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 gauravishu
    yaar I have been going through the thread and let me say that this is a very informative thread. However even after 3250+ posts there is no clear decision. Hence I think that the result is that owning a house or renting one is NOT a financial decision but an emotional one. Emotions ke aage financial planning nahin chaltee...

    This is valid only for the first house for end use... What do you say?


    This is not just 3250 posts but a snapshot of everything happening in RE space over last 1.5 tumultous years in one continuous record.

    Its a brilliant thread.

    Buying for own use (an expenditure) and for investment are two different things. Mixing them causes problems, just like mixing insurance (an expenditure) and investment in ULIPS/Endowment plan.

    For own use, buying is always sensible, provided you buy within your means and dont undertake ridiculous loan levels.

    Sensible loan = 25% of your AFTER TAX salary. So if earning 1.3L per month =1L per month after tax, you can take 25L loan.

    Rest you accumulate by saving for a downpayment.

    For own use, usually only ready to move is considered sensible.

    Buying under construction flat is a speculation and should not be mixed with buying for own use.

    Normally, people try to mix and match different objectives. Sometimes it works, other times it doesnt.

    Better safe than sorry - by following the safe rules for own buying, you wont go wrong.
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  • The next leg down?

    Venky,

    Its confirmed. The Portuguese are likely to hit bailout in early April.

    Besides this, the Chinese are raising rates at least once a month and there are signs that inflation may already be out of control in China. The Govt just scapped RE bubble index.

    The Americans are headed for their seasonal raising of the debt limit and this time its going to be a heated battle. There is no option but to raise it and this America is headed inevitably for a serious crisis down the road.

    Japan is now seeing independent candidates winning elections with landslide margins. The 2 parties of the 2-party system are badly hit. The main reason for independents winning is they are against more debt. With over 50% of Govt spending going only to Social Security the Govt is considering doubling sales tax - now you know why the independents are winning. Japan is almost certain to hit serious crisis sometime soon.

    Is is any wonder that Gold is again close to $1400 levels, silver is hitting 30-year highs of almost $32 (touched Rs.48000 in India) and the Dollar Index is steadily declining. The Dollar may actually break down below 2008 low of 74.xx this time.

    In the next 2-3 months there may be some serious bearish action in our markets, especially if, as a response to all these above scenarios as well as ongoing high inflation levels, FIIs start pulling out.

    Over an year ago, I had mentioned the trend of companies that participate in driving up a boom crashing and remaining below their peaks for a long period. This was true in the past of companies like ACC, IT stocks, etc. This time it was the Reliance groups and RE stocks that were the stars of 2007 boom. They too seem to be following this trend this time around.

    What do you think?

    cheers
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  • Originally Posted by wiseman
    Venky,


    What do you think?

    cheers


    I think too much.

    And so do you.

    I agree that bad things are brewing, but US, China and India have managed 2009 and 2010 in a sterling fashion. Could not have asked for a better handling of a major major crisis. Most of the problems are already flagged and being heaviily watched. And the watched pot doesnt boil so conveniently.

    Egypt came out of the blue. Nobody could have predicted it. And yet it happened.

    I expect some totally unpredicted stress to be what tilts the balance.

    Let us see what the budget brings. I am expecting a totally feel good budget, given the mood of the nation. In any case, stock and RE upside is now capped. Waiting for 6 months cannot cause any harm.

    Bad time for shorting too - except Monday might see another fall - not sure - basically there is confusion all around, no clear decision is possible in such darkness.

    Japan - at some point inflation was expected. Early signs are emerging - but of a stagflation - basically it will destroy their wealth.

    China - successfully given a lot of employment, economy is booming. I am unable to predict - but fears of major crisis have receeded and so has fear of border wars with India.

    Pakistan - bad things are brewing there - they might kick out USA and join an Axis with China very soon. Taking Afghanistan with them.

    Middle East - their basic economic model has just been totally screwed. Oil has to shoot up like crazy soon, unless these protests die down. Every time one country suppresses with violence, other country people will protest harder- if the ruler suppresses, he is screwed, if he does nothing he is screwed - it is an impossible and explosive situation. Iran might gain an advantage and might join Pakistan and China in forming a major cold war block with Russia tagging along - This block formation was inevitable, but the middle eastern crisis might precipitate it immediately.

    In any case, oil has to shoot up - if above crisis comes it will shoot, if crisis doesnt come, with this much growth in China it has to shoot within a year or two.

    Only question is - when? When will oil shoot and trigger another global crisis?

