Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by Venkytalks
    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!!!!!


    Venky - Any specific trigger that you think will start this sharp RE correction? Rising interest rates, saturation etc have been there for a while now, without any significant correction. What will be the proverbial last straw?
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  • Steel demand is slowing down

    High interest costs, expectations of lower prices due to slow sales and depreciation of the India . rupee against the dollar have reduced steel imports in the past few months. According to traders and people directly involved in the industry, the fall in steel imports is most visible in the two sectors particularly hit by high interest costs - auto and real estate and construction.

    Steel imports down 65% in April due to slow sales and depreciation - The Economic Times

    Sand, Cement & now steel is also slowing down.
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  • Realty Check....

    Till a couple of years ago, huge land bank had been a selling point for all major developers. Most of them went on a land acquiring spree, said analysts, to perk up valuations. And their share prices went through the roof. DLF and Unitech boasted land in excess of 8,000 acres. DLF targeted Gurgaon and acquired 350 acres for Rs:1,703 crore.
    When the sector was in the pink, no price was too high. Peninsula Land, along with a local developer, spent Rs:300 crore to buy a two-storey bungalow on Car Michael Road in south Mumbai in 2010. Orbit acquired expensive properties on Nepean Sea Road, a posh locality in south Mumbai.

    Realty check
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  • Land on Sale...............

    Real estate developers are increasingly selling land to generate cash. Most of them have huge debt and are facing sluggish sales, even as the cost of construction loans has reached as high as 14 per cent.

    Pune-based Kumar Urban Development, another IPO aspirant, was also planning to sell stakes in some undeveloped land parcels, said a person in know of the development.:D:D:D:D

    Real estate firms take land route to shed debt
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  • If these developers took land at high price during the BOOM, does that mean they are now selling at a loss. I don't think anyone will pay them the high price they paid.

    Today in Bangalore TOI, there was a news that some "REPUTED and KNOWN" builders have complained against corruption/harassment by Politicans/Corporators. Strange...these same people were bed fellows previously. Just shows that they are pushed to limits.

    Where does that bring the RE prices. God knows. I think about 30% of whatever we pay to buy a house, maybe actually bribes given to these authorities for sanction or approvals.
    CommentQuote
  • Originally Posted by Venkytalks
    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!!!!!


    I dont think the prices will come down in next many months by more than 10% since they are anyways artificial prices. People who are buying now will only repent in about 3-5 years time, and unless the govt brings in the regulator, the land acquisition bill, the rent control act, etc....all this artificial balooning will still continue....

    I am waiting for 2013... :)
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  • Originally Posted by khbarilal
    Till a couple of years ago, huge land bank had been a selling point for all major developers. Most of them went on a land acquiring spree, said analysts, to perk up valuations. And their share prices went through the roof. DLF and Unitech boasted land in excess of 8,000 acres. DLF targeted Gurgaon and acquired 350 acres for Rs:1,703 crore.
    When the sector was in the pink, no price was too high. Peninsula Land, along with a local developer, spent Rs:300 crore to buy a two-storey bungalow on Car Michael Road in south Mumbai in 2010. Orbit acquired expensive properties on Nepean Sea Road, a posh locality in south Mumbai.

    Realty check

    Builders went on land acquisition spree because of these reasons:-

    > They thought the hike in prices will go on forever,

    > Seeing success in small projects, builder went on to build bigger projects thinking of making more money in less time, & hence bought more land,

    > Hike in flat rates also meant hike in land prices. More the land with the builders, more was the net worth of the company. This was useful for listed cos or those who planned IPOs based on this LAND BANK,

    > Importantly, when the builder used to merely announce a project on some parcel of the land, the valuation of the land used to go up a whopping 3 times !! This way, based on this hiked valuation, they took loans bank (though in reality this was all thin-air valuations).

