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 Sharpj
    2G scam: Pawar may be controlling DB Realty, says Radia - The Times of India

    So will the Pawar empire get a setback or is he too strong and will survice this also..


    Read more about Pawar's kale dhande

    The Wealth of Sharad Pawar
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  • Credit Bubble ?????

    To prop up real-estate demand, from late 2008 to the end of last year, banks offered teaser rates on home loans. Market rates are currently two percentage points higher than those rock-bottom rates.



    When teaser rates—fixed for the first two or three years—adjust to floating rates, borrowers will face a sudden increase in interest payments.
    That could have a marked impact. In the one year that Housing Development Finance—India's largest mortgage lender by assets, controlling around 30% of the $65 billion home-loan market—offered
    teaser rates, borrowers accounting for more than 70% of its new loans, $4.5 billion in total, took advantage. State Bank of India, the country's largest bank, is still giving about 80% of its new home loans at teaser rates.


    Heard on the Street: Goodbye, Happy Banking in India - WSJ.com
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  • Thanks for the information.
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  • Income Tax department to review all realty deals to unearth black money

    Realty sector has been on the income tax department's radar for a while and tops the list of sectors most searched.

    "The department has received many complaints of the involvement of black money in the sale and purchase of land and houses," the official said.

    Recently, a well-known Mumbai developer admitted to undisclosed income of 200 crore. In a separate case, 100 crore was recovered from a Surat-based real estate company .

    In 2009-10 and 2010-11, the I-T Department unearthed unaccounted income of over 30,000 crore in its search and seizure operations.

    Chandra said while the number of searches had come down but the amount of undisclosed wealth had increased as the department was making effective use of technology. "Use of technology and data as part of 360 degree profiling system has improved the quality of searches," Chandra said.
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  • Originally Posted by stoxxx
    Income Tax department to review all realty deals to unearth black money

    Realty sector has been on the income tax department's radar for a while and tops the list of sectors most searched.

    "The department has received many complaints of the involvement of black money in the sale and purchase of land and houses," the official said.

    Recently, a well-known Mumbai developer admitted to undisclosed income of 200 crore. In a separate case, 100 crore was recovered from a Surat-based real estate company .

    In 2009-10 and 2010-11, the I-T Department unearthed unaccounted income of over 30,000 crore in its search and seizure operations.

    Chandra said while the number of searches had come down but the amount of undisclosed wealth had increased as the department was making effective use of technology. "Use of technology and data as part of 360 degree profiling system has improved the quality of searches," Chandra said.


    Even I was very excited about reading this in TOI today. Hope that the IT dept implements this effectively.
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  • Originally Posted by stoxxx
    dont understand the logic

    Properties vacant because of low rental rates in city


    IN no way are the rentals low in the city

    ppl are renting out their 20 year old 1bhk's for 10k rs
    howcome are the rentals low??

    now this broker, builder and politico nexus will conspire to increase the rentals furthur so as ppl are pushed to buy and live life in misery so that they can fill their pockets...

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  • Originally Posted by stoxxx
    dont understand the logic

    Properties vacant because of low rental rates in city



    I felt this was a paid article by real estate folks.. absolute true that rentals are not cheap in Pune..
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  • Originally Posted by vishal1406
    I felt this was a paid article by real estate folks.. absolute true that rentals are not cheap in Pune..


    compared to EMI, rentals are cheap in Pune. This is the reason people on this forum advise to rent and not buy.

    In Kothrud, an apartment may cost 1 CR+ so the EMI can be easily 70-80K while the rent cannot go beyond 15-20K. Rentals are cheap...

    Having said that, the article is still biased and giving non-sense reason to create a hype of artificial rates. They are saying that an investor not giving an apartment on rent because the yield is too low. So the investor is happy to have a 0 return and bear the maintenance charges etc just like that but wouldn't allow a tenant because the tenant is not giving him considerable returns... thats funny logic.