    If this year drags out, China will slow with its rate rises and prevent oil shooting for 2-3 years. But oil crisis by 2014 is impossible to avoid

    FD=yes
    Gold=yes
    Stock= no unless 20-30% lower
    RE=dangerous speculation on hyper-inflation at current levels. Might give great returns at horrendous risks. Not on leverage
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  • Originally Posted by realacres
    Man, I am too eagerly waiting for it. Please do the needful ASAP. I would be able to forward it via emails too, if we get in English.

    * PS:- If possible, get the copy in .pdf format also, will be easier to forward as attachments.


    Did this topic appear in newspaper earlier also? I think we have a separate thread on this topic. I had saved a copy of it while reading that thread and found luckily today.

    Here is the PDF...
    Attachments:
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  • Originally Posted by home123
    Is this topic appeared in newspaper earlier also? I think we have a separate thread on this topic. I had saved a copy of it while reading that thread and found luckily today.

    Here is the PDF...


    Here is the thread...
    https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/12222-today-s-real-estate-market-condition-very-thought-provoking-article-in-marathi?t=14520
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  • A close look at Real Estate Returns in India

    Hi All,

    I found a nice article and would like to share it with you all,
    A close look at Real Estate Returns in India
    The author very well explains RESIDEX (Index for tracking Real Estate in India and maintained by National Housing Bank in India)

    --Thank you
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  • Beware Of Assured Returns Schemes From Builders

    Several builders are now giving 'Assured Returns' schemes for their projects. Here, the buyer needs to make 100% down-payment & in return, the builder assures fixed returns on this amount. Now, here's the trap:-

    > The builder discloses all the terms & conditions at the time of signing the agreement, not before;

    > The returns are not assured, it is subject to .....this is what is mentioned in the clauses;

    > The investor may not have any right to sell the property once it is complete, if at all it gets completed;

    > The buyer is not the owner of physical property in several cases;

    > In-case the builder defaults, chances of recovering the money are remote as such schemes are not under the ambit of RBI.

    I wasn't much bothered about this earlier as such schemes used to be there in Delhi-NCR & currently are offered here by builders like Supertech, Vardhaman Group etc. But man, what came as a shock for me is besides Disha Direct (which is a crook company) operating near Pune, even Magarpatta has started to offer this scheme especially for Nanded City.

    It seems Pawar & Co. are running out of such projects or they now want more bakras!!

    Beware of such schemes friends.
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  • Who is Speculating in Pune Real Estate Market?

    By citing the housing demand, builders has jacked up the prices but the fact is that it’s not demand driven but a speculation driven by FDI(Foreign Direct Investment.)

    “Foreign investors have so far contributed significant capital to India's real estate market. Aggregate FDI inflows into the real estate sector are recorded at approximately 7.42 per cent of the total inflows. There was, however, a growing demand to do away with the three-year lock-in period for FDI investments in realty. The government should think of providing genuine relaxation from the lock-in requirements, which would give some relief to foreign investors.”

    As govt. is putting control on FDI, CREDAI started is getting upset. If there is a demand then sell to end user why you need speculators?:bab (45):

    Builders already have gross margin of 50% still want tax(80 IB) benefits, for what?:bab (43)::bab (43)::bab (43):

    Realty sector wants FDI norms relaxed - The Times of India
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  • CBI to probe ULCRA scam

    The following news article is about ULCRA scam of Pune:-

    CBI to probe ULCRA scam

    Now besides what has been mentioned in news above, here is some more to it:-

    > Over 60 projects in Sahakarnagar will become illegal,
    > Same is the case with TDR issues in Kothrud,
    > Commercial properties at Deccan will too face heat,
    > Kohinoor institute (of ex-CM Manohar Joshi of SS) at Deccan, off JM Road can be demolished.

    Man, if something severe comes up, not only politicos but even prominent builders in Pune will be in soup :D. Ofcourse, they will do their level best to hide the scam but lets see. If Kallu can go, others in city too can follow him!!
    CommentQuote
  • CBI to probe ULCRA scam

    The following news article is about ULCRA scam of Pune:-

    CBI to probe ULCRA scam

    Now besides what has been mentioned in news above, here is some more to it:-

    > Over 60 projects in Sahakarnagar will become illegal,
    > Same is the case with TDR issues in Kothrud,
    > Commercial properties at Deccan will too face heat,
    > Kohinoor institute (of ex-CM Manohar Joshi of SS) at Deccan, off JM Road can be demolished.

    Man, if something severe comes up, not only politicos but even prominent builders in Pune will be in soup :D. Ofcourse, they will do their level best to hide the scam but lets see. If Kallu can go, others in city too can follow him!!
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  • As realtors dither, IPO prospectuses fall off shelf

    Pune-based Kumar Urban Infra, promoted by Lalit Jain, will complete a year of sitting on its approval on March 22. It has been looking to raise Rs450 crore, half of which was designated towards repayment of high-cost debt......

