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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  • Dont worry too much about Times Property. Its a vehicle created by CREDAI to inculcate a sense of euphoria about real estate in Pune.

    You will never find an article in Times Property where they are talking about a softening of the market. Moreover, the views and opinions they publish are always from the CEO's and MD's of real estate copanies or CREDAI. Why would these people want to talk about softening in the market.

    So don't fret too much about this supplement.
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  • Shares of DLF down to 2 year low

    Shares of DLF Down to 2-Year Low

    Shares of DLF hit a two-year low on Wednesday after the country’s biggest real estate firm’s fourth quarter net profit fell 19% to Rs 345 crore, further raising worries about the health of the sector.

    Quarter-on-quarter, the company’s net profit declined 26%.

    “Rising cost pressures on account of labour and material, high debt and falling home sales are already reflecting in the financials of most real estate companies,” said Ashiesh Agarwaal, real estate analyst at Mumbai-based Edelweiss Securities. In the past one year, the central bank has raised interest rates eight times, increasing the borrowing costs for both, the companies and buyers.

    An analyst at broking firm Prabhudas Lilladher, said that a shift towards selling plots instead of mid-range high-rise apartments may change DLF’s earnings mix going into fiscal year 2012-13, but cautioned that further downside cannot be ruled out.

    The company is going in for plotted developments on account of increase in input costs to protect margins. But this could mean shrinking of their land bank and hence a drop in valuation of the company (Reduction in levels of land Bank of DLF will again help to have more availability of land in the RE market, will again hamper RE Prospects.)
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  • Current state of RE Developers

    Indian shares fall 0.7 pct on weak Asia; DLF leads losses | Reuters

    Indian shares dropped 0.7 percent on Wednesday, led by losses in the country's top listed real estate firm DLF Ltd and tracking weaker overseas markets that were down on fears over Europe's spreading debt crisis.

    DLF fell 5 percent to 208.10 rupees to its lowest in two years after it missed analysts' estimates with a 19 percent fall in quarterly profit, and warned the central bank's actions to tighten liquidity will likely temper sector growth in the current fiscal year.


    "DLF's numbers were not good. Concerns are building up about the company's cash flows," said K. K. Mital head of portfolio management services at Globe Capital. "The high interest rates environment will keep the real estate stocks under pressure."

    Foreign funds have withdrawn $1.7 billion so far this month pressured by a sharper-than-expected 50 basis point rate hike by the country's central bank.


    Points to be noted...
    1. Now the question is from where the funds will come for RE Developers.
    2. Huge amount of debt for RE Developers (For DLF itself it is about 24000Crores.)
    3. RBI hiked Rate of interest for 9 times from March 2010 to till this date
    4. Foreign Investors are exiting from RE investment,
    5. Buyers are delaying their decisions,
    6. Sales volume has reduced much,(due to exorbitantly high prices)
    7. Inventory levels available with builders are increasing, Moreover, speculators or investors who have procured flats in anticipation of RE Boom are also opening their flats for sale into the open market, seeing the current scenario. This overall increasing the level of stocks available in the market.
    8. Due to LIC Housing scam, Public sector Banks have tightened their norms while lending to RE sector.

    :) Builders are in severe crunch for finance,so,if buyers negotiate harder, builders have no other option to leave their own quoted (inflated) prices, and agreeing for a fair deal for the buyers.
    CommentQuote
  • Originally Posted by patilbha
    Shares of DLF Down to 2-Year Low

    Shares of DLF hit a two-year low on Wednesday after the country’s biggest real estate firm’s fourth quarter net profit fell 19% to Rs 345 crore, further raising worries about the health of the sector.

    Quarter-on-quarter, the company’s net profit declined 26%.

    “Rising cost pressures on account of labour and material, high debt and falling home sales are already reflecting in the financials of most real estate companies,” said Ashiesh Agarwaal, real estate analyst at Mumbai-based Edelweiss Securities. In the past one year, the central bank has raised interest rates eight times, increasing the borrowing costs for both, the companies and buyers.

    An analyst at broking firm Prabhudas Lilladher, said that a shift towards selling plots instead of mid-range high-rise apartments may change DLF’s earnings mix going into fiscal year 2012-13, but cautioned that further downside cannot be ruled out.