    In current scenario, the flats are not selling, debt is increasing & hence builder have no option but to sell land, even if it is much less than market rates. Note that this indicates very unhealthy scenario for RE.
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  • Bad loans to cross Rs 1 lakh crore this fiscal

    Bad loans, or non-performing assets (NPAs) of banks are set to cross the Rs one-lakh crore mark in the current fiscal as the weakened asset quality of the banking sector is likely to spill over to the year 2011-12. After the 25 per cent rise in gross NPAs of bank to Rs 77,048 crore in 2009-10, bad loans of banks shot up by another 20.97 per cent in 2010-11, impacting the earnings of many banks and showing an overall rise of 77.75 per cent in the last three years.

    Bad loans to cross Rs 1 lakh crore this fiscal - Indian Express
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  • Originally Posted by mymarji
    If these developers took land at high price during the BOOM, does that mean they are now selling at a loss. I don't think anyone will pay them the high price they paid.

    Today in Bangalore TOI, there was a news that some "REPUTED and KNOWN" builders have complained against corruption/harassment by Politicans/Corporators. Strange...these same people were bed fellows previously. Just shows that they are pushed to limits.

    Where does that bring the RE prices. God knows. I think about 30% of whatever we pay to buy a house, maybe actually bribes given to these authorities for sanction or approvals.


    builders do not buy land at market prices... they get it at much lower rates!:bab (34):
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  • Tanker kills Pune's renowned builder (Kumar Builders)

    IPO by Kumar? Here is a BAD news for Kumars...

    http://maharashtratimes.indiatimes.com/articleshow/8761358.cms

    निगडीच्या मधुकर पवळे उड्डाणपुलावर मर्सिडीज बेन्झ, दुचाकी आणि टँकरची धडक होऊन झालेल्या भीषण अपघातात पाच जणांचा जागीच मृत्यू झाला असून त्यात पुण्यातील प्रसिद्ध बिल्डर विमलकुमार जैन (कुमार बिल्डर्स) यांचा समावेश आहे. या अपघातात एक जण गंभीर जखमी झालाय.

    आज दुपारी तीनच्या सुमारास ही दुर्घटना घडली. पुण्याहून मुंबईच्या दिशेनं जात असलेल्या मर्सिडीज बेन्झवर विरुद्ध दिशेनं येणारा पाण्याचा टँकर आदळला. मर्सिडीजसमोरच्या दुचाकीलाही या टँकरनं जोरदार धडक दिली. पुणे महापालिकेच्या आरोग्य विभागातील एक कर्मचारी आणि त्याची पत्नी या दुचाकीवरून प्रवास करत होते. या अपघातात हे दोघंही जागीच ठार झाले. लक्ष्मण ठाकर (५१) आणि हौसाबाई ठाकर अशी त्यांची नावं आहेत. मर्सिडीजमधून प्रवास करणा-या विमलकुमार जैन (६१) हेही जागीच मृत्युमुखी पडले. त्याशिवाय, जैन यांचा ड्रायव्हर महेंद्र गवळी (४५), भिमाजी इंगळे (६३) आणि राम सप्रे (५०) यांचाही अपघाती मृत्यू झाला. या दुर्घटनेत एक जण गंभीर जखमी असून त्याच्यावर जवळच्या हॉस्पिटलमध्ये उपचार सुरू आहेत.

    टँकरचे ब्रेक फेल झाले असल्यानं हा अपघात झाल्याचा प्राथमिक अंदाज आहे. टँकरचालकाचं वाहनावरचं नियंत्रण सुटलं आणि ऐनवेळी ब्रेक न लागल्यानं टँकर मर्सिडीजवर जाऊन आदळला असावा, अशी शक्यता पोलिसांकडून व्यक्त होतेय.
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  • Jobs ...

    Originally Posted by sunnybynight
    Venky - Any specific trigger that you think will start this sharp RE correction? Rising interest rates, saturation etc have been there for a while now, without any significant correction. What will be the proverbial last straw?



    Sunny,

    Today IT companies have given warning of slowdown in most parts of the developed world which would affect them significantly.

    The real slowdown is only now taking off as the QEs effects wear off. Watch for 30 june when the FED formally ends QE2 and Aug when the US debt ceiling is hit.

