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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  • Metro home prices take a dip on tighter liquidity

    The vision of owning a house is slowly getting clearer for buyers as residential real estate prices are beginning to see the promised correction on the back of hardening interest rates and poor transaction volumes......

    With sales volumes of residential units for the first two months of this year down by at least 40%, developers are resorting to discounts to lure customers in other top markets where the dip is not reflected in per square feet prices......

    Read complete story here:-

    Metro home prices take a dip on tighter liquidity

    And man, this is just the start, the real fun will start post 31st March 2011.
    CommentQuote
  • I keep getting calls from builders and brokers about the availability of flats.

    I tell them I need a flat but I am not ready to pay beyond a certain rate for a particular location.
    If they say no the current rate is XXX for this location then fine ...the builder keep it with him.I am happy renting .......

    Guys there is no point in buying at an inflated price.....we burn our pockets and will be going no where........

    The message should be set out clearly.......
    CommentQuote
  • Cancellation Charges

    From last month onwards Mumbai based builders have started taking heavy cancellation charges of INR 3000-4500+/sq ft .

    Due to credit crunch & lack of buyers, builders have stalled the project. This has led to several existing buyers to cancel the bookings. Builders like Lodha are taking atleast 1+ Cr as cancellation charges for their project Lodha Bellissimo :bab (45):.

    So, beware man, tomorrow if Pune chaps do this, one will get badly stuck. We already have e.g here like that of Rama Group.
    CommentQuote
  • IT Salaries

    This news says Party Is Over for IT employees :(

    IT bids adieu to big hikes - CNBC-TV18 -

    Who is going to party then...builders???
    CommentQuote
  • Originally Posted by realacres
    From last month onwards Mumbai based builders have started taking heavy cancellation charges of INR 3000-4500+/sq ft .

    Due to credit crunch & lack of buyers, builders have stalled the project. This has led to several existing buyers to cancel the bookings. Builders like Lodha are taking atleast 1+ Cr as cancellation charges for their project Lodha Bellissimo :bab (45):.

    So, beware man, tomorrow if Pune chaps do this, one will get badly stuck. We already have e.g here like that of Rama Group.


    so some folks are paying 1 cr+ and still not getting homes.. it sounds pathetic!
    CommentQuote
  • RE REgulator Finally Here

    I just got some insider updates from one of my chap in Delhi that Govt is planning to present the RE Regulator Bill in coming monsoon session of parliament. One thing which has been confirmed is to make builders sell on CARPET AREA only.

    So, if the bill gets passed this monsoon session, we will be having a RE regulator by this year end :).

    * PS:- This news has created rift between the builders themselves as some are welcoming this move (like Tata Housing, Godrej Props & even to large extent Hiranandani) while builders like DLF, Unitech & Maharashtra's scorpio chaps are opposing it.

    Maybe this time CREDAI, BAI (Builder Asso of India), ASSOCHAM & CII backed RE lobby (forgot the name) will all be sitting on different benches :D. But personally, I am hopeful that RE regulator will be in place which is good for buyers & professional builders :).
    CommentQuote
  • Govt for setting property rates on carpet area

    Ever felt why as a home buyer should you pay for the staircase, garden and the lobby area when you buy an apartment. If the government has its way, homebuyers may soon get some relief.

    The government may soon make it mandatory for real estate companies to calculate the price of housing units on the basis of carpet area, as against the current practice of selling on a super built up area basis which means you pay only for the area within the four walls of your apartment and not the surrounding infrastructure.

    The policy change is part of the government's proposed real estate regulatory bill which is expected to be tabled in the monsoon session of the parliament.

    Clearly, homebuyers in cities like Mumbai are the worst hit where loading on carpet area is nearly 30-40 per cent.

    “Confederation of Real Estate Developers' Association of India (CREDAI) is already discussing the issue with our members to adopt this formula but it will make any meaningful difference, only when a formal policy is made. We expect this to be effective in the next 6-8 months,” said Geetambar Anand, vice-president - CREDAI and MD at ATS.

    The government's idea for proposing such a policy change, is to make housing units cheaper for the consumer, apart from of course, bringing more transparency in property transactions. However, it is unlikely that the move will ease any price burden for the consumers.

    “As a developer, we sell a unit based on the total cost that we incur, so if we have to base our calculation on carpet area, the per sq ft price will go up,” said Anand.

    Maharashtra has already made it mandatory for developers to sell apartments on carpet area. But homebuyers are still to benefit from it as developers argue that the local planning authority charge stamp duty and registration on the super built up area thus making it difficutl to pass on the benefit to the consumers.

