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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  • Realty funds find it tough

    India opened its real estate sector to foreign direct investment (FDI) in 2005.


    “While global investors are themselves relooking at their portfolios, the fact is that they haven’t seen many significant exits in Indian real estate in the past, and returns on investments were not significant,” said Ajit Krishnan, partner, real estate practice, at consultancy Ernst and Young.


    “Global investors are turned off by the Indian real estate story, with realty stock getting hammered,” he said.
    The Bombay Stock Exchange’s realty index declined 37.51% to 2072.75 points last year, while the wider Sen index gained 8.76%.:bab (50):


    Realty funds find it tough to raise money overseas - Home - livemint.com
    CommentQuote
  • Hike in home loan interest rates

    ICICI & HDFC bank have hiked the home loan interest rate by 0.5% w.e.f 24 Feb 2011. It is also being said that RBI will hike rates further by atleast 0.25% or 25 bps on Mar 17 this year.

    Man, double digit home loan interest rates will dampen RE even further.
    CommentQuote
  • DMK ministers to quit UPA government


    DMK withdraws support to UPA govt





    Times of India

    CHENNAI: The DMK on Saturday withdrew support to the UPA government after failing to reach a seat-sharing pact with the Congress for the TN assembly elections.

    "We are compelled to suspect that these are all the efforts by Congress to remove us from the UPA. Under these circumstances we have to think whether to continue in the government," says Tamil Nadu chief minister M Karunanidhi.

    DMK will provide only issue-based support to the UPA Government. DMK resolution says Congress does not want us to continue in the alliance. Their attitude clearly shows this, says the resolution.

    The decision was adopted in a resolution after a high-level committee of the DMK met to decide on continuing their seven-year-old alliance with the Congress. The two parties, earlier, held three rounds of discussions on seat sharing for the April 13 Assembly elections.

    The Congress stand surprises us, says M Karuanidhi at the DMK high-level meeting. The Congress stand does not help for an amicable poll accord, the resolution says.

    Earlier in the day, finance minister Pranab Mukharjee said that the Congress-DMK talks over seat sharing for the Tamil Nadu elections had run into rouble but claimed the issue will be resolved. "We have problems but problems will be solved," Mukherjee told reporters

    The Congress reportedly wants to contest 63 of the 234 seats in Tamil Nadu, which goes to the polls April 13. The state's ruling DMK is reluctant to concede this many seats.


    Now real fun Starts....

    DMK ministers to quit UPA government - The Times of India
    CommentQuote
  • Originally Posted by khbarilal
    India opened its real estate sector to foreign direct investment (FDI) in 2005.


    “While global investors are themselves relooking at their portfolios, the fact is that they haven’t seen many significant exits in Indian real estate in the past, and returns on investments were not significant,” said Ajit Krishnan, partner, real estate practice, at consultancy Ernst and Young.


    “Global investors are turned off by the Indian real estate story, with realty stock getting hammered,” he said.
    The Bombay Stock Exchange’s realty index declined 37.51% to 2072.75 points last year, while the wider Sen index gained 8.76%.:bab (50):


    Realty funds find it tough to raise money overseas - Home - livemint.com



    Those global investors were very very stupid to invest money in PE of our crooked realty companies - those real estate companies must have sucked out every single paisa out of those stupid foreigners.

    Even Columbian drug lords would be better than our realty companies - worst crooks on earth

    Anyway, good to see that our crooked RE companies dont screw only us - they screw people on a global scale
    CommentQuote
  • Banks want higher promoter equity in real estate projects

    Check this,
    Banks want higher promoter equity in real estate projects

    With sales having dried up, there isn’t much money coming in from the buyers’ side and so, developers are expected to contribute that portion,” said Yadav.
    CommentQuote
  • Metro home prices take a dip on tighter liquidity

    Real estate services firm Jones Lang LaSalle India (JLL) says newly-launched residential projects are recording an average 15% lower prices, especially in Delhi and Mumbai ? markets witnessing oversupply in many pockets. :bab (59):



    The higher the prices, more the correction, with Gurgaon, Greater Noida, Navi Mumbai and Bangalore as prime examples, where prices jumped 30-35% last year.




    Metro home prices take a dip on tighter liquidity
    CommentQuote
  • Real estate funds exiting

    The exit comes at a time when property developers are finding it tough to raise money from lenders, the capital market and private equity investors. Lenders have tightened norms to realty firms and private equity funds are seeking lower valuation to invest in them.

    http://www.livemint.com/2011/03/06175200/Kotak-real-estate-fund-exits-P.html?atype=tp
    CommentQuote
  • Another RE exhibi

    CREDAI Pune/PBAP has held the same property exhibi:- 'Aundh Annexe' at same location at Wakad. It was hardly one month ago when this exhibi was done & now one more. Builders say that the exhibi was held as former one got OVERWHELMING RESPONSE :D. If the response was so good with loads of bookings done, then why the need to sell the same project again?:bab (34):
    Btw, some builders have now started giving stamp duty + reg free :bab (4):.
    CommentQuote
  • Originally Posted by realacres
    CREDAI Pune/PBAP has held the same property exhibi:- 'Aundh Annexe' at same location at Wakad. It was hardly one month ago when this exhibi was done & now one more. Builders say that the exhibi was held as former one got OVERWHELMING RESPONSE :D. If the response was so good with loads of bookings done, then why the need to sell the same project again?:bab (34):
    Btw, some builders have now started giving stamp duty + reg free :bab (4):.


    DEAR RA
    So u mean the PUNE RE Buisiness is in soup.....right.....:D
    I thing they are saelling same whisky in new bottle....:o
    savvy_v
    CommentQuote
  • Builders have jacked up the prices of pimple saudagar and they are are now in line with baner.
    What prompted the builders to hike the rates???
    One agent told me because oe builder has launched the project at that rate so all others have increased the rates too
    What kinda logic is that??
    Pathetic!!!!
    CommentQuote
  • Raising Prices Without sale???

    One reason behind price rise is to hold the collateral price given to lenders & investors. If there is no increase in price the collateral value will fall & banks will foreclose the assets.



    If one will refer PE fund demanding lesser valuation news, it also confirm that builder has jacked up the prices. Based on the attached document from 2008 till today sales have gone down but the companies’ asset value is going up.
    Attachments:
    CommentQuote
  • Originally Posted by khbarilal
    One reason behind price rise is to hold the collateral price given to lenders & investors. If there is no increase in price the collateral value will fall & banks will foreclose the assets.



    If one will refer PE fund demanding lesser valuation news, it also confirm that builder has jacked up the prices. Based on the attached document from 2008 till today sales have gone down but the companies’ asset value is going up.


    Good data khabri. But overall the net sales figures looks pretty strong and cash balance as well healthy. No doubt banks are pressurising builders now to stake bigger part of their cash in the project (good move from banks I would say). This would mean that they will be able to roll out lesser projects than earlier and would be more diligent/serious.
    One company Ajmera in the chart looks like going to close. But its debt is almost nil.
    CommentQuote
  • Very good data.. Thanks for sharing..

    Originally Posted by khbarilal
    One reason behind price rise is to hold the collateral price given to lenders & investors. If there is no increase in price the collateral value will fall & banks will foreclose the assets.



    If one will refer PE fund demanding lesser valuation news, it also confirm that builder has jacked up the prices. Based on the attached document from 2008 till today sales have gone down but the companies’ asset value is going up.
    CommentQuote
  • Originally Posted by khbarilal
    One reason behind price rise is to hold the collateral price given to lenders & investors. If there is no increase in price the collateral value will fall & banks will foreclose the assets.

    If one will refer PE fund demanding lesser valuation news, it also confirm that builder has jacked up the prices. Based on the attached document from 2008 till today sales have gone down but the companies’ asset value is going up.

    Good info khabarilal. Now, in total assets, most of it is LAND which is not useful unless developed. If you see just the cash reserves, it all shows a different story. What is important is having healthy cash flows which is not the case especially in last 6 months. There are cases where the existing properties have been mortgaged already.

    Man, 50% dip in their share prices show how bad the RE sector & the sentiment towards it is. It is then no wonder than several builders haven't launched the IPO despite SEBI giving them a go-ahead almost an year ago.
    CommentQuote
  • Something I read from an investment newsletter...

    --
    The property market has always caught the fancy of not just genuine buyers, but also individual investors, financial institutions and banks. But just how safe is property? Quite dangerous if one goes by the evidence. For starters, the current financial crisis had its seeds sown in the collapse of the housing market in the US. What is more, as pointed out by the Economist the five big banking fiascos in the rich world before this latest crisis (Spain in the 1970s, Norway in the 1980s and Sweden, Finland and Japan in the 1990s) had property at their heart.

    Further, the size of the asset class is massive. For instance, the current values of just residential property, even after the bust, would be around 126% of the rich countries' combined GDP in 2010. Because of its sheer size, the moment credit policies loosen, money just flows into this asset to a point where prices reach unjustifiable levels and set the backdrop for a large plunge.

    Property is also risky because of the leverage that this sector involves. For companies, this means borrowing heavily for setting up various projects. Which becomes a huge concern during adverse conditions. The same is the case for individuals as well. Many buyers take on loans worth 90% or more of the value of the property. Thus, during times of crisis, selling the whole house becomes the only option to bring this debt down.

    The big problem really is the speculative tendencies that investors have with respect to this asset. Ideally, simple economics should play out in that higher prices will automatically dampen demand which will compel companies to lower prices. But property (let's say residential houses in this case) is not just bought because a buyer genuinely requires a home. Many a time it is purchased as an investible asset. And in countries like India, nexus of builders with politicians, murky disclosure norms and red tape only heightens the riskiness of this asset. Little wonder then that from a purely investment perspective, property market is fraught with considerable risks.

    --
    CommentQuote