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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  • RE Bubble.....

    Consider this: Home prices rose nearly 10 percent a year on average in the United States from 1997 to 2006, long enough for many people to become accustomed to the pace and to view it as normal. The conventional 30-year fixed mortgage rate averaged 6.8 percent over those years, far below the appreciation rate on housing, so even if you had a substantial mortgage, you were becoming wealthier by the day, at least on paper. People who owned a home over that period had reason to feel pretty well off and proud of their investment acumen. That fed a contagion of optimism and helped to drive the speculative bubble, propelling the economy and the stock market in a feedback loop that repeated year after year.

    During the bubble, the sense of rising wealth and high expectations gave people a good reason to spend and a greater willingness to plunge into investment, too.


    The mood is far different now. Our latest survey, covering April and May of this year, included 296 home buyers, and their median expectation for annual home price appreciation over the next decade was down sharply, to just 3 percent. And, in comparison with the 2005 results, few people had extravagant expectations.

    http://www.nytimes.com/2011/06/12/business/economy/12view.html?_r=1
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  • Middle Class.......

    To Marx - though the idea was implicit in other classical economists such as Ricardo - class was not about lifestyle, but about one’s relationship to the economy. If your income comes from wages, you’re working class. If it comes from capital, you’re a capitalist.

    why has inequality increased since the 1980s? It’s because a mix of technical change and the emergence of a mass supply of cheap labour from China and India have increased the power of capital relative to labour.

    the optimism bias leads people to think they will succeed if only they work hard enough, and so blinds them to the possibility that their class position will prevent them getting the full fruits of their labour.

    Stumbling and Mumbling: Class, power & ideology
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  • Folks,

    Check out this article...

    How the real estate sector destroyed Rs 2,66,000 crore | Firstpost

    There is one more on the big shot thug, i will share it soon...
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  • Some updates

    Coming 16th June, 2011, it is expected that the RBI may hike the interest rates by another 25 bps or 0.25%. By the end of this year, you will see another hike between 0.5%-0.75% as the food inflation has again crossed 9%.

    The industrial output nos. are bad too, lowest in past 2 years. The auto cos have recorded their lowest growth, just about 7%.

    The hike in fuel prices has only further made a dent in mango man's pocket, & now the Govt. (Congress ka haath, aam admi ke saath:bab (45):) is going to hike diesel prices too. Pranab Mukherjee recently had a meeting with Petro minister. If diesel goes up, all commodities will become expensive.

    Yesterday, on CNN they were showing how major economic collapse is expected by the end of 2011 which will be even worse than that of 2008 & as US has already ran out of the means to control it, this time it will hit even harder.

    The Obama administration is doing its best to keep things under-wraps as US Presidential elections will be held next year, 2012.

    Man, as of now, the best bet is to make bank FD & watch how the economy performs.

    Btw, the builders are on negotiating table. Here are some of them:-

    Sobha Developers,
    Goel Ganga Developments,
    KUL,
    Amanora,
    Ravirraj Group.

    Btw, BR is still trying hard selling their newly launched 2/3 BR flats at Hinjewadi. Amanora isn't getting much response to their "future towers" & lot of options still are present in Aspire towers, 1-10. Their low interest rates of 7.7% has also fallen flat. Several people have canceled their bookings in Nanded City.

    I got over 3 SMS from KUL in this week for Ecoloch (& I am angry as being out of state, I was charged for them . I should demand compensation from KUL for this:D).
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  • Originally Posted by khbarilal
    Top fifty firms together schedule property exhibitions for NRIs; banks, financiers expect good business, too.


    Hit by sluggish sales at home, realtors are wooing non-resident Indians (NRIs). A slew of property exhibitions have been lined up at Dubai, Singapore, London, Durban and New York over the next three-four months.

    ’The NRI customer is well-informed and wants to go for known brands. They have connections back home and they do a lot of due-diligence. Most of them are looking for properties in the range of Rs 50-80 lakh and like to go for a time-tested brand,’’ said Kunal Banerji, president, M3M India.

    Hit by slowdown, realtors look abroad for succour

    If NRI's budget is -50-60 Lakh then what about locals ?


    Originally Posted by monds
    Folks,

    Check out this article...

    How the real estate sector destroyed Rs 2,66,000 crore | Firstpost

    There is one more on the big shot thug, i will share it soon...


