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


    No gain comes without risk. If you dont have the risk taking pottential, invest in safer avenues like PPF etc :)
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  • Originally Posted by lazybone007
    No gain comes without risk. If you dont have the risk taking pottential, invest in safer avenues like PPF etc :)



    yes thats correct..........
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  • What if a bus hits me tomorrow?

    Originally Posted by kingmanish
    And what if the company goes bust...ridden with scams and debt



    You must understand that in India no company (especially of that size) goes bust. It will languish for a while at those bottoms and every 4-5 years it will participate in the next boom to 30 or 80 or 100 price simply on sentiment (and carefully placed new items) driving price to those levels.

    Do not be surprised to see the next lot of bakras (new to the stock market with their load of hard-earned cash) believe in the spiel that the new wonder-turnaround-artist who took over Unitech's strategy churns out.

    He will buy large block at Rs2, dump half on his cotery of brokers and FIIs and DIIs and HNIs in the Rs10 range who inturn will dump it on earl bird retail investors around 20-30. Then the big jump will come when the tailend bakras get into the impossible-to-fail-10-bagger Unitech (remember it reached 582 in the last bull market and it will go higher this time because India is the next < fill in your favorite India Shining quote here>.

    Why are you conerned beyond this? Sell your original investment worth from your portfolio and hold the rest for the next bull mania run to complete? You should be able to retire then, right? :D

    There are so many examples of this in EVERY bull market!!!

    If company goes bust, I forget the money I put in and move on. Since I callibrated my portfolio to 40% bluechip, 30% midcaps, 20% smallcaps, 10% speculative and 10% high risk trading, I take the hits and winners as they come. Stock may sink, but I will not!

    cheers
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  • Originally Posted by lazybone007
    No gain comes without risk. If you dont have the risk taking pottential, invest in safer avenues like PPF etc :)


    Risk is fine but it should come with wisdom. If there is a hardworking team doing a new business and going by the books and dreaming to make it big with diligence, hard work and honesty and if i put money on that business then its called risk taking potential.

    Whereas if I know a business by a bunch of crooks who wants to make quick money and tries all kinds of methods to achieve it. Then if i put money on that its not called risk taking potential but lured by the same level of greed for quick money.
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  • Originally Posted by kaushik.v
    Risk is fine but it should come with wisdom. If there is a hardworking team doing a new business and going by the books and dreaming to make it big with diligence, hard work and honesty and if i put money on that business then its called risk taking potential.

    Whereas if I know a business by a bunch of crooks who wants to make quick money and tries all kinds of methods to achieve it. Then if i put money on that its not called risk taking potential but lured by the same level of greed for quick money.


    Now you sound like Warren Buffet
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  • Originally Posted by lazybone007
    Now you sound like Warren Buffet


    Thanks :) I take it as a complement.
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  • CWG scam: CBI arrests Kalmadi's Officer on Special Duty

    Another Kallu's guy CWG scam... Kallu must be glad for Raja.. took the heat of him a bit..

    MMS
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  • 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


    Good idea.

    But it will not go to 2Rs. Too many people will trade this and will keep it in a channel between 20 and 40.

    Better idea is to buy at the support and sell at resistance - I havent seen charts but say buy at 20 and sell at 40.

    Do it 10 times and you got yourself a 10 bagger.

    I would prefer to do it with a better quality stock. Hindustan Zinc is my favourite - never fails to keep bouncing up and down as expected
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  • 2G: CBI tightens noose around Unitech MD

    Originally Posted by kingmanish
    And what if the company goes bust...ridden with scams and debt

    As said before in previous post, Chandra of Unitech is also on list. Now it has come true. See the news below:-

    After DB Realty chief Shahid Balwa, it could be Unitech’s Sanjay Chandra. Widening its net in the 2G scam probe, the CBI has come close to arresting Chandra, whose real estate firm received undue favours from former telecom minister A Raja during allocation of spectrum licenses.

    Read complete story here:-

    2G: CBI tightens noose around Unitech MD - India - DNA

    * PS:- Bobada Pawar's name is now coming up in DB Realty, though Pawar as always has denied this just like Lavasa earlier. Man, this Bobada Pawar is in all scam hit builders......why doesn't some slab collapses on him?? Our country will immensely benefit.

    Btw, in other news, SBI has hiked the interest rates by 0.25%. Besides loans, this hike is effective for FD too.
    CommentQuote
  • good time to short or buy puts on unitech on monday ?

    will FD rates of SBI reach around 10 or 10.5% levels in march ?

    Originally Posted by realacres
    As said before in previous post, Chandra of Unitech is also on list. Now it has come true. See the news below:-

    After DB Realty chief Shahid Balwa, it could be Unitech’s Sanjay Chandra. Widening its net in the 2G scam probe, the CBI has come close to arresting Chandra, whose real estate firm received undue favours from former telecom minister A Raja during allocation of spectrum licenses.

    Read complete story here:-

    2G: CBI tightens noose around Unitech MD - India - DNA

    * PS:- Bobada Pawar's name is now coming up in DB Realty, though Pawar as always has denied this just like Lavasa earlier. Man, this Bobada Pawar is in all scam hit builders......why doesn't some slab collapses on him?? Our country will immensely benefit.

    Btw, in other news, SBI has hiked the interest rates by 0.25%. Besides loans, this hike is effective for FD too.
    CommentQuote
  • Originally Posted by Manoos
    good time to short or buy puts on unitech on monday ?

    No comments here coz I won't say anything about what I am unsure about.

    will FD rates of SBI reach around 10 or 10.5% levels in march ?

    Already there are various banks offering 10%+ on FD. You can simply make FD in other banks, why stick with SBI?? However, SBI will be under pressure to hike FD rates as its own buyers will shift to other banks which will lead to liquidity probs for the bank which is already being felt. This would in turn make loans from SBI costlier, especially the home loan will arrange itself with other banks rates.

    Btw, I came to know that SBI has now become more vigilant than before for sanctioning home loans & the docs + collateral too has been increased. SBI, I think has issued new NOC format too which is required to be filled by the builder.
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  • Originally Posted by realacres


    * PS:- Bobada Pawar's name is now coming up in DB Realty, though Pawar as always has denied this just like Lavasa earlier. Man, this Bobada Pawar is in all scam hit builders......why doesn't some slab collapses on him?? Our country will immensely benefit.


    Good one RA!

    The reason Bo Pa gave is very funny
    - Bo Pa 70 Sa Ba 30 how can be friends?
    Simple - Apna Sapna Money Money!

    Good one RA!

    The reason Bo Pa gave is very funny
    - Bo Pa 70 Sa Ba 30 how can be friends?
    Simple - Apna Sapna Money Money!

    Good one RA!

    The reason Bo Pa gave is very funny
    - Bo Pa 70 Sa Ba 30 how can be friends?
    Simple - Apna Sapna Money Money!

    Good one RA!

    The reason Bo Pa gave is very funny
    - Bo Pa 70 Sa Ba 30 how can be friends?
    Simple - Apna Sapna Money Money!
    CommentQuote
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  • Notice to Real Estate Companies.

    "However, some of the real estate companies which are currently witnessing low volume of business have already asked for further restructuring of these loans, a proposal which banks are generally not willing to endorse. M Narendra, CMD, IOB confirmed that the bank has sent notices to some of the real estate firms."

    Realty cos hit with Rs 20,000 cr demand

    :bab (35)::bab (35)::bab (35):
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  • Originally Posted by Manoos


    will FD rates of SBI reach around 10 or 10.5% levels in march ?


    No.

    SBI left long term rates unchanged at 8.75.

    Inflation is slowing.

    RBI is controlling Rupee depreciation to control imported inflation - and being very successful - Rupee held steady despite 2 billion dollar pull out in equity.

    I expect RBI to leave rates unchanged / 0.25% hike in March and the pause rate hikes

    SBI is mopping up funds using long term bond issue of 9.5 and 10% yield at 10 and 15 years - these are lapped up by institutions and retail people like us dont get any chance at all.

    So the poor FD investor - myself included - is being left in the lurch.

    Only 555 and 1000 day deposit rates were raised. I dont expect any rate rise in March by SBI and have already locked in at current SBI rates for 555 and 1000 days.

    ICICI rate increase also not yet out.
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