    The US will enter another deeper recession / depression. We will see a worsening job situation. This will seriously hit RE.

    As of today, though volumes have come down sharply, existing owners who bought in recent years are still confident of paying despite higher interest rates, etc.

    But when jobs start vanishing, confidence as well as ability to pay will hit a larger number of especially younger people. They will be caught in a vice-like situation which might see many being unable to pay and coming to market in distress. There is still time to address it now but waiting a few more months may make it too late.

    cheers
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  • New norms likely to affect to home loan companies

    New norms likely to affect to home loan companies | REAL ESTATE NEWS @ PROPERTYAGENTSINDIA.COM India Real Estate Agents Directory

    NHB executive director Mr. R V Verma more added that “due to rise in property rates and interest rate demand for housing finance has severely affected and this will also affect to the realtors.”
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  • Let me claim a quick victory:

    Realtors eye corporates, offer projects at discount - Hindustan Times

    (Kabhi toh hame bhi jeetne do!)

    Anyway, a 20% discount is probably the tip of the iceberg - bigger discounts disguised in various ways will emerge.

    Gaur recently launched a scheme for 2BHK 1050 sf for 21.5 Lakhs all inclusive in Crossings republic (40 minutes drive from my south delhi home) along with a free split AC, frigge, flat screen TV and washing machine. The project sits on a national highway and will get further connectivity from the back.

    Price was a steal - but I did not nibble the bait. Such desperate ploys dont augur well for the RE market for next 2 years.

    Sunny bright, the camels back was already broken, no need for another straw. Transactions in Bombay have dried up. In Gurgaon they are drying up. In NOIDA they have vanished. Without transaction, there is no market.

    PCP, Pune might be different, because prices were in the 3000 psf range. It is the over 6000 psf range which will crack the most.

    No builder can sell for less than 2000 psf price in todays world - they would rather sell the land - or take your money not deliver or deliver after 7 years or some such cheating.

    I dont think any global jerk is needed to bring down prices - after 2 years of price rise, it is normal for prices to correct for a year. So many flats have been sold - now they have to be delivered before other bakras take the bait
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  • Originally Posted by Munish Malhautra
    This thread will only close with doomsday :D
    jokes apart.
    This is one of the most valuable and informative (RE) thread avl on the internet with personal experiences and real life opinions. I will never want it to be closed.
    Big sorry to all those who dont support this thread.:bab (58):

    Doomsday or no Doomsday ....

    Check out the spectacular pics of Chile volcano.....

    This is also known for the deadliest earthquake ever recorded(9.5 R)

    Chile volcano can be seen from SPACE as it spits fire into the sky | Mail Online

    http://en.wikipedia.org/wiki/1960_Valdivia_earthquake 9.5 = 25 Mtr Tsunami
    Attachments:
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  • I believe more than any economic reason, prices are coming down only in under-construction projects and not in RTM segment in developed and livable areas so far.

    The builders are struggling to sell new projects not only due to high interest rates but more because they don't have the trust of customers. Each and every person who has bought in new or under construction project in Delhi NCR in last 5-6 years has been cheated by builders in one way or another. It may be super area increase or long delay in project completion or bad construction quality or over promise and under delivery in specifications or poor maintenance post possession and so on.

    Also the infrastructure development that was supposed to come up in areas where new projects were launched in last 5-6 years has not happened yet. There are tens of thousands of RTM flats/floors that can't be used by their owners because basic infrastructure has not been built by the incompetent government.

    After hearing the horror stories from friends/relatives etc. and seeing the bad situation with their own eyes, new customer are willing to pay significantly more for a RTM property in a livable area instead of a property in new projects. In other words people want to buy peace of mind and not the uncertainty. This is the reason we are seeing corporate deals in new areas and prices are in fact coming down with every new project being launched.

    Real correction will be when prices in already developed area with 80% or more occupancy come down by say 10-20%. It is too soon for real estate bears (myself included) to claim victory.

    What is happening in new projects is that trust deficit is pulling the prices down and economics is playing a secondary role. Or we can say that karma is catching up with the scumbag builders.
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