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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Originally Posted by AryanKB
    Firstly i would like to share that i had done 5 deals in Pune in late 2009 and early 2010. I have received possession of one appartment in April 2011 (which i kept for my brother use who has shifted to Pune recently). Out of remaining 4 I had sold 2 properties at such premium that my first property has become free for me.

    Again please do not get misguided by joining dates of any members as that is not a criteria for any body's experience.

    Again I would reiterate that RE of India vs RE of western countries are way too different in all manners. Courtries like India where every body has a dream to own his house and after he owns one he dreams for a better house which will never end. India is young and Middle class is surging and becoming stronger. This segment will be increasing for many more years and will keep RE profitability alive (not true for super luxurious properties).


    I like such guys.
    We Indians always seem to feel that there is something 'different' with us and our culture and our understanding of things around us. The westerners have money today, but we Indians will have it tomorrow. So much of it that we'll keep buying properties and sell them for 50% + profit.
    I really like such guys.
    CommentQuote
  • Originally Posted by AryanKB
    Firstly i would like to share that i had done 5 deals in Pune in late 2009 and early 2010. I have received possession of one appartment in April 2011 (which i kept for my brother use who has shifted to Pune recently). Out of remaining 4 I had sold 2 properties at such premium that my first property has become free for me.

    Again please do not get misguided by joining dates of any members as that is not a criteria for any body's experience.


    Aap to chhupe rustam nikle sir :) .
    patilbha etc . kuch samjhe. aap jis school ke student ho uske AryanKB principal rehe chuke hain :D ha ha
    CommentQuote
  • City realtors turn to small-town brokers to help tide over crisis

    City realtors turn to small-town brokers to help tide over crisis - The Economic Times

    Builders in big cities are turning to small-town brokers to tap the rural rich.

    According to PropEquity, a real estate consultancy firm, in the first quarter of 2011, home sales in Mumbai dropped 17%, Bangalore 14% and Hyderabad 15%. Unsold inventories in Mumbai are up 25% and in Delhi-NCR 16%, leading to huge losses.

    Developers from bigger cities are calling us (small town brokers) from everywhere.

    Every week, one or the other builder is seeking an appointment with us," says Pravin Bavadiya, president of Ahmedabad Realtors' Association,"While some developers have been offering us six times our normal brokerage fee, others are providing free sedans for selling two-three residential units in their project."

    Buyers, note the trouble these builders are facing nowadays..:)
    CommentQuote
  • Originally Posted by rohit_warren
    Dactar saheb luxery matlab farm house - period baaki sab to eye wash

    aur farm house bhi aisa jisme aap horse riding kar sako nahi to bas bangla hai

    - sorry for the typos wanted to convey msg in laloo estyle.

    rohit

    arre ha ek baat to bhool gaya - agar aap ambani ho to fir aapka farm house to hawa mai hoga - magar uske liye aapke paas modern horse (helicopter) hona chahiye.


    Rohit Bhai, I have in the past seriously considered a farmhouse in Haryana and UP and given up the idea - whats the point of having a place in which you are too scared to stay? I also considered it in Kerala and gave it up - too expensive to fly there.

    Farmland and weekend homes also dont appreciate like city property.

    Farmland (1 and a half hours drive from Delhi) is quite cheap. So are the people you will find there - and their tendencies for dacoity will cost you dear!!!!!

    As for horse - it will have 4 wheels and the power of 150 horses :). I already have a pony :D
    CommentQuote
  • Originally Posted by Venkytalks
    Rohit Bhai, I have in the past seriously considered a farmhouse in Haryana and UP and given up the idea - whats the point of having a place in which you are too scared to stay? I also considered it in Kerala and gave it up - too expensive to fly there.

    Farmland and weekend homes also dont appreciate like city property.

    Farmland (1 and a half hours drive from Delhi) is quite cheap. So are the people you will find there - and their tendencies for dacoity will cost you dear!!!!!

    As for horse - it will have 4 wheels and the power of 150 horses :). I already have a pony :D

    sahi kaha daktar saheb,

    aap jara tiggipur , north delhi ke paas jo farm houses hai waha options dekho.

    I helped someone to buy 50 acres of agriland there around 1.65 cr per acer - big builders have already bought there huge land parcels

    search your car's gps system for tiggipur and may be your dream of farmhouse with real Horse will come true.

    rohit
    CommentQuote
  • Unitech FD

    Now Unitech builders have started a FD scheme with 12% p.a. returns.

    Several builders are offering discounts if ADF is made.

    Builders like Amanora are giving loans at much lower interest rates than market ones.

    Builders like DLF are selling off hundreds of acres of land to repay the debt.

    In Mumbai, builders like Lodha are deducting INR 4000-4500/sq ft if cancellation is made in their delayed projects, showing there are no new buyers.

    And despite all this, RE bulls will show alongwith TOI newspaper, how RE is fine & buying now makes sense !!

    * PS:- Was traveling a lot this month, hence wasn't regular here. Will be flying out again this month. However, such absence should not mean I have quit the forum.
    CommentQuote
  • Originally Posted by realacres
    Now Unitech builders have started a FD scheme with 12% p.a. returns.

    Several builders are offering discounts if ADF is made.

    Builders like Amanora are giving loans at much lower interest rates than market ones.

    Builders like DLF are selling off hundreds of acres of land to repay the debt.

    In Mumbai, builders like Lodha are deducting INR 4000-4500/sq ft if cancellation is made in their delayed projects, showing there are no new buyers.