    The company is going in for plotted developments on account of increase in input costs to protect margins. But this could mean shrinking of their land bank and hence a drop in valuation of the company (Reduction in levels of land Bank of DLF will again help to have more availability of land in the RE market, will again hamper RE Prospects.)



    selling of plots and not making flats is a definite sign of couple of things:
    1)DLF finding it difficult to sell flats ( margin is always higher in flats rather than plots) indicating that there is reduced demand for flats which may be due to one or other reasons.
    a) prices of flats is high , in this case how will they sell plots which have a much higher price tag??

    2)selling plots is a faster way of getting cash rather than selling apartments therefore proving that DLF is in dire need of cash.

    more later......
    CommentQuote
  • No matter how much our government (read politicians) or Newspaper (TOI-Let Paper's Property Times) presents a false and misleading feel-good picture about property rates going up, we can show the real picture by beating these realestate at their profits. That cannot be faked, so that will always show the right picture of RE in India.

    Let the politicians, RE crooks and Agents play their game, how long can they sustain on false propaganda. After all their families need to eat real food, not fake news.
    CommentQuote
  • RE Bubble Impacting Banks.....

    So, the accounts must have had tacit clearance from the Reserve Bank of India (RBI) and the FM. Indeed, the FM has stated that he’s worried about non performing assets (NPAs). Given that this happened while interest rates are still rising, it not surprisingly, triggered a sector-wide sell off with a focus on hammering listed PSU banks.


    Could there be a genuine problem with sticky loans? Is there a specific problem with the real estate sector, where every bank has big exposures? If so, where should valuations for financial stocks stand?


    The answers to the first two questions are both yes. The answer to the third question depends on an assessment of the dimensions of the problem. In any slowdown or recession, NPAs increase. The RBI’s norms on NPA recognition and provisioning have reduced both discretion and political interference in loan disbursals and hence, stopped utter profligacy. The competition from a vibrant private banking sector has also forced PSU banks to clean up their processes.


    SBI tremor for financial stocks

    Following US path, housing crisis becoming bank crisis.
    CommentQuote
  • Cement prices cooling down...

    Says an analyst from a domestic brokerage on condition of annonymity, “Capacity utilisation in the NCE region was 88 per cent in FY11 as compared to 97.8 per cent in FY10. Also, the north has seen growth of a mere two per cent in the last fiscal. The pick up from the real estate sector is lacklustre. Hopefully, the run up to the elections in Uttar Pradesh will kick in some consumption. Even the golden quadrilateral project is delayed, as is the Yamuna Expressway. The Japanese government was going to invest in our infrastructure projects, which is not happening as yet. Thus, the kicker for consumption of cement is very low but it is still better than Gujarat, Maharashtra and southern states, where everything is near a standstill.”

    Cement firms capacity utilisation at 13-yr low

    Sand cooled down , now cement.
    CommentQuote
  • 2008-09 Crisis Reference...

    Attached is the 2008-09 housing crisis events, which pushed global economy into recession.
    CommentQuote
  • Unitech reports 15.91% fall in net profit

    Unitech Reports 15.91% fall in Net Profit

    Unitech Ltd, the second largest real estate firm after DLF, reported a 15.91 per cent fall in net profits to Rs 567.25 crore for the year ended March 2011 even as its total income increased 9.18 per cent to Rs 3292.12 crore, Unitech revealed in its consolidate results for FY11.

    Unitech did not disclose results for the fourth quarter ended 2011. But a back-of-the-envelope calculation based on unaudited numbers for nine months ended December 2010 and 2009, reveals that Unitech’s net profits in fourth quarter of 2010-11 fell 37.27 per cent to Rs 102.5 crore against Rs 163.41 crore for the same period last year.

    :)Crash crunch for the builders and the sales volume drastically down. One more thing to be noted for current RE scenario.
    CommentQuote
  • Originally Posted by techieguy_98
    Today's Times Of India - Times Property says Renewed Growth - residential market in Pune is gaining momentum driven by end users....

    WHat bullshit ??? Should we now distrust newspaper and media as well ?

    Are these newspapers rigged as well ?



    Times of India is a paper for the builders , by the buiders and to the builders.

    They try to show remote locations as next hot destinations and promt you that u sd not miss the bus by not investing there on behalf of the builder who has bought a land at dearth cheap rates and selling flats at exorbitant prices.:bab (45):

    They try to show how prices are ever increasing in the property market:bab (35):

    how real estate is the hottest destination to park your hard earned money.

    In the name of news they sell POR.N
    :bab (3):
    and all the breaking news comes from which star is dating whom and all bull.shi.t

    :bab (3):
    CommentQuote
  • Originally Posted by kingmanish
    Times of India is a paper for the builders , by the buiders and to the builders.

    They try to show remote locations as next hot destinations and promt you that u sd not miss the bus by not investing there on behalf of the builder who has bought a land at dearth cheap rates and selling flats at exorbitant prices.:bab (45):

    They try to show how prices are ever increasing in the property market:bab (35):

    how real estate is the hottest destination to park your hard earned money.

    In the name of news they sell POR.N
    :bab (3):
    and all the breaking news comes from which star is dating whom and all bull.shi.t

    :bab (3):


    :bab (56):...this is the ultimate truth ever heard on this plannet... :bab (48):
    CommentQuote
  • Originally Posted by patilbha
    Unitech Reports 15.91% fall in Net Profit

    Unitech Ltd, the second largest real estate firm after DLF, reported a 15.91 per cent fall in net profits to Rs 567.25 crore for the year ended March 2011 even as its total income increased 9.18 per cent to Rs 3292.12 crore, Unitech revealed in its consolidate results for FY11.

    Unitech did not disclose results for the fourth quarter ended 2011. But a back-of-the-envelope calculation based on unaudited numbers for nine months ended December 2010 and 2009, reveals that Unitech’s net profits in fourth quarter of 2010-11 fell 37.27 per cent to Rs 102.5 crore against Rs 163.41 crore for the same period last year.

    :)Crash crunch for the builders and the sales volume drastically down. One more thing to be noted for current RE scenario.


    Illustrates just how results can be viewed positively or negatively. Most people into stocks welcomed an above expectation performance from Unitech and bought the stock - which has gone from 31 to 35 in a few days.

    Now we hear the RE bears version - same news, different perspective.

    Strange is human nature.
    CommentQuote
  • I have been following this forum from quite some time wherein people from all streams are sharing the RE prices are on the verge of crashing (thread started in 2009) but in actual till May 2011 nothing of this sort has happened and prices are increasing and increasing only.

    Guys do you really feel this thread still hold its significance or need to be revived :-)
    CommentQuote
  • Maybe you don't know that builders/agents are willing to negotiate. That in itself show how desperate they are becoming.

    I don't think they are going to accept any reduction in prices. Even during recession 2 years back, they were offering freebies instead of reducing the rates. Now they are being squeezed by Banks also. So they have to fall in line and reduce.

    But I know of some people who booked during that time at a reduced (20-30%) rate than what was going on just a few months back. I know some resales happened in Bangalore at 10% reduced rate than what the seller was quoting. So, rates are reducing...
    CommentQuote
  • 10-15% Fall Expected in Mumbai Property Rates by year End: Experts

    10-15% Fall Expected in Mumbai Property Rates by year End: Experts

    Property prices in India’s financial capital Mumbai have surged 40 percent in less than two years, even surpassing peaks reached in 2008. Homes in Mumbai’s prime locations, for example, can cost up to $2,000 a square feet.But warning signs have emerged to suggest that a correction might be around the corner. Real estate firm Jones Lang LaSalle said that prices could fall 10-15 percent by the year-end.

    According to industry experts, home registrations are down 30-35 percent in Mumbai compared with the previous year, which shows that investors and homebuyers have moved to the sidelines.

    The recent slowdown in activity in the residential space is hurting both property developers and home sellers. “I have a 2-bedroom apartment in central Mumbai, it’s a very nice building with a garden and a gym. I put it on the market 3 months ago and haven’t received a single inquiry,” Rajesh Jogani, a Mumbai-based real estate investor, said. :)The bad news for investors is that transaction volumes are unlikely to recover in the coming months, according to Shobhit Agarwal, Managing Director, Capital Markets at Jones Lang LaSalle because of the lack of affordable housing and rising lending rates.

    Real Estate is in definite trouble due to following reasons-
    1. Investors are opening their flats in open market, at a price, lower than prices of the available flats with the builders.(This all leading to oversupply than demand)
    2. Highly inflated prices have already declined the sales volume in the last 6 months, Inventory is building up, and no sales turned out.
    3. RBI, which has increased policy rates for nine times, since March 2010.
    CommentQuote