    “It is very unlikely any of the developers would be able to raise anything from the capital market. Going by our interactions with investors, they are just not ready to listen to any realty story,” said an analyst tracking the sector.

    “For those who think the stocks are available cheap right now, let’s not forget what happened last time — investors participated in the qualified institutional placements (QIPs) thinking they were cheap, but the stocks have fallen more than 50% from those valuations. The biggest problem is for the unlisted developers — they can’t even go around pledging shares,” the analyst said, requesting he not be identified.

    As realtors dither, IPO prospectuses fall off shelf - Money - DNA
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  • Originally Posted by realacres
    The following news article is about ULCRA scam of Pune:-

    CBI to probe ULCRA scam

    Now besides what has been mentioned in news above, here is some more to it:-

    > Over 60 projects in Sahakarnagar will become illegal,
    > Same is the case with TDR issues in Kothrud,
    > Commercial properties at Deccan will too face heat,
    > Kohinoor institute (of ex-CM Manohar Joshi of SS) at Deccan, off JM Road can be demolished.

    Man, if something severe comes up, not only politicos but even prominent builders in Pune will be in soup :D. Ofcourse, they will do their level best to hide the scam but lets see. If Kallu can go, others in city too can follow him!!


    I wish this happens but the chances are slim... finally they will make someone as a patsy (bakara) and make everything regularize...

    The money involved is actually coming from common man, so if they want to demolish anything, common man needs to be compensated and that too from the coffers of the law breakers.. but the law breakers will ensure that they will not have any financial impact and common man is anyway not united.

    Law breakers in this case will order their 'spoons' to make a large hue and cry not to demolish anything as this is against common man etc, so at the end, there will be some peanuts paid as fines, couple of resignations and it will be closed...

    BTW, I have always wondered how resignation is considered or accepted as an answer? It is appearing exactly like the movie 'Bunti aur Babli' where the lead duo makes a lot of money illegally and then simply asks for forgiveness...

    can a common man steal money from his office and expect that resignation is enough to get yourself cleared?
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  • Originally Posted by punerebuyer

    BTW, I have always wondered how resignation is considered or accepted as an answer? It is appearing exactly like the movie 'Bunti aur Babli' where the lead duo makes a lot of money illegally and then simply asks for forgiveness...

    can a common man steal money from his office and expect that resignation is enough to get yourself cleared?


    Totally agree. And these politicians boast so confidently that they have resigned or the guilty members of their party have resigned as if by resigning, their crime gets wiped off :D
    CommentQuote
  • Originally Posted by realacres
    The following news article is about ULCRA scam of Pune:-

    CBI to probe ULCRA scam

    Now besides what has been mentioned in news above, here is some more to it:-

    > Over 60 projects in Sahakarnagar will become illegal,
    > Same is the case with TDR issues in Kothrud,
    > Commercial properties at Deccan will too face heat,
    > Kohinoor institute (of ex-CM Manohar Joshi of SS) at Deccan, off JM Road can be demolished.

    Man, if something severe comes up, not only politicos but even prominent builders in Pune will be in soup :D. Ofcourse, they will do their level best to hide the scam but lets see. If Kallu can go, others in city too can follow him!!



    CBI's credibility is doubtful. it seems it works the way central govt wants it to.
    CommentQuote
  • Originally Posted by punerebuyer
    I wish this happens but the chances are slim... finally they will make someone as a patsy (bakara) and make everything regularize...

    The money involved is actually coming from common man, so if they want to demolish anything, common man needs to be compensated and that too from the coffers of the law breakers.. but the law breakers will ensure that they will not have any financial impact and common man is anyway not united.
    Originally Posted by punerebuyer


    Law breakers in this case will order their 'spoons' to make a large hue and cry not to demolish anything as this is against common man etc, so at the end, there will be some peanuts paid as fines, couple of resignations and it will be closed...


    BTW, I have always wondered how resignation is considered or accepted as an answer? It is appearing exactly like the movie 'Bunti aur Babli' where the lead duo makes a lot of money illegally and then simply asks for forgiveness...


    can a common man steal money from his office and expect that resignation is enough to get yourself cleared?


    Sir Winston Churchill... His argument against granting India freedom.
    "Power will go to the hands of rascals ,rogues, freebooters; all Indian leaders will be of low caliber & men of straw. They will have sweet tongues & silly hearts. They will fight amongst themselves for power & India will be lost in political squabbles. A day would come when even air & water would be taxed in India."



    Prophetic Words which have unfortunately come true!!!
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