    Govt for setting property rates on carpet area - NDTV Profit
    CommentQuote
  • Originally Posted by lucky_123

    However, it is unlikely that the move will ease any price burden for the consumers.

    “As a developer, we sell a unit based on the total cost that we incur, so if we have to base our calculation on carpet area, the per sq ft price will go up,” said Anand.



    This is exactly what I thought after reading the title. :bab (38):
    CommentQuote
  • i am hearing direct tax code since 2010, now latest is the code MAY get enforced in 2012

    so hoping real estate regulator by year end is day dreaming only keeping view of past record of our parliament

    Originally Posted by realacres
    I just got some insider updates from one of my chap in Delhi that Govt is planning to present the RE Regulator Bill in coming monsoon session of parliament. One thing which has been confirmed is to make builders sell on CARPET AREA only.

    So, if the bill gets passed this monsoon session, we will be having a RE regulator by this year end :).

    * PS:- This news has created rift between the builders themselves as some are welcoming this move (like Tata Housing, Godrej Props & even to large extent Hiranandani) while builders like DLF, Unitech & Maharashtra's scorpio chaps are opposing it.

    Maybe this time CREDAI, BAI (Builder Asso of India), ASSOCHAM & CII backed RE lobby (forgot the name) will all be sitting on different benches :D. But personally, I am hopeful that RE regulator will be in place which is good for buyers & professional builders :).
    CommentQuote
  • Originally Posted by realacres
    I just got some insider updates from one of my chap in Delhi that Govt is planning to present the RE Regulator Bill in coming monsoon session of parliament. One thing which has been confirmed is to make builders sell on CARPET AREA only.

    So, if the bill gets passed this monsoon session, we will be having a RE regulator by this year end :).

    * PS:- This news has created rift between the builders themselves as some are welcoming this move (like Tata Housing, Godrej Props & even to large extent Hiranandani) while builders like DLF, Unitech & Maharashtra's scorpio chaps are opposing it.

    Maybe this time CREDAI, BAI (Builder Asso of India), ASSOCHAM & CII backed RE lobby (forgot the name) will all be sitting on different benches :D. But personally, I am hopeful that RE regulator will be in place which is good for buyers & professional builders :).


    DEAR RA
    Good to hear issues like this
    But what about those people who have dealt before passing bill.
    Are they also being considered...i am unsure.
    Such bill can curtail Black money what do u think...:)
    savvy_v:)
    CommentQuote
  • Originally Posted by lucky_123
    "As a developer, we sell a unit based on the total cost that we incur, so if we have to base our calculation on carpet area, the per sq ft price will go up,” said Anand.

    Even if this happens, it will help the buyer.

    Eg. Builder A sells for 3000/sq ft with 20% loading,
    Builder B sells for 3000/sq ft with 30% loading.

    Today, most buyers think that both builders are charging the same rate. Once they start charging according to carpet, builder B rate will be more than A which will then help layman buyers to take correct decision :).

    Man, how many people out of this forum must be calculating loading factor at first place ?? Infact I have seen so many people who don't know how to calculate SALABLE AREA :o.
    CommentQuote
  • Apartment Cost Based On Carpet Area

    If Regulators bring such initiative, that would be better for buyers. But builder will adjust their rates accordingly to carpet area which will eventually keep the cost of ownership as is.
    Again if election is declared, consider that this bill may take couple of years to come into practice.

    Any guess how Hasan Ali got so much of money due in Tax itself and IT dept was sleeping when his Tax evasion crossed so much.
    Many politicos must be having their own money given to Ali's money laundering skill.
    CommentQuote
  • Originally Posted by realacres
    Even if this happens, it will help the buyer.

    Eg. Builder A sells for 3000/sq ft with 20% loading,
    Builder B sells for 3000/sq ft with 30% loading.


    +1

    The builders will be forced to compete on "actual" cost and not playing trick with loading, infra cost, club charges etc.

    Importantly, this will help individual in resale - both buyer and seller. As of today, a person selling his apartment has to quote closer or less than the builder - plus he cannot charge for parking, infra and other things builders can add. This will bring in more parity and discounts / advantages of resale will be clearly visible if a reseller is quoting at a discount. Today, to a lay buyer, builder rates psf "look" lesser and they can't see beyond it.
    CommentQuote
  • How will this bill help in curtailing Black MOney??

    Black money is given through cash...right.

    How does it avoid it??:bab (38):
    CommentQuote
  • Originally Posted by kingmanish
    How will this bill help in curtailing Black MOney??

    Black money is given through cash...right.

    How does it avoid it??:bab (38):

    I-T dept will start 'Art Of Living' course for the builders :D:D.
    CommentQuote