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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  • Banks Planning to Withdraw Special Home Loan Schemes

    http://www.indianrealtynews.com/home-loans/banks-planning-to-withdraw-special-home-loan-schemes.html

    I have come across the news that a Phinix Multicon project:- Rio Vista has been abandoned & now has been taken over by Atul builders. Does anyone have further details. However, it does indicate that builders' holding power is waning, fast.

    Btw, this news is not related to RE, but couldn't resist from posting it here:-

    Bear kills two Hizbul infiltrators in cave:D:-

    http://timesofindia.indiatimes.com/india/Bear-kills-two-Hizbul-infiltrators-in-cave/articleshow/5190873.cms
    CommentQuote
  • Originally Posted by realacres


    Bear kills two Hizbul infiltrators in cave:D:-

    ]http://timesofindia.indiatimes.com/india/Bear-kills-two-Hizbul-infiltrators-in-cave/articleshow/5190873.cms

    LOL. :D
    Best news of the day.

    LOL. :D
    Best news of the day.

    LOL. :D
    Best news of the day.

    LOL. :D
    Best news of the day.
    CommentQuote
  • Shirish. Still think this is a minor correction?!

    Originally Posted by wiseman
    Real, Venkytalks, Veemkay, and others ...

    For the whole month of Oct, I have been repeatedly stating that around 10000 on DOW and 17350-500 (final figure) on the Sensx are probably the top. Also that Oct is typically the crash month when Stock markets crash many of the past few years.

    Volatility is back with a BANG (yes real) ...

    I had also mentioned that the worst hit would be the Realty stocks as well as Reliance group stocks (historically, every blow-off boom that was created by a certain sector resulted in that sector stocks being beaten to pulp in the next fall - ACC post 1992, IT post-2000, Reliance and RE post-2007).

    The problem with RE is that with the market finally deciding to fall (last one week it has swiftly broken through most important supports and has lost 1200 points since Diwali day thereby finally confirming that the 2nd or B leg rally since March 2009 is probably over and the next leg down has started), RE companies may not be able to get their IPOs thru in the market at any price, leave alone high valuations!!! By mid-2010, when the crisis will probably hit a new low in terms of depressed sentiments, sales should fall sharply and many RE companies will be in deeper debt and fighting for their lives. They will have to come in with distress prices as they cannot hold much longer!

    I had also indicated that the falling in DOW will be final straw for all markets to start falling in sync. Am waiting for that to happen. This fall will be very sharp, very violent and very swift!!! It will cause much more pain to investors than the 2008 fall since most investors finally jumped in at the worst point with their last reserves - that is, in Sep/Oct believing the analysts who quoted 21000+ who have no money in the game themselves!!!

    Therefore, this is definitely not the bottom...

    Venkytalks, don't worry! Stay in cash till mid-2010 at least, and you will get super bargains! Also don't forget to pick up a little gold/silver when it goes down a little in the coming weeks/months. The consensus being reached is that it will probably go up around 150% from here (maybe around 30k to 35k per 10 gms before it finally tops!!!

    cheers



    Folks,

    What a difference 2 short weeks make! Check out the highlighted stuff I wrote only a week or so back!!! Things are rather quickly panning out this way. Venkytalks, keep licking your chops, this will go much deeper and 2010 will give you great bargains in RE as well, I think!:D

    I was arguing that this fall would be very violent, mainly because most retail investors swallowed the "recovery" talk wholesale and jumped in mainly near the top with savings already dwindled in the 2008/09 debacle. In fact, many irresponsible analysts () were already talking mid-2010 Sensx of 21000-23000 and this added fuel to the fire. When people get taken to the cleaners with 50% losses or more this time, there will be hell to pay!

    When I was hollering in early Oct that the markets seem to have topped
    out and the next leg down was imminent, it looked silly to most (with all that recovery spin by Govt!)!!

    Today's 500 point fall was significant. It took out some important support levels at 15600-15740. Then, it also gave a bearish pattern exactly similar to the one in May 2008 which was immediately followed by the last leg of that crash into Oct/Nov!!!