    Very good posts man, err men :).
    And here are people who are ready to be exploited by these chaps & keep paying loans for 20 yrs. Don't know why people act this way :bab (38):.
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  • Whats wrong with the real estate sector in india

    What's wrong with the real estate sector in India | Real Estate Mumbai

    Really good article, Sorry if this has been posted earlier
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  • HDFC's india homes fair in London

    Last weekend, HDFC did a homes fair in London. Just visited out of curiosity. The response even on a Sunday was very lukewarm, just 30 odd builders attended (guess only one interested in such a long haul). None of the Local Pune builders. However, some Mumbai builders with schemes in Pune, like Kalpataru, Sobha, Raheja and Marvel were present. Didnt think they got much (if any) bookings on the site.

    To my surprise, Jaypee greens and Unitech were present too, trying to hard sell their mega projects in and around NCR. :D
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  • problem is banks are also on the same side as builders

    Originally Posted by ntrivedi
    Last weekend, HDFC did a homes fair in London. Just visited out of curiosity. The response even on a Sunday was very lukewarm, just 30 odd builders attended (guess only one interested in such a long haul). None of the Local Pune builders. However, some Mumbai builders with schemes in Pune, like Kalpataru, Sobha, Raheja and Marvel were present. Didnt think they got much (if any) bookings on the site.

    To my surprise, Jaypee greens and Unitech were present too, trying to hard sell their mega projects in and around NCR. :D


    problem is banks are also on the same side as builders , they know mango ppl are very gullible .. unless they members of IREF :D
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  • High rates, rising NPAs

    RBI said it was necessary to tighten prudential norms, since deterioration in asset quality posed a threat to growth in banks’ earnings in the coming quarters.

    RBI also said the revival in the demand for bank credit was driven by a handful of sectors like retail, commercial real estate and infrastructure.
    High exposure to the real estate sector may stress banks’ asset quality, as NPAs in real estate loans remained above the system level NPA growth.Going forward, the asset quality in this segment may decline further pressure, given the increasing interest rate environment,” RBI said.

    High rates, rising NPAs may erode banks' profits: RBI
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  • Brokers hunt for jobs as sales slump hits realty

    With home sales plummeting, it doesn't make business sense anymore," he explains. It's the same story in other big cities. In Mumbai, Pranay Shah, a mid-size broker has set up a small fast food joint to make ends meet. In Nagpur, Sashinath Chinchole has quit the real estate business and set up an ice-cream parlour. Their worries are not unfounded. While the large and established players in the property business have managed to stay put even during the slump, thousands of smaller players like brokers and agents are being forced to look for other jobs.

    For whatever business is left in the market, there are hundreds of agents in queue. For instance, there are pockets on the Noida Expressway, near large projects, where real estate brokers can be seen sitting inside small tents, under the sweltering sun, waiting for business. Those who can't afford to set up these tents can be seen on the roadside, running after every car that passes by, with brochures and flyers of projects in hand. Industry refers to them as the broker mandi. "All my friends and colleagues are now looking outside real estate before things get worse," says Chaudhary. Many have returned to the insurance industry and others have found jobs with small call centres. A few have found employment with retail stores, says Chaudhary.

    Brokers hunt for jobs as sales slump hits realty - The Economic Times
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  • Originally Posted by khbarilal
    With home sales plummeting, it doesn't make business sense anymore," he explains. It's the same story in other big cities. In Mumbai, Pranay Shah, a mid-size broker has set up a small fast food joint to make ends meet. In Nagpur, Sashinath Chinchole has quit the real estate business and set up an ice-cream parlour. Their worries are not unfounded. While the large and established players in the property business have managed to stay put even during the slump, thousands of smaller players like brokers and agents are being forced to look for other jobs.

    For whatever business is left in the market, there are hundreds of agents in queue. For instance, there are pockets on the Noida Expressway, near large projects, where real estate brokers can be seen sitting inside small tents, under the sweltering sun, waiting for business. Those who can't afford to set up these tents can be seen on the roadside, running after every car that passes by, with brochures and flyers of projects in hand. Industry refers to them as the broker mandi. "All my friends and colleagues are now looking outside real estate before things get worse," says Chaudhary. Many have returned to the insurance industry and others have found jobs with small call centres. A few have found employment with retail stores, says Chaudhary.

    Brokers hunt for jobs as sales slump hits realty - The Economic Times


    Superb post, Khabrilal. This thread is a fantastic source of info & detailed reports on ground realities. Realacres, Khabrilal, Patilji and numerous other contributors are really doing a service to the society by creating awareness about the Indian RE scenario.

