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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Mumbai home prices may drop 20% in 6 months: Merrill Lynch

    Very good link:-

    Mumbai home prices may drop 20% in 6 months: Merrill Lynch
    CommentQuote
  • City’s realty check

    He added that right now, developers are adopting a wait-and-watch policy as far as reducing their rates are concerned. In their recent investor communications, DB Realty announced that realisation from almost all their projects has decreased by 10 per cent. Indiabulls has reduced the rates for Indiabulls Skies project at Lower Parel from Rs 23,000 to Rs 16,500 per sq ft, a significant 28 per cent dip.

    Another developer, whose Peddar Road project of 18 plush duplexes has failed to find any takers for the past two years, has now decided to lease out the flats, each of which costs Rs 50 crore.:D

    On the brighter side, Liases Foras estimates that once the prices start slumping it would not bounce right back like it did last year..... Plus interest rates on home loans are at an all-time-high of 11 per cent, creating an atmosphere that is just not conducive for home buyers,” said Liases Foras’ CEO Pankaj Kapoor.

    City’s realty check: Rs 2.10 cr per flat - Express India
    CommentQuote
  • Global consultancy firm KPMG, in a report released on Monday on bribery and corruption in India, said real estate was the most corrupt sector, followed by telecom. The firm attributed this to higher government and political intervention in these sectors. :bab (4):

    Realty, telecom most corrupt sectors: Report - The Times of India
    CommentQuote
  • Priyanka Gandhi's husband in pact with DLF

    rlier, Vadra was quoted saying that his focus was on Artex, a small company speing in jewellery and handicraft exports. That seems to be changing as Vadra has sought to scale up and diversify his business activities since 2008. He has been acquiring tracts of land in Haryana and Rajasthan, a 50% stake in a leading business hotel in Delhi, and attempting an entry into the business of chartering aircraft, reports ET. Several of Vadra companies have received loans, some unsecured, from DLF group companies, including the Bombay Stock Exchange-listed flagship DLF Ltd.


    :bab (61):


    http://www.moneycontrol.com/news/business/priyanka-gandhis-husbandpactdlf-for-realty-foray_529321.html
    CommentQuote
  • BBC News - Indian villagers celebrate victory over big business

    Villagers talk about successfully opposing the SEZ near Navi Mumbai.
    CommentQuote
  • Realtors Feel Heat As Loan Repayment Date Approaches

    The real estate sector, which is reeling under poor home sales, is set to face another crisis shortly.

    Realty players who availed of huge debt during the days of the global financial crisis would have to repay some of these debts-worth thousands of crores-by March 31 this year.

    In order to avert many real estate players from going bankrupt during the financial crisis, banks had restructured their debt, advancing their loan payment date. Now, a majority of these developers have to repay a major chunk of that debt by March, 2011.

    According to industry estimates, leading developers including DLF, Unitech, Emaar MGF, Omaxe and Lodha Developers have to repay a total of Rs. 14,000 crore by end of the current fiscal, which puts immediate pressure on the developers to raise money through asset sales.

    The country's leading developer DLF had a debt load of Rs. 20,694 crore as on December 31. Out of a total Rs. 2,890 crore of loans it had to pay during the quarter, the developer repaid Rs. 2,680 crore in the third quarter. It still needs to repay Rs. 2,700 crore in 2011- 12.

    Besides, DLF has received an additional tax demand for Rs. 1,180 crore in the third quarter taking its total outstanding tax demand liability to nearly Rs. 2,000 crore.

    The other big realtors too, have to repay huge amounts by March 31, 2011. Omaxe would have to repay Rs. 1,237 crore, Indiabulls Real Estate Rs. 3,340 crore, Lodha Developers Rs. 750 crore and Emaar MGF Rs. 1,199 crore. And this is just a portion of their large debt portfolio that they have to repay in the coming years.

    According to Pranav Vakil, chairman, Knight Frank, a leading property consultancy, "The developers are already under pressure to liquidate their assets which they were holding over.

    The pressure will only mount as Banks have not approved any new proposals in the last 1-2 months.

    Most banks are even hesitating to release sanctioned money many loans which were taken earlier are falling due for repayment around March." "The developers are expecting that this time around too, these loans will be permitted to be rolled over, the way they were done in the last two years. However, I don't think the RBI is in a mood to allow that to happen," Vakil added.

