal price= Rental income / Interest Rate
    For an example
    Monthly rental = 12,000
    Annual rental = 144,000
    Appraisal price = 144000/0.095 = 15,15,789

    Explanation: If one will invest 15lakh, which can give 9.5% return he can pay rent out of investment return. If some one is smart enough, s\he can invest in asset which can give more return than 9.5%, it will be more profitable.
    NOTE: Today, lots of banks are offering 9.0% interest on 5 year deposit.

    The formula is also called as perpetuity formula.

    In current market, the rentals supply is much more restricted due to sotic laws, once the law changes there will be abandon supply & rent will fall dramatically. So the future rental incomes have downward bias. Also, once the law gets abolished, lot of long term leasing options will be available which will perfectly hedge the example explained.

    The old rental agreements do not have any consideration because as per law the tenants own the property. And the original landlords are not even collecting the miniscule rent.


    “Rahil tyascha Ghar aani kasale tyachi Jamin” :bab (20):



    khb,

    You forgot the issue of a minimum 5% annual increase in rentals normally asked for. Besides, due to the 11 month lease agreements, this gives owners excuse to bump up the deposits annually too, which, given 10 month deposits now-a-days could bump up cash requirement every year substantially!

    Include interest requirements to add additional capital at end of year for deposit top-up as well as additional capital requirement for higher interest as well as paying tax on interest earned and you will get a much higher appraisal price.

    Besides, if you add the annual 6-8% increase in price of property, this could further bump up Appraisal value. I'm sure there are other hidden items that bump up appraisal value in the real world.

    But good approach to appraisal value.

    cheers
    CommentQuote
  • Slight change to formula ...

    Originally Posted by wiseman
    khb,

    You forgot the issue of a minimum 5% annual increase in rentals normally asked for. Besides, due to the 11 month lease agreements, this gives owners excuse to bump up the deposits annually too, which, given 10 month deposits now-a-days could bump up cash requirement every year substantially!

    Include interest requirements to add additional capital at end of year for deposit top-up as well as additional capital requirement for higher interest as well as paying tax on interest earned and you will get a much higher appraisal price.

    Besides, if you add the annual 6-8% increase in price of property, this could further bump up Appraisal value. I'm sure there are other hidden items that bump up appraisal value in the real world.

    But good approach to appraisal value.

    cheers




    Hi Wiseman,

    The new rental agreement & annual increment is not applicable to all rental properties. If one will search thoroughly, s/he can find apartment at very attractive terms. Majority of the owners do not want to rent to unknown, they prefer to keep it vacant OR rent to known people. I lived in a central Pune in one of the best Bungalow society for 6 years without any agreement & with very very less rent. Before this, in another Bungalow for 4 years near Padmavati.
    In past 30 years, real estate was the major investing activity for many people as there was less investment choices & knowledge. If you have a relatives or friends in Pune , you will find lot of them have second house. They are not posting on internet nor going to broker because getting a good tenant is the big challenge. And the past experiences are very bitter.

    Cheer:bab (51):
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  • Originally Posted by veeemkay
    Real.. why do you call urself????????:bab (59):

    Just to see whether the incoming calls are active or not:D. Btw, though you can't call your own no., you can send a SMS to your own no.!! I did this & showed this to my friend & said, "Hey, look, this no. is so similar to mine":D.

    * After reading this, I am sure some members here will send SMS to their own nos.!!
    CommentQuote
  • Pune Property Rate Survey..

    Shubh Makar Sankranti


    :bab (61):

    Please find attached the data compiled about PUNE rates from 2008.

    As the rates were reported in property exhibition, one can correct it with -10%to derive the negotiated rate.
    Attachments:
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  • Financial Strain on builders

    The financial strain is taking toll on builders now. Last week, HDIL sold land in Mumbai to Kanakia Spaces as it needs to repay INR 500 Cr+ by Mar 11 & outstanding loan is about INR 4200 Cr.

    In Dec 26th Business India mag, it has been mentioned how RE players are unable to launch IPOs which they planned to service the debt. Now as IPOs gone & PE not even ready to invest despite their asking rate of 24%+, builders have no option but to reduce prices & clear inventory ASAP. Even lallu Jains KUL/Kumar Builder is one having debt of over INR 430 Cr.

    The total IPO value from RE players was about INR 13,000 Cr which doesn't include Lavasa & Sahara Prime.

    The PEs & HNIs have informed builders that they will not be in a position to invest right now. Infact, the buyers too have become alert & showing great restraint for making RE purchase. The recent hikes in interest rates have made matters worse for builders.

    * Expect further hike in interest rates on Jan 25 2011. Btw, petrol prices have again gone up by INR 2.54/l from tonite , this means hike of INR 5.60/l in one month . Seems I should change my the fuel for vehicle now.

    Btw, I am happy with NCP comment when it said to Congress that they should learn coalition politics from Italy:D. This comment came when moron Rahul Gandhi said that coalition politics has resulted in price rise:bab (45):. So, why blame NDA then?? Congress ka haath, aam aadmi ke saath? Time to cut this hand into pieces.
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  • Price Correction Now A Reality

    Vilas Javdekar Eco Home is offering INR 500/sq ft discount without any floor rise for their projects in Wakad.

    This clearly shows RE prices are falling.
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  • Originally Posted by realacres
    Vilas Javdekar Eco Home is offering INR 500/sq ft discount without any floor rise for their projects in Wakad.

    This clearly shows RE prices are falling.

    I would rather call it consolidation after steep rise ; looks like some weak hands getting out.

    Rohit
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