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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  • CommentQuote
  • Real estate firms turning to NBFCs...

    Real estate firms are approaching non-banking financial companies (NBFCs) for loans to pay for land, construction and pre-development of projects, as most banks have shut their doors on the sector.

    While banks usually lend to real estate firms at interest rates of 13-14%, NBFCs charge 16-20%
    and private equity (PE) firms seek returns of 24-30%.

    Real estate firms turning to NBFCs to raise funds - Home - livemint.com
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  • It will push the prices, since it turn to the shortage of inventory.
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  • It will scare the investors away

    the prices will come down in NOida extn and GN
    but will increase in Raj NNagar, GHB and other NCR
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  • Demolition drive in Ambegaon, Mangdewadi

    "Pune: In a major day-long drive, the district administration demolished portions of at least 23 illegal buildings in the Ambegaon-Mangdewadi area on Thursday."

    This should also be builder ki kartut... without taking proper permission, they must have contructed & sold to poor buyers... now these poor buyers are left with just contruction rubble...
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  • I don't think any society has come down there

    these all are building developed on encroached land.

    first build a jhuggi .....then a wall by wall construct pakka house....then wait for govt to provide a dwelling for removing oyur illegal house..

    A plan well executed by many
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  • Check this out. These are proper 4 to 6 storey buildings in a row which are coming down. Over 20 such buildings have been demolished

    http://epaper.pudhari.com/epaperimages/1352011/1352011-md-pun-1/15637656.JPG

    35 more building are yet to be demolished (maybe would have happened today).
    CommentQuote
  • Originally Posted by abhi2509
    "Pune: In a major day-long drive, the district administration demolished portions of at least 23 illegal buildings in the Ambegaon-Mangdewadi area on Thursday."


    This demolition was done against the illegal constructions on hill-top/ hill-slopes. But will they dare to demolish a bungalow of a big politician on the same hill-top??:bab (45):
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  • Originally Posted by kingmanish
    It will scare the investors away

    the prices will come down in NOida extn and GN
    but will increase in Raj NNagar, GHB and other NCR


    This news only for three project. So, nothing to panic and boom will be continue :bab (22):
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  • Originally Posted by ani_meher
    Realacres, thanks for sharing the news. I remember you liking some project because of its gothic look. Forgot its name. Was it of Nyati? Remember some guy was asking opinions for a resale flat there?

    The project name was Nyati Espalande, Bavdhan but the gothic look preference was said by Kingmanish. Here's the link:-

    https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/6408-nyati-esplanade?t=8245

    When I was new to this market, I really liked Nyati's designs of medieval European, reminded me of Hiranandani. But if the same design is repeated over & over again, then it becomes boring, especially with others like Rachana (Gold Coast, Beverly Hills), Kumar Ecoloch etc. all having similar type of designs.

    Anyways, personally I like lines more than curves......hey only when it comes to design of the building ;).
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  • Originally Posted by nitesh321
    This demolition was done against the illegal constructions on hill-top/ hill-slopes. But will they dare to demolish a bungalow of a big politician on the same hill-top??:bab (45):

    The real reason why such prompt action was taken is this:-

    Mahesh Zagade was shunted out from PMC by bobada Pawar as Zagade showed spine to issue demolition notice to DB Realty's project at Yerwada where bobada Pawar has his stakes. Now as opposition parties are making issue out of this, the PMC is now busy demolishing such structures (of tiny fish) so as to show that NCP too won't tolerate illegal structures & take some heat off on sudden transfer of PMC Chief, Zagade.

    Man, but the real face of NCP & bobada Pawar is still exposed as the DB Realty project is still standing at Yerwada:bab (45):.

    Btw, today I am happy as the left lost Bengal & ghanta Karunanidhi lost TN...which was in any case expected :).

    Now, one chap told me today afternoon that Amma (Jaylalitha) is going to have meetings with top CB-CID, ACB, Vigilance dept. officers & some dogs from these depts. will be sent behind Karunanidhi & Co. :D:).
    As DMK have lost the state, their leverage power will fade out in Delhi & hence chances of A Raja & Kanimozhe (daughter of ghanta chap) getting convicted are high. The real fun will be if these two spill the beans & 10 Janpath Queen role is exposed.

    I am damn sure that today, that ghanta Karunanidhi, Stalin, Kanimozhe & Azhagiri will be having sleepless nights....all 'pike tun':D.

    I just now hope that in next Maha State elections, NCP & Co. will be kicked out.
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  • Originally Posted by realacres

    I just now hope that in next Maha State elections, NCP & Co. will be kicked out.

    They will win this election but certainly not further.
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  • Can't find a better place to put this ......

    US Govt. bankrupt ....

    Selling its building ...... and unlike Indian Govt. buildings these are Marvelous buildings ...


    As 2010 drew to a close, the mayor of Newark, N.J., was staring into a budget abyss so deep that he sold 16 city buildings to pay the bills.They included the architecturally significant Newark Symphony Hall and the police and fire headquarters.

    The great government fire sale is on - Yahoo! Finance
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  • Hi frugality, maybe Mamta will sell Writer building and Victoria memorial, sell Howrah bridge for scrap iron and shift her govt to a thambu.

    BTW - the NOIDA land agitation spells the DEATH of planned urbanisation in India.

    After seeing what Singur and Nandigram can do - now no politician will ever ever sell any land for urbanisation.

    Expect totally chaotic unauthorised urbanisation.

    Real estate price can never come down - now land will become even more expensive.

    And not a single farmer will get anything - their fate will be to ramain marginakl farmers (or tribals) for the next century.

    This also spells doom for Indian economy - FDI has vanished, now if FII also vanish, you can expect stock market collapse.

    NOIDA was a great middle class dream - thanks to Mamta, n ow this dream will be totally crushed.
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  • RE companies slowing down even at peak rates ...

    Sobha and Puravankara have announced slowing down of profits in their latest quarter. Of course, I'm waiting to see other major companies results before concluding, but this may be a trend.

    This is when prices are at peak levels, though volumes are significantly lower from all the reports we read.

    This means that the companies are unable to defend margins after covering fixed costs - ou could include marketing costs in this.

    Given that volumes will only go south if prices are raised further, and given that interest rate hikes will force customers to look for lower prices if they are going to buy, what do ou think will happen to builder margins in the current and future quarters?

    And this is only as the economy muddles along. What if the EU, US and Japan give it up and go south quickly?

    While we ponder this, one might wait and build up more cash for the down payment while looking for inflation and interest rates to peak and come down again. Thats my thinking.

    cheers
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