    And despite all this, RE bulls will show alongwith TOI newspaper, how RE is fine & buying now makes sense !!

    * PS:- Was traveling a lot this month, hence wasn't regular here. Will be flying out again this month. However, such absence should not mean I have quit the forum.


    Due to stay on land acquisition in GNoida, sales has gone down in that area by 15-20%. There is a feeling of concern amongst small builders that(not panic) more and more villagers will demand money due to political instigations by local netas. This is a high risk high return kind of an opportunity.Those who have strong heart will be trump. Let see what happens. COuld be a reat opportunity for 1st time buyers.
    CommentQuote
  • CommentQuote
  • There is no shortage of land in India, there is a shortage of zoned land

    Ajit Dayal speaks of an interesting video in RE prices, one year back:


      He meets Sam Zell, a big RE investor worldwide, who said, There is no shortage of land in India, there is a shortage of zoned land. Politicians create an artificial scarcity by making land "commercial", "agricultural" or stuff like that. Licensing = corruption = artificially created bubbles.
      After Lehman, investors took money out of RE. There was a crash, but they've gone up right back up.
      Bank lending to RE companies has gone through the roof.
      RE prices going up anyhow because of political links
      Emotional attitude of "owning" properties is weird; it's really tax incentives and rental laws that creates demand.
      Rental yields are like 3%.

      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
      This was a year back. Prices HAVE gone up. But we're even more in bubble zone. What happens?
    CommentQuote
  • Originally Posted by compuwalah
    Aap to chhupe rustam nikle sir :) .
    patilbha etc . kuch samjhe. aap jis school ke student ho uske AryanKB principal rehe chuke hain :D ha ha


    Arey nahin Sir there are many big shots in this forum, but i still follow old ways of investments.

    1. Go to the site physically and check your self the location/construction status/quality of construction/people who are developing it

    2. Network well and talk to right people and ask right questions - Marketers/dealers will always shows you rosy picture hence talk to the site engineers/project leaders/their competitors they shall give you right info

    3. Take decision fast (either yes or no) because more you delay more you loose in the said investment or any other equivalent opportunity

    4. Have set time for exit/margin and move on

    Currently media (all sorts) are full of negativity and if one try to dig more he is likely to get confused and will never be able to take a decision.

    Forums like IREF gives you opportunity to ask right questions and more insights on projects par to finalise a deal "anpi akal lagao aur utna paisa lagao jitna jhel sako".:)
    CommentQuote
  • Land prices

    Vivek,

    Your post on land in India is interesting.

    I have always been wondering why land price in all zones (agricultural, residential, commercial, industrial) has only been going up for several decades in India and historically land has proven to be THE best capital protection asset of the country!!!??

    Makes you wonder?? Any answers you can think off??
    CommentQuote
  • Land has always been precious.. From time immemorial it has been reasons for conquest and wars.. Kings did it.. Ancient explorers went seeking for land.. Wars were for it. Falkland islands, the problem in Israel and Palestine.. Why even Kashmir fight is all about land ..
    Land in itself has no value.. How you use it makes it worthwhile be it collecting taxes.. Build a nice house.. It will never depreciate

    Originally Posted by dforce
    Vivek,

    Your post on land in India is interesting.

    I have always been wondering why land price in all zones (agricultural, residential, commercial, industrial) has only been going up for several decades in India and historically land has proven to be THE best capital protection asset of the country!!!??

    Makes you wonder?? Any answers you can think off??
    CommentQuote
  • Originally Posted by Sharpj
    Land has always been precious.. From time immemorial it has been reasons for conquest and wars.. Kings did it.. Ancient explorers went seeking for land.. Wars were for it. Falkland islands, the problem in Israel and Palestine.. Why even Kashmir fight is all about land ..
    Land in itself has no value.. How you use it makes it worthwhile be it collecting taxes.. Build a nice house.. It will never depreciate

    +1. This also reminds me of the story where a king tells a person to run till sunset & all the land he runs will be gifted to him. The man becomes greedy, keeps running beyond capacity & ultimately falls to death.

    But hey, sharpj, you just reminded me of one of my most favorite PC game :-

    Age Of Empires 2/3 & Civilization 5 :).

    Will play it soon, again.
    CommentQuote
  • Mittal Builders, Pune Complaints - Inferior Quality

    This is indeed a canon post explaining probs faced by Sun Satellite & Sun Planet buyers. Just see the grievances of the buyers despite paying 60+L. This is the precise reason we keep saying how current Pune RE is junk in most cases.

    The bad experience started even before taking the possession.....

    I'm another hammered buyer here who is facing probs. Goddamn why the f*** I bought a flat here? Da builder is freakin' nuts......

    The switch-board was directly installed on the wall with screws! 3 bathroom tiles have come off and not getting matching tiles in the market, thanks to these beuing Chinese.

    I feel the biggest idiot on this Planet after buying a flat at Sun Planet from Mittal builders :D.


    Man, just see the pain. Even the service tax issue has been discussed. This is indeed an eye-opener. Check the following link for more:-

    Mittal Builders, Pune Complaints - Inferior Quality
    CommentQuote
  • Realacres, although I am a long term RE bull, things look ripe for a crash in RE very soon.

    Maybe 25-30% crash might be expected and within 2 months at most.

    Downturn should last one year and get over by Sept 2012.

    Let us see if my prediction comes true - we will know very soon, so no need to wait for 4 decades to see the value of this current prediction!!!!!
    CommentQuote