    The current high interest rate regime and the bearish market are adding to the developers' woes. Most developers like Lodha Developers, Emaar MGF and Lavasa Corp were banking on an initial public offering (IPO) to raise money. However, with market sentiment ruling low now and poor performance by the realty stocks, developers can hardly look to go to the public at this juncture.

    According to Credit Suisse, "Cash flows are unlikely to see a significant improvement from the current levels. Further, owing to liquidity tightening, developers are expected to face difficulties in funding their construction spend and interest expense."

    Realtors feel heat as loan repayment date approaches - Business Today
    CommentQuote
  • Saying this for nearly 2 years!

    Originally Posted by realacres
    The real estate sector, which is reeling under poor home sales, is set to face another crisis shortly.

    Realty players who availed of huge debt during the days of the global financial crisis would have to repay some of these debts-worth thousands of crores-by March 31 this year.


    Realtors feel heat as loan repayment date approaches - Business Today


    Remember Real.

    I first brought this up maybe 2 years ago while wondering how, if sales were not happening to sufficient volumes, builders would be able to show new project and sales growth since their crushing debt was not going to be rolled over?

    In fact, in late 2009 when the markets started zooming, I was specifically targeting builder's strategy of raising prices when they should have actually lowered them and pushed inventory to reduce debt. Instead of thanking God and Ben Beranke (as also Congress) for having introduced stimulus and given them another lease of life on their huge debt, they got arrogant and actually raised prices!!!

    Well, this time around, I hope their goose is truly cooked and prices take a serious beating simply beause they come to market in distress.

    If, at the same time, the world's economy also starts tanking (post June), their fate will be well and truly sealed!

    Lets see ...

    cheers
    CommentQuote
  • I think there will not be a sharp correction immediately, but in coming years there will be a consolidation. Means, there will be a time based correction in coming 2 to 3 years. Speculators & hoarders will experience –ve return & sales volume will remain depressed till prices meet affordability. Realty stocks prices are already telling the depressed future view.

    Btw, on 17th there may be another hike in interest rate & this year’s target is at least 1%. So people should better re-calculate the EMIs. :bab (22)::bab (22)::bab (22):
    CommentQuote
  • Interesting article from Maharashtra times... It talks about how builder lobby played games in the budget.

    --
    १५ लाखापर्यंतच्या गृहकर्जांवर अर्थमंत्र्यांनी एक टक्का व्याज कमी केले. यामुळे सामान्य माणसाला २५ लाख रुपयांपर्यंतचे घर घेणे सुकर होईल, असे त्यांनी सांगितले, तेव्हा सर्वांनी बाके वाजवली. या योजनेचा फायदा नक्की कोणाला होणार? घर घेण्यासाठी १५ लाखाचे कर्ज काढणा-या ग्राहकाला की ते विकणा-या बिल्डरला? एक टक्का कमी व्याज भरावे लागणार म्हणून ग्राहक आकर्षित होणार आणि त्याचा फायदा बिल्डरलाच मिळणार. जर मागणी वाढली, तर फ्लॅट्सच्या किंमतीही वाढणारच. त्याचाही फायदा बिल्डरलाच. एकूण बिल्डर लॉबीने अतिशय हुषारीने खेळी खेळून 'आम आदमी'च्या नावाखाली स्वत:चे हित साधले हे नक्की.
    ---

    Entire article can be found here... sorry for non-marathi readers

    http://blogs.maharashtratimes.indiatimes.com/manapurvak/entry/%E0%A4%AA-%E0%A4%95-%E0%A4%9F-%E0%A4%AE-%E0%A4%B0%E0%A4%B2
    CommentQuote
  • Originally Posted by realacres
    The real estate sector, which is reeling under poor home sales, is set to face another crisis shortly.


    The other big realtors too, have to repay huge amounts by March 31, 2011. Omaxe would have to repay Rs. 1,237 crore, Indiabulls Real Estate Rs. 3,340 crore, Lodha Developers Rs. 750 crore and Emaar MGF Rs. 1,199 crore. And this is just a portion of their large debt portfolio that they have to repay in the coming years.

    According to Pranav Vakil, chairman, Knight Frank, a leading property consultancy, "The developers are already under pressure to liquidate their assets which they were holding over.

    The pressure will only mount as Banks have not approved any new proposals in the last 1-2 months.