    Keep your fingers crossed about this one! The cyclic pattern of Good and Bad news occupying center stage is turning again. All the bad stuff is slowly coming up to the surface and this time it looks much more scary than the 2008 ones!:o If 2008 was the trailer, 2010 may be the main movie, that too the uncut version!:D

    cheers
    CommentQuote
  • Well said Wiseman There is no good news yet in the US either only spin talk. In Canada too the situation is like in India where spin talk and low intrest is fueling speckualtion
    Cheers
    CAN
    Originally Posted by wiseman
    Folks,

    What a difference 2 short weeks make! Check out the highlighted stuff I wrote only a week or so back!!! Things are rather quickly panning out this way. Venkytalks, keep licking your chops, this will go much deeper and 2010 will give you great bargains in RE as well, I think!:D

    I was arguing that this fall would be very violent, mainly because most retail investors swallowed the "recovery" talk wholesale and jumped in mainly near the top with savings already dwindled in the 2008/09 debacle. In fact, many irresponsible analysts () were already talking mid-2010 Sensx of 21000-23000 and this added fuel to the fire. When people get taken to the cleaners with 50% losses or more this time, there will be hell to pay!

    When I was hollering in early Oct that the markets seem to have topped
    out and the next leg down was imminent, it looked silly to most (with all that recovery spin by Govt!)!!

    Today's 500 point fall was significant. It took out some important support levels at 15600-15740. Then, it also gave a bearish pattern exactly similar to the one in May 2008 which was immediately followed by the last leg of that crash into Oct/Nov!!!

    Keep your fingers crossed about this one! The cyclic pattern of Good and Bad news occupying center stage is turning again. All the bad stuff is slowly coming up to the surface and this time it looks much more scary than the 2008 ones!:o If 2008 was the trailer, 2010 may be the main movie, that too the uncut version!:D

    cheers
    CommentQuote
  • Wiseman,
    I hope you are wrong, not because your outlook looks hostile, but because it will hurt more to common man. I know some people were euphoric after extended rally from March to early Oct, am not sure those were people or just as (realacre said FII) ,they drove sen to 17K. You are views are correct but already lots of people in various sectors are unemployed and just they were/are starting to get jobs. And some people started to buy 1 Cr houses b'coz India is shining again. Especially with congress in power in center and Maha (pun intended).
    Sugar is already high (not mine but market rate). Guys watch out for how drama for commercial real estate unfolds in US. One thing for sure all these news and stock market is manipulated. Only few people take advantage, hope I was one of them.
    On the side note some-one mentioned. How congress-ncp came to power? You can get answer if you find solution how many people vote for candidate on the basis of cast. Does any candidate have any development plan for their constituency. Ironically Vidharabha was pushed to brink by congress policies of last 50 years where farmers are committing suicide every alternate 3rd day AND congress got decent seats there by bullying shivsena-BJP. And look at the opposition they got Mr Shivsena who was talking about farmers in Mumbai and in rural area he was talking about Raj.
    Hilarious part was all politicians were happy that they got re-elected coz peoples mandate. We need responsible oppositions not sheeps who after defeat accepted that and said we will work out next time, why?

    Anyways Jai Ho! Hope wiseman is incorrect and this is normal correction phase of post extended rally hangover. I do trade and got out in aug and decided not to trade as its MAD MONEY :D
    CommentQuote
  • Originally Posted by realacres


    Btw, this news is not related to RE, but couldn't resist from posting it here:-

    Bear kills two Hizbul infiltrators in cave:D:-

    ]http://timesofindia.indiatimes.com/india/Bear-kills-two-Hizbul-infiltrators-in-cave/articleshow/5190873.cms

    There is an urgent need to get few bears in our army, surely they will be of great help :p

    There is an urgent need to get few bears in our army, surely they will be of great help :p

    There is an urgent need to get few bears in our army, surely they will be of great help :p

    There is an urgent need to get few bears in our army, surely they will be of great help :p
    CommentQuote
  • Originally Posted by realacres

    Btw, this news is not related to RE, but couldn't resist from posting it here:-

    Bear kills two Hizbul infiltrators in cave:-

    ]http://timesofindia.indiatimes.com/india/Bear-kills-two-Hizbul-infiltrators-in-cave/articleshow/5190873.cms


    LOL..
    This news is related to RE;

    Pune builders after the RE crash can build some new caves on the pak border, for bears to prey on infiltrators.