    Speaking for myself, I have been literally saved from what could have turned out to be a disastrous decision of buying property in Q 3 of 2010. Myself and hubby were on our yearly trip to India, and we were astounded to see these ' broker tents ' in Meerut. Then we contacted some relatives in Delhi & Pune, but found rates to be totally unrealistic. I stumbled on IREF while scouring the internet for valid info on what was going on in Indian RE, and found this thread. It was like godsend.

    Great posts. Keep it up. :) in Meerut. Then we contacted some relatives in Delhi & Pune, but found rates to be totally unrealistic. I stumbled on IREF while scouring the internet for valid info on what was going on in Indian RE, and found this thread. It was like godsend.

    Great posts. Keep it up. :)
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  • Originally Posted by khbarilal
    With home sales plummeting, it doesn't make business sense anymore," he explains. It's the same story in other big cities. In Mumbai, Pranay Shah, a mid-size broker has set up a small fast food joint to make ends meet. In Nagpur, Sashinath Chinchole has quit the real estate business and set up an ice-cream parlour. Their worries are not unfounded. While the large and established players in the property business have managed to stay put even during the slump, thousands of smaller players like brokers and agents are being forced to look for other jobs.

    For whatever business is left in the market, there are hundreds of agents in queue. For instance, there are pockets on the Noida Expressway, near large projects, where real estate brokers can be seen sitting inside small tents, under the sweltering sun, waiting for business. Those who can't afford to set up these tents can be seen on the roadside, running after every car that passes by, with brochures and flyers of projects in hand. Industry refers to them as the broker mandi. "All my friends and colleagues are now looking outside real estate before things get worse," says Chaudhary. Many have returned to the insurance industry and others have found jobs with small call centres. A few have found employment with retail stores, says Chaudhary.

    Brokers hunt for jobs as sales slump hits realty - The Economic Times

    Nice post khabarilal :). It is now that the RE agents will come to know how tough RE sector is for mango man. Now, being in non-RE sector, they will come to know what it means while buying a house.
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  • Well said RealAcres. :) . Let them eat the fruit they sowed till now.
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  • Cash-Strapped Mumbai Developers offer discount as sales drop

    June 14, 2011
    Mumbai
    IRN

    Cash-strapped developers in Mumbai have started to offer discounts for residential projects by around 10-15 per cent to lure customers as sales in the financial capital fell by around 3540 per cent in January-March quarter. Falling sales are pressuring the cash flows of developers who have a heavy debt load. Some of the leading developers such as Ackruti, Rustomjee and Kalpataru are offering discounts to buyers who negotiate even as they hold on to an official price list, reports Financial Chronicle.

    Ravi Ahuja, ED at Cushman & Wakefield, said real estate companies have no option but to increase sales by giving discounts as their liquidity situation is tight. “Most of the companies have huge debt and banks have increased interest rates from around 8-9 per cent to as high as 14 per cent. Given the weak market condition getting cash from private equity funds or private lenders is not easy. Thus, they are left with no other option but to give some discount and clear inventories. It is better to clear inventory and generate cash by offering discounts rather than pay high interest rates and borrow from outside,” said Ahuja.

    Confirming the discounts, a senior official from Kotak Bank a leading home loan financier in the city told Financial Chronicle that Kalpataru is offering discounts in two of its projects in Ghatkopar and Kandivili. “The discount varies from 10-15 per cent depending on negotiations.” However, the company denied that they are offering discounts on their projects. The official said there is no problem with the company but since sales have dropped significantly across Mumbai, most of the developers are offering discounts.

    A senior industry official declining to be identified said that Rustomjee is offering the flats in the suburb of Bandra (east) at Rs 15,000 per sq ft, whereas, the rates in that area is around Rs 25,000 per sq ft. A company official from Rustomjee declining to be identified confirmed that it is a pre-launch offer. “Rustomjee is giving a pre-launch offer for its Bandra (east) project and the price is around Rs 20,000 per sq ft and comparable to its peers. However, Rustomjee has a plan in place for investors, who wish to put down a higher booking amount in the pre-launch phase. It is the company policy to reward its genuine investors.

    Pre-launch sales or investor sales are a standard market practice. However, this sale component is minimal compared to approximate 300 flats project. Since the company is not public and hence it is not mandatory for it to disclose financial details, the company would like to mention that its debt equity ratio is below the industry average,” said the official. A senior Ackruti official also said that in few of the recent deals there are some instances where they have offered discount. “But as of now we have not yet declared discounts officially. We are trying to come at par with the market and are waiting and watching the situation,” he said, adding that definitely the sales have come down in the recent months.
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