    I know some people keep their apartments vacant but they are because personal reasons (uncertainty of travel, past tenant issue, etc)
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  • Originally Posted by punerebuyer
    Having said that, the article is still biased and giving non-sense reason to create a hype of artificial rates. They are saying that an investor not giving an apartment on rent because the yield is too low. So the investor is happy to have a 0 return and bear the maintenance charges etc just like that but wouldn't allow a tenant because the tenant is not giving him considerable returns... thats funny logic.
    I know some people keep their apartments vacant but they are because personal reasons (uncertainty of travel, past tenant issue, etc)

    That's exactly the reason mentioned by a person in article. Consider this reality, If you had a flat in Kothrud of 1 Cr, fully furnished, would you give it to someone for the rent of mere 15K. I won't. Because the repairing cost of modular kitchen, paint job, hassle of tenants, etc. just doesn't worth the return.
    Whereas, let's say if you have a good friend who would want to rent out your apartment for some months and you know he is going to maintain it very well. You will be happy with less return. What I have seen in Pune, Hyderabad, that everyone from rest of their resp. states wants to have a flat in city like Pune, Hyderabad, may be future use. Mostly ITGs won't rent their flat and you will find this case in almost all completed projects.
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  • Originally Posted by kirunOnly
    That's exactly the reason mentioned by a person in article. Consider this reality, If you had a flat in Kothrud of 1 Cr, fully furnished, would you give it to someone for the rent of mere 15K. I won't. Because the repairing cost of modular kitchen, paint job, hassle of tenants, etc. just doesn't worth the return.
    Whereas, let's say if you have a good friend who would want to rent out your apartment for some months and you know he is going to maintain it very well. You will be happy with less return. What I have seen in Pune, Hyderabad, that everyone from rest of their resp. states wants to have a flat in city like Pune, Hyderabad, may be future use. Mostly ITGs won't rent their flat and you will find this case in almost all completed projects.




    In NCR you will easily find flats worth 1cr(market value) with an rental of 15000-20000 ,mostly inclusive of society charges, even i am living in a great location flat having a cost of 55 lacs with rental of 13500pm (including society charges which is ~ 3500 pm),with full power backup,lift etc..
    in second tire cities like ludhiana ,you will easily find houses worth 80 lacs being given on rent at 7000-8000 pm.
    there are few people who keep there flat vacant but these people are very few and there are other reasons for keeping there flat vacant rather than low rentals( reasons like person staying outside india etc..etc..).

    the record amount of flats entering market ensures that average rents will not keep up with inflation for a long time.

    :bab (6):
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  • Originally Posted by SanjanaSingh
    Good analysis, Venky. But the whole point of this thread is not whether to own a house, but when is the most opportune time to take the decision. Should we, the hard-way-earning middle-class submit to callous tactics and blackmail by builders & investors or should we wait for a sizeable correction that seems more & more inevitable everyday with the worsening eco & geo-political backdrop ? I guess each one has to answer this very difficult dilemma for himself :bab (38):
    +1. Bang on target. All these are mind games played by the builders. One needs to be tough mentally & have real sound financial planning before jumping in for big ticket purchase like RE. If one falls in the trap of missing the bus then it becomes too late for the buyer to know that he actually boarded the wrong bus in hurry!!
    +1. Bang on target. All these are mind games played by the builders. One needs to be tough mentally & have real sound financial planning before jumping in for big ticket purchase like RE. If one falls in the trap of missing the bus then it becomes too late for the buyer to know that he actually boarded the wrong bus in hurry!!
    +1. Bang on target. All these are mind games played by the builders. One needs to be tough mentally & have real sound financial planning before jumping in for big ticket purchase like RE. If one falls in the trap of missing the bus then it becomes too late for the buyer to know that he actually boarded the wrong bus in hurry!!
    +1. Bang on target. All these are mind games played by the builders. One needs to be tough mentally & have real sound financial planning before jumping in for big ticket purchase like RE. If one falls in the trap of missing the bus then it becomes too late for the buyer to know that he actually boarded the wrong bus in hurry!!
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  • Thanks for the link. 27% drop in prices in one month!! Seems RE bulls here should take a note of it.
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