    LOL..
    This news is related to RE;

    Pune builders after the RE crash can build some new caves on the pak border, for bears to prey on infiltrators.


    LOL..
    This news is related to RE;

    Pune builders after the RE crash can build some new caves on the pak border, for bears to prey on infiltrators.


    LOL..
    This news is related to RE;

    Pune builders after the RE crash can build some new caves on the pak border, for bears to prey on infiltrators.
    CommentQuote
  • Rising Cost Of Living

    Hi there,

    I am not refering directly to RE, but look at essential prices of commodities, they have drastically increased. Sugar last month was 32/kg, now it is near 40/kg. Same goes with groceries, prices like Potatoes, tomatoes, lady finger etc. have doubled. Some veggies have more than doubled in just 1-1.2 months. My local laundrywala is charging INR 4-4.5/cloth! This is happening due to poor monsoons/loss of kharif crop + artificial hoarding by dalals. Just see, how once elections got over, these politicos forgot about controlling prices, especially those dalals.

    This all is happening when WPI inflation is +1.51%. Don't know what will happen once WPI inflation goes to +7% by March 10.

    Add to this, the economic picture still looks grim. The bad loans have increased by 25%. The banks are going to hike ROIs. I think it is better to save money for rainy days than buy RE at inflated rates. Keeping more cash will yield better returns as the ROI on deposits too will increase:).

    Except for call rates for cell fones, nothing is going down in that mannero. Lets see what happens.
    CommentQuote
  • Funds just got costlier for builders

    Sudhir Reddy, managing director of IVR Prime, a south-based builder, says: “It is easier said than done that companies will pass on the incremental cost of funds to homebuyers. One must not forget that increase in market price will result in additional construction costs for builders. This will not be possible when places like Hyderabad, Chennai and Pune are still facing a glut in demand.” Sunil Malhotra, CFO of Delhi-based Omaxe, says: “As demand is still price-sensitive, it will not be easy for developers to pass on that extra cost to consumers.”

    http://economictimes.indiatimes.com/markets/real-estate/policy-/Funds-just-got-costlier-for-builders/articleshow/5171049.cms
    CommentQuote
  • Realacres, I agree, all prices are going to shoot up.

    But that is not necessarily bad - RE prices will also shoot up. In fact, RE keeps its value best between shares, FD and RE in high inflation situation.Thats why RE prices will not crash as many keep expecting (and hoping - like me!)

    One should have enough cash flow for increased expenses (and lost jobs). But if that is not an issue, I would keep a good amount (>30%) in RE. Since RE is big ticket, that may mean spending all savings and re-accumulating in shares and FD for next 3 years.It also means that RE on loan (without floating rates) will give fantastic returns.

    I anticipate a 80s like situation in the next few years.Wiseman, Sen bounced back today. As I said, shorting in high liquidity is risky. Wait for liquidity crisis to build up again (expected March 2010) and then short like crazy.

    Bears eat occasionally and then go hungry for long periods. They hibernate in Winter. Which may be a good option for bears this winter until opportunity comes into the cave by March 2010 (big liquidity problems for US banks with poor returns from commercial RE investments already sunk into).

    Keep smiling :-)

    Originally Posted by realacres
    Hi there,

    I am not refering directly to RE, but look at essential prices of commodities, they have drastically increased. Sugar last month was 32/kg, now it is near 40/kg. Same goes with groceries, prices like Potatoes, tomatoes, lady finger etc. have doubled. Some veggies have more than doubled in just 1-1.2 months. My local laundrywala is charging INR 4-4.5/cloth! This is happening due to poor monsoons/loss of kharif crop + artificial hoarding by dalals. Just see, how once elections got over, these politicos forgot about controlling prices, especially those dalals.

    This all is happening when WPI inflation is +1.51%. Don't know what will happen once WPI inflation goes to +7% by March 10.

    Add to this, the economic picture still looks grim. The bad loans have increased by 25%. The banks are going to hike ROIs. I think it is better to save money for rainy days than buy RE at inflated rates. Keeping more cash will yield better returns as the ROI on deposits too will increase:).