    Most banks are even hesitating to release sanctioned money many loans which were taken earlier are falling due for repayment around March." "The developers are expecting that this time around too, these loans will be permitted to be rolled over, the way they were done in the last two years. However, I don't think the RBI is in a mood to allow that to happen," Vakil added.


    Realtors feel heat as loan repayment date approaches - Business Today



    Thats good news.........

    let these blood suckers feel the heat now:bab (45):
    CommentQuote
  • As expected RBI increased repo rates and reverse repo rates by 25 basis points.. Rate sensitives

    RBI raises repo, reverse repo rates by 25 bps - Moneycontrol.com -

    No respite for realty companies..

    What happened to the wiki leaks on the swiss bank accounts.. That never came out..
    CommentQuote
  • With sales more sluggish than ever, and the number of vacant homes crossing 88,000, desperate developers are doling out goodies to brokers in the hope of getting more business. “For us, it’s party time, literally. So what if business has hit rock bottom,” said another broker.

    Another big developer is said to have organized for Russian dancers to add glam value to a regular broker meet at a hotel. Ackruti City in its grand bash is said to have offered brokers a commission of 2.5 per cent on business over Rs 20 crore.:bab (59)::bab (59):


    Hit by slump, big builders treating brokers in style, News - City - Mumbai Mirror
    CommentQuote
  • Finding reasons behind this!

    Originally Posted by khbarilal
    With sales more sluggish than ever, and the number of vacant homes crossing 88,000, desperate developers are doling out goodies to brokers in the hope of getting more business. “For us, it’s party time, literally. So what if business has hit rock bottom,” said another broker.

    Another big developer is said to have organized for Russian dancers to add glam value to a regular broker meet at a hotel. Ackruti City in its grand bash is said to have offered brokers a commission of 2.5 per cent on business over Rs 20 crore.:bab (59)::bab (59):


    Hit by slump, big builders treating brokers in style, News - City - Mumbai Mirror



    Builders can afford to pay higher commission to brokers, but would not reduce the price themselves, any one knows why?

    Any one who knows please share the reason behind this. I am curious to know.

    My understanding is: The reason I think behind this is to keep smart investors locked in. Once these smart investors see prices coming down, they will flood the market with re-sales, adding more downward pressure on prices.

    Its anybody's guess how many investors are there in Pune market.

    I was expecting the market to get bearish already(end of last year), but little disappointed so far:bab (38):, still hoping for correction to kick in this year and next year good time to buy home. Willing to wait only little time more for this, before deciding against buying house in Pune, Because I would never buy house for these insane prices even If I afford to buy one...

    Would buy one in home town and rent in Pune.
    CommentQuote
  • Investors are the main reason of such insane prices...

    The place where I am staying has 300 flats.. Out of which 80 are rented... And only 30 familes(Who are the owners) are staying in their own flats....

    That is around 80-90% of the flats are of the investors... They keep on investing thinking price will go on rising and gain huge profits...

    Whereas ppl who wants to buy their first home cant afford... Its rightly said rich ppl are getting richer... and middle class ppl are becoming poorer...

    I prefer to pay rent of 12k per month.. than to pay 45K of EMI every month...
    I agree with Rajesh...."You can buy a home in ur hometown and stay on rent in PUne...."
    CommentQuote
  • Originally Posted by khbarilal
    With sales more sluggish than ever, and the number of vacant homes crossing 88,000, desperate developers are doling out goodies to brokers in the hope of getting more business. “For us, it’s party time, literally. So what if business has hit rock bottom,” said another broker.

    Another big developer is said to have organized for Russian dancers to add glam value to a regular broker meet at a hotel. Ackruti City in its grand bash is said to have offered brokers a commission of 2.5 per cent on business over Rs 20 crore.

    And despite this, the brokers say it is hard to sell due to high prices. Some builders also agree that unless the prices come down, such incentives to brokers won't work.

    Btw, see how the new BMC boss is not giving sanctions easily to the builders:-

    BMC boss gives thumbs down to 150 building proposals

    BMC boss gives thumbs down to 150 building proposals, News - City - Mumbai Mirror

    Does any PMC commissioner has guts to do this?? Note that builder lobby in Mumbai is one the most powerful in the country, PBAP/CREDAI Pune is a pygmy when compared to MCHI.

    Even the ex-PMC chaps like Nitin Kareer were pets of political masters:bab (45):.
    CommentQuote