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 realacres
    If you are planning to buy a house in key metros cities, including Mumbai and Delhi, good news is coming your way

    It is likely that prices will drop in the next few months in these cities, according to analysts and real estate consultants. In fact, analysts say that there are indications in the market already: price drop in Mumbai and moderation in residential rates in the Gurgaon region.

    Tightening liquidity, rising interest rates and lower offtake in housing projects will also add to rise in the inventory. This may lead to a situation when developers will be under pressure to lower their rates.

    Property rates may drop in Delhi, Mumbai in a few months - Money Matters - livemint.com

    look for some stagnation in oversupply areas and few launches at lowered prices- rather than a panic selling.

    mostly in high end segment.

    affordable segment which is my interest does not have that kind of risk.

    rohit
    CommentQuote
  • Originally Posted by hitmady
    If interest-rates goes up by 2% then are we looking at home-loan fore-closures in India?

    Canara Bank chairman and managing director S. Raman, however, said there is a case for a rate hike. “Most likely we have to transfer it (the hike) to the customer. Cost of funds have gone up since February and to protect our margins we may have to hike rates,...

    Economists said RBI's action was on expected lines and that there could be a further policy rate hike of 50-75 bps later in the year.

    CREDIT POLICY - RBI raises key rates by 25 bps
    CommentQuote
  • Sylvan Premium

    Has anyone visited Naiknavare for Sylvan Premium, E Building in Sylvan Heights, Aundh ?? I thought that this must be ph2 of Sylvan Heights, so was a bit interested but plans to visit the site flopped when I came to know it is a new building in old project.

    Anyways, being Naiknaware (Crook builder) & under-constro, it was out of the requirements....& not to forget the price :D:D.
    CommentQuote
  • Sylvan heights E wing ( Sylvan Premium as it is named) is actually within the premises of Sylvan heights .... have been hearing obscene rates in the range of 7500 - 9000 psf. Sales guy isnt responding to calls. Anyone has any feedback regarding the same?
    CommentQuote
  • Demand for home loans has declined

    “Our home loan advances growth will be a shade lower than last year. The drop is because demand for home loans has come down. Inflation has impacted the demand. High real estate prices and rising interest rates are also responsible for bringing down the demand of home loans,” said an SBI official who did not wish to be named.o:o

    Demand for home loans has declined, says SBI - Money - DNA
    CommentQuote
  • Mumbai Downward trend continues

    The down trend in sales volumes for the month of February mirrors that of January 2011. Sales registrations at 4,716 are down 22% YoY and 7% MoM. Adjusting for lesser days in the month of February, the numbers are similar to last month’s dismal numbers. The 3‐month moving average graph for sales registrations clearly illustrates a continuation of the down trend.

    http://www.moneycontrol.com/news_html_files/news_attachment/2011/RealEstate_Prabhudas_170311.pdf
    CommentQuote
  • Any idea what projects is this residential or commercial ?

    Dutch co FMO to invest Rs 250 cr in Pune realty project - The Economic Times
    CommentQuote
  • Why I Am Never Going to Own a Home Again

    Note: The following blog post was written by James Altucher, managing director of Formula Capital.

    This is pretty similar to what the experienced guys have been saying for a long time, do not over leverage and it holds true globally.

    why i am never going to own a home again: Tech Ticker, Yahoo! Finance

    The most interesting part "you have to write a big fat check for a downpayment. “But its an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004."
    CommentQuote
  • "Housing returned 0.4% per year from from 1890 to 2004"

    how many generations have passed between that ????

    rohit
    CommentQuote
  • Originally Posted by realacres
    If you are planning to buy a house in key metros cities, including Mumbai and Delhi, good news is coming your way

    It is likely that prices will drop in the next few months in these cities, according to analysts and real estate consultants. In fact, analysts say that there are indications in the market already: price drop in Mumbai and moderation in residential rates in the Gurgaon region.



    By Diwali or Holi and which year :) . Just kidding :D .
    CommentQuote
  • Some good Q and A with Warren Buffet. Especially read questions about US insolvency which has been beaten like hell in this thread in last two years (almost to the tune of world is coming to an end :))

    Growth does not drive our investment decisions: Warren Buffett, Berkshire Hathaway - The Economic Times
    CommentQuote
  • Off topic

    Recently I posted some off topic messages related to political scenario on this forum. I thought about it but since this is the only thread where we have been discussing politics also hence putting one more ...

    Apologies for non-marathi readers...

    An excellent article named as the 'Gaddafi Syndrome!'
    if we keep our eyes open, we can see this in several politicians in India!

    http://maharashtratimes.indiatimes.com/articleshow/7774758.cms
    CommentQuote
  • Mumbai Sees a Fall In Real Estate Sales Registrations

    Mumbai Sees a Fall In Real Estate Sales Registrations
    Sales registrations at 4,716 are down 22 per cent year-on-year and 7 per cent month-on-month, according to a study by Prabhudas Lilladher, which points out that even after adjusting for the fewer days in February, the numbers would be more or less similar to those seen last month. The three-month moving average graph for sales registrations clearly illustrates a continuation of the downtrend.
    March 21st 2011, financialexpress
    CommentQuote
  • SBI Lending Drops

    The country's largest bank, SBI said that their home loan lending has dropped drastically in past quarter. This is due to higher interest rates, cancellation of teaser rates at low interest rates & RE prices remaining high. SBI expects more downward trend in home loan segment in coming months.

    Btw, SBI is also worried about NPAs from RE. In India, 80% of rise in NPAs are in residential segment ....just shows how builders & buyers, both have over-leveraged themselves.

    DB Realty promoters have pledged additional 8% shares to avoid a call from the bank. Bankers expect more such cases to take place in coming weeks.

    * PS:- Several builders like Lodha, Indiabulls, DB Realty etc. have almost stalled several of their projects. Man, see around in Pune, & even you will find the no. of people working on sites have gone down.
    CommentQuote
  • Demand for home loans has declined, says SBI

    Finally found the link for SBI news:-

    Demand for home loans has declined, says SBI - Money - DNA
    CommentQuote