    Except for call rates for cell fones, nothing is going down in that mannero. Lets see what happens.
    CommentQuote
  • World unemployment up despite economic recovery

    This is in today's Indian Express. Copied from the link below.

    http://www.indianexpress.com/news/world-unemployment-up-despite-economic-recovery/538064/]


    "Despite signs of an economic revival gathering pace around the globe, the millions of people laid off during the worst recession in 70 years are unlikely to see relief any time soon as joblessness is still climbing in many of the world's largest economies.

    Unemployment data typically lags other indicators of economic health as companies hold off adding staff in the early stages of a rebound. The upturns recorded recently in the United States, France, Germany and elsewhere have been largely driven by temporary factors such as industry restocking following spending freezes, as well as the billions spent on stimulus programs.

    This week the European Union forecast unemployment in the eurozone will rise to 10.7 per cent in 2010 from 9.5 per cent this year.

    Unemployment rates in the 30 wealthy countries that belong to the Organization for Economic Cooperation and Development range from a low of 3.5 per cent in the Netherlands to 18.3 per cent in Spain, according to September figures."
    CommentQuote
  • Margins will be driven by volumes not prices: DLF

    http://economictimes.indiatimes.com/articleshow/5199895.cms?flstry=1
    CommentQuote
  • Realty cos: Slow build-up in sales, even as profits deconstruct

    http://www.thehindubusinessline.com/2009/11/06/stories/2009110651060200.htm

    Btw, US jobless rates has reached it's 26 year high yesterday.
    CommentQuote
  • I followed this forum in last 10 months. I can surely say, its most infomative forum about the new RE developements in Pune. A genuine buyer, can get tips for locations, rates, builder reputation, alternate opportunities, negotiated rates etc. Great job guys!! Thanks to 'Senior Members'...

    BUT, a genuine buyer wants to buy home for his leaving. I somehow feel, the 'speculative' nature of most of 'senior members' is most confuing thing for genuine buyers.

    E.g. threads like 'Builders and RE theory proved wrong', 'RE is bullish again', 'Don't buy home before/after Diwali' are most popular ones and most confusing too :)..

    E.g. Some of the 'senior members' were speculating about not buying early of this year and buy at end of the year. Now, they are speculatng not to buy at end of year buy 'mid 2010'.

    Its OK to be speculative for 'investors', but for Genuine Buyers it is most confusing thing.
    CommentQuote
  • Originally Posted by tpshere
    E.g. Some of the 'senior members' were speculating about not buying early of this year and buy at end of the year. Now, they are speculatng not to buy at end of year buy 'mid 2010'.

    Its OK to be speculative for 'investors', but for Genuine Buyers it is most confusing thing.


    I am one of the so called speculating senior member, so let me comment.
    I have never said buy end of year/diwali, I have always maintained Re fall will take lot of time and
    good buying opportunity will be in 2011. As some one has said it takes time for RE Investor to change from optimistic
    to neutral and then pessimistic. This cannot happen in 10 months.

    For all the Investors in early 2008, prices are still pretty much same at end of 2009. So a loss of
    10L+ on property of 50L, already booked loss, with prices remaining almost same in 2010, many will loose patience and flood the market with re-sale. Most of the Investors booked in early 2008 still have to get posession, this is another reason. Many investor trying to pay their EMI with rent will realise that its not a good preposition, its like taking the burden of EMI to make life easy for their tenant.

    Having said this, I dont understand the "confusion" in your mind. Man, I am not god to predict, I may be absolutely wrong, but definately my common sense tell me, something is wrong with RE right now.
    1) Prices unaffordable to majority
    2) abnormal hike in price in last 3-4 yrs
    3) Rental yeild is small portion of EMI

    With sense of something wrong, If I have to make huge investment in 30L+, I will definately want to make sure things are absoultely normal. Not willing to take even small risk. That is the reason there is no confusion in my mind. All this with rents so low, enjoy your rental house dude now. Rent and brand new apartment in your area of choice, there are so many people willing to make 5 yrs lease. Enjoy it for now. why get confused?

    Also remeber, buiders were bailed out by our PSU banks, so they got more time to hold the prices, but as you can understand its temporary, same PSU bank will knock the builder door for repayment of the additional loan taken. The fun starts then.:D:D:D
    CommentQuote