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 :
  • Foreign funds shy away from India’s realty

    While FDI flows amounted to roughly $14-15 billion in the four years to December 2009, just about a billion had come in till November last year. Regulations apart, poor project execution leading to losses for some investors has made them far more circumspect, especially in a hostile macroeconomic environment

    Foreign capital flows into realty could decline up to 30% this year from the 2007-08 figure of $3 billion. “Most of the money being invested in 2009-10 was raised back in 2007-08, whilst funds...invested in 2011-12 must be raised after the Lehman crisis,” Krishna explains.


    Foreign funds shy away from India’s realty
    CommentQuote
  • Builders fail to meet deadlines as home buyers pile up pressure - The Economic Times
    Hope this article will enlighten homebuyer at current market scenario.
    CommentQuote
  • Look at this....Liecester, UK....look what we can get for less then 50L (70K Pounds) no wonder about the infra and quality that these properties provide.....
    what to say when a sabby 1200 sqft 2 bhk flat is being offered for more then 50L in kharadi....where infra is an alien word!!!

    3 Bed semi-detached house for sale, Leicester - Ref: 9000070

    2 Bed semi-detached house for sale, Ryder Road, Leicester - Ref: 8953861

    3 Bed terraced house for sale, Fernie Road, Leicester - Ref: 9080896

    May be wakad / Balewadi are more insane then kharadi...dont know...
    CommentQuote
  • No wonder, TOI is carrying advt by Artha Property about land in Florida which can be bought for about 9L all inclusive. The only extra is our visa and flight charges. :)

    Ooops...sorry it should be TOI-let .
    CommentQuote
  • Home values in last 100 years

    Look at this chart of home values in US for 100 years




    Source: Updating the Case Shiller 100 Chart & Forecast | The Big Picture
    CommentQuote
  • Still some way to go

    Originally Posted by aditi sharma
    Look at this chart of home values in US for 100 years

    Source: Updating the Case Shiller 100 Chart & Forecast | The Big Picture


    Estimates are that another 25% decline may be on the cards. After that the long, slow climb up.

    This time being different - huge debt overhang, persistent unemployment, etc - the recovery may take over a decade, after the bottom is hit around 2013-14. Expect full recovery only in the 2022-25 period!

    cheers
    CommentQuote
  • Wiseman,

    Please elobarate the same graph w.r t ndia..what wud be the indian RE Senario in 5 and 10 and 20 years
    CommentQuote
  • Ha!

    Originally Posted by anilsrikanti
    Wiseman,

    Please elobarate the same graph w.r t ndia..what wud be the indian RE Senario in 5 and 10 and 20 years



    Completely different worlds - India & US.

    Short answer - level, higher, still higher in the timeframes given by you.

    But its a risky call because we are not as strong a country as we think, since our problems are too large (population - impacting water, cultivable land, every major resource!)

    We may not even have the golden period US had from '50s to 2000. A single devastating War with Pak & China can put us back 10-15 years in development & is quite possible! Too many unknowns to guess properly.

    Please note that these prices are inflation-adjusted.

    cheers
    CommentQuote
  • But I can see only onething..

    THAT IS PRICE CORRECTIOn---That too only going up and up...whatevr the circumstances whatevr the causes and whatevr the theory..:bab (38):
    CommentQuote
  • RBI warns banks on real estate valuation frauds..

    Alarmed by inflated valuations of real estate properties for the purpose of loans, the Reserve Bank of India (RBI) has asked all banks to submit an action-taken report on the issue.

    The matter was raised last week by RBI Governor D Subbarao during a meeting of the Board for Financial Supervision (BFS). After this, top RBI officials met representatives of the banking industry earlier this week. The regulator reminded bankers about the prudential norms on valuation of assets and asked them to follow these in both letter and spirit.


    RBI warns banks on real estate valuation frauds
    CommentQuote
  • Income Recognition Fraud in Statement.......

    Dollops of discretion and self regulation punctuate the way real estate companies recognise revenues, placing a question mark over the accuracