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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  • Pune land grab case larger than 2G scam: Bombay HCPress Trust of India / Mumbai February 07, 2011, 20:48 IST
    Terming the Pune land grab scam as "larger than the 2G spectrum scam", the Bombay High Court today said it was inclined to direct Maharashtra government to transfer investigations into the case to CBI.
    A Division Bench of Justices B H Marlapalle and U D Salvi gave the government time till February 10 to clear its stand and directed the Advocate General to appear before it.


    The Bench was hearing a PIL filed by BJP spokesperson Madhav Bhandari alleging that bogus documents were used and orders passed under the Urban Land Ceiling and Regulation Act (ULCA).
    "This is bigger than the 2G scam... The court is inclined to transfer the case to CBI," the court remarked.
    The scam was unearthed in 2005 when the Pune deputy collector's office received a forged and fabricated certificate under the Act, declaring a plot near Pune as non-surplus.
    According to the petition, Yogesh Mhase, officer on special duty to former deputy Chief Minister R R Patil, was also involved in the scam.
    The High Court had on the last hearing directed the additional collector and competent authorities to register FIRs in 18 cases where bogus orders were used.
    Of the 29 files shortlisted, FIRs have been filed in 11 cases. The government had then sought six weeks time to scrutinise the remaining 18 files.






    Source :


    Pune land grab case larger than 2G scam: Bombay HC
    CommentQuote
  • Inventory Pile Up

    “At the current pace of consumption, it will take two years and four months to exhaust this stock. This is alarming because, a healthy market is supposed to have only an eight month inventory pile-up,” explains Kapoor.


    It cannot get worse for real estate, News - City - Mumbai Mirror

    :bab (66):
    CommentQuote
  • Some more info

    Originally Posted by Sharpj
    Are these real.. I think some parts maybe.. but there is also some ripe imagination..
    These have been there for a while.. somehow neither does opposition try to leverage this nor the ruling party try to dismiss it..

    Will these assume significance once Rahul is projected as PM.. Time will tell

    There is no imagination. As said before, Rajiv Gandhi is on list of chaps who have swiss accounts. Hence, congress to willing to disclose the names.
    The local chap (some Ali) in Pune who too has over $ 8bn is close to Bobada Pawar.

    The owner of Lokmat Press, Darda who is a Congressman, has his Swiss bank a/c as well. He was close to CM Vasantrao Naik & he transferred CMs money to his account & when the CM came to know about this, he died of heart attack :D.

    Now has this Darda chap been convicted?? One chap is MLA & other RS MP, both on Congress tickets.

    Ashok Chavan was kicked out not due to Aadarsh scam but by Vilasrao & Bobada Pawar...& Chagan Bhujbal went for toss for no reason :D. During this time, Rane had offered Sonia Maino over INR 500 Cr so that he can become CM. When Vilasrao was CM, he had paid about INR 470 Cr + monthly kickbacks to 10 Janpath. The Pune builder Paranjape is close to Vilasrao too.

    Issue is some of the behind the curtain scams are so huge that mango man simply can't believe.

    If what one is claiming against Gandhi & Co. why don't they file defamation suit then?? When an airport personnel mispronounced Priyanka Vadra (daughter of Maino) at IGI Airport, he was suspended . It was then when union came in his support + opposition parties making issue of this that he was reinstated.

    So, when name change can give headache, why no defamation suit then?? It is just that Maino & Co. know that if they come to spotlight, they will be finished.

    Even Raul/Rahul Gandhi acts as an agent between some businessmen based in Dubai & Europe & has his bank accounts in Hong Kong.

    Man, Sharad Pawar doesn't own a car, Sonia Manio doesn't have a house in India (seems she should apply for Indira Gandhi Awaas Yojana :D) but she has renovated her house in Italy....what does this indicate?? If they have few lakhs with them as shown to EC (Election Comm), then how did they spend crores buying properties abroad?? Pawar has properties in California, US, London, UK as well as Malaysia. His chamchas have interests in South Africa, Australia & Abu Dhabi.

    Anyways, will not deviate further from this RE topic, but man, when in first I started coming to know about such scams, I too was shocked, but now even scam of 1000-5000 Cr seems peanuts after hearing so many news, many of which have not even been posted here.

    Don't know what is in store for us, if such cases continue.

    * PS:- Few thousand Crores have went down the drain in NREGA schemes while 22,000+ Cr have been gobbled up when over 60,000 Cr were given to farmers, large part of the share taken by Congress at centre & NCP in state .
    CommentQuote
  • Interest rates on home loans into double digits

    Interest rates on home loans into double digits - Money - DNA

    One-year fixed deposits begin to offer double-digit returns again

    BankRecent hike in FD rates:-

    Lakshmi Vilas BankUp to 175 bps
    IDBI BankUp to 100 bps
    Union Bank of IndiaUp to 150 bps
    Kotak Mahindra BankUp to 50 bps
    Dhanlaxmi BankUp to 50 bps

    One-year fixed deposits begin to offer double-digit returns again - Money - DNA

    >> It just shows how FD (cash) now looks very attractive compared to RE. Home loan interest rates are already in double digits while RBI has said that another rate hike is on cards.

    * PS:- Remember the theoretical chap Montek Singh Ahluwalia who alongwith Pranab M, the finance minister said:- " Inflation will be under 5.5% by Sep 10". Seems they too are acting like builders while giving dates :D.
    CommentQuote
  • Housing project proposals witness 50% drop in Mumbai

    Another clear indication that RE sales are not taking place as earlier.

    The lukewarm response to the real estate market amid skyrocketing prices has resulted in a 50% drop in new housing project proposals in the city in the past year.

    Housing project proposals witness 50% drop in Mumbai - Money - DNA

    Btw, in Mumbai, the FSI for suburbs has been rolled back again to 1 which was hiked to 1.33 when Vilasrao Deshmukh was CM. The BMC says that the infra is not capable of handling such load & this FSI is not in accordance with the DP.

    To make matters worse for the builders, the rate of FSI has dipped from INR 4500/sq ft earlier to INR 1500/sq ft now. So, those who purchased TDR at 4500 levels are now stuck with big losses.
    CommentQuote
  • Medium term is good. Long term ?

    Real ,

    I read in some magazines that Banks have increased rates only for medium term (1-2 years) and not for longer term(3+ years).5 year Fds are still giving lower return than 1+ year deposit .Do you have any idea why are they not giving higher rates for long term deposit ? Are they expecting inflation to come down in near term or they expect even bigger problems like 2008?

    Thanks


    Originally Posted by realacres
    Interest rates on home loans into double digits - Money - DNA

    One-year fixed deposits begin to offer double-digit returns again

    BankRecent hike in FD rates:-

    Lakshmi Vilas BankUp to 175 bps
    IDBI BankUp to 100 bps
    Union Bank of IndiaUp to 150 bps
    Kotak Mahindra BankUp to 50 bps
    Dhanlaxmi BankUp to 50 bps

    One-year fixed deposits begin to offer double-digit returns again - Money - DNA

    >> It just shows how FD (cash) now looks very attractive compared to RE. Home loan interest rates are already in double digits while RBI has said that another rate hike is on cards.

    * PS:- Remember the theoretical chap Montek Singh Ahluwalia who alongwith Pranab M, the finance minister said:- " Inflation will be under 5.5% by Sep 10". Seems they too are acting like builders while giving dates :D.
    CommentQuote
  • 2G scam: CBI arrests DB Realty promoter Balwa

    Now one builder gets arrested by CBI. What next? Chandra of Unitech??

    2G scam: CBI arrests DB Realty promoter Balwa - Latest Current-affairs News

    Man, it seems the 2G is going to hit these builder hard as they not only have to face loans expiring on 31 st Mar 11 but also telecom ministry.

    Anyways, I have latest update about Pune RE ground reality. Will post it in a day here.
    CommentQuote
  • CommentQuote
  • Originally Posted by Srinidhi
    Real ,

    I read in some magazines that Banks have increased rates only for medium term (1-2 years) and not for longer term(3+ years).5 year Fds are still giving lower return than 1+ year deposit .Do you have any idea why are they not giving higher rates for long term deposit ? Are they expecting inflation to come down in near term or they expect even bigger problems like 2008?

    Thanks

    The reason for this is that banks don't want to commit higher rate of interests for long terms as such situations can't be predicted clearly. Eg. No one in 2005 could say that situation in global economy will be bad in 2008 due to US financial crisis. So, banks keep their risks minimum as far as possible & hence lesser rates on longer duration. Even rate of interest on FDs of over 1 Cr is less, so people do FDs of 50L, 50L in 2 different banks than single FD of 1 Cr.

    For the buyers too it is good in one way as you get more interest for lesser time duration & you can either use this money later for consumption or reinvest it again & if FD returns are good, make yet another FD.

    * PS:- If you make FD for senior citizen, the returns are more as interest rates for them are more by atleast 25 bps or 0.25%/annum.
    CommentQuote
  • Wringing times for realty developers

    Nice article which shows how builders are getting hammered into the wall & how coming days for builders will be bad due to multiple factors as discussed. For complete story, click here:-

    Wringing times for realty developers
    CommentQuote
  • Future Interest Rate prediction?

    The future interest rates are predicted by using Yield curve. It’s a graph which shows Maturity Vs Interest rate. Constructing a yield curve is very complex process, any way it’s a know fact that interest rate will not remain high forever. It will keep fluctuating up & down. If the interest rate expectation for near term(1-2 years) is high the yield curve will go up, if after say 2years the expectations are low the yield curve will go down. When yield curve goes down bingo !!!!!!!, it’s a point of recession & the shape of yield curve is described as humped yield curve.

    The reason behind bank’s raising interest rate for 1-2 years is that they are expecting interest rate will fall again after 1-2 years, means in 1-2 year bingo!!!!!.


    :bab (35)::bab (35)::bab (35):
    CommentQuote
  • 2G scam: ?Minister asked I-T to go slow on DB-DMK TV link' - The Times of India

    Any idea Who could be this minister? Sounds like Praful Patel.. he was minister of state then..
    CommentQuote
  • Govt. will soon make public the names

    Originally Posted by frugality
    Black money list revealed, 15 Indians named - The Economic Times


    Names of 15 Indians who have stashed away wealth in offshore banks have been made public by Tehelka magazine in its latest issue.

    Tehelka claimed it has in possession two more names, but were holding them back for verification. One name is alleged to be that of a prominent politician and the other chairman of a leading company.



    The 15 names include Manoj Dhupalia, Rupla Dhupalia, Mohan Dhupalia, Hasmukh Gandhi, Chintan Gandhi, Dilip Mehta , Arun Mehta, Arun Koohar, Gunwanti Mehta, Rajnikant Mehta, Prabodh Mehta, Ashok Jaipuria, Raj Foundation, Urvasi Foundation and Ambunova Trust.


    any Ideas about these names:bab (34):


    The Supreme Court asked the Centre to ensure that Pune-based businessman Hasan Ali, accused of stashing black money in foreign banks, doesn't leave the country.

    Meanwhile, the Government in reply to the Supreme Court's statements assured the court that it will soon make public the names of person who have stashed money in foreign banks. This came after a case was registered against them.

    The Government also informed the court that the Letters Rogatory have been issued to authorities in Hong Kong, Singapore, the UAE, USA and UK in the black money case.
    CommentQuote
  • Unitech for single digits?

    Originally Posted by realacres
    Now one builder gets arrested by CBI. What next? Chandra of Unitech??

    2G scam: CBI arrests DB Realty promoter Balwa - Latest Current-affairs News

    Man, it seems the 2G is going to hit these builder hard as they not only have to face loans expiring on 31 st Mar 11 but also telecom ministry.

    Anyways, I have latest update about Pune RE ground reality. Will post it in a day here.



    Real,

    Its more than an year now I had mentioned that an average company with nothing to write home about called Unitech, which was a small RE company back in 2002, took on the huge-debt route to shoot up from around Rs3 per share back in the 2002 bear market to as high as Rs582 in the 2007 boom.

    It has since hit Rs.22 in 2008 and after going to 100+ is back in the 30s to 40s range.

    Given the kind of debt is has and the overvaluation of its buildup inventory and the scam effect (and a possible lawsuit by Telenor if things go real bad), etc, etc, technically this stock should go down all the way into single digits and I have been waiting for over 2 years for this to happen and it seems to be playing out correctly so far. If I get a great price in the low single digits, I will take that as a golden opportunity to get into a large block of Unitech and hold out for the next boom where I might even get a 20-50 times investment!!!:D

    Anyone wanting to speculate for a once-in-a-decade opportunity?

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Real,

    Its more than an year now I had mentioned that an average company with nothing to write home about called Unitech, which was a small RE company back in 2002, took on the huge-debt route to shoot up from around Rs3 per share back in the 2002 bear market to as high as Rs582 in the 2007 boom.

    It has since hit Rs.22 in 2008 and after going to 100+ is back in the 30s to 40s range.

    Given the kind of debt is has and the overvaluation of its buildup inventory and the scam effect (and a possible lawsuit by Telenor if things go real bad), etc, etc, technically this stock should go down all the way into single digits and I have been waiting for over 2 years for this to happen and it seems to be playing out correctly so far. If I get a great price in the low single digits, I will take that as a golden opportunity to get into a large block of Unitech and hold out for the next boom where I might even get a 20-50 times investment!!!:D

    Anyone wanting to speculate for a once-in-a-decade opportunity?

    cheers


    And what if the company goes bust...ridden with scams and debt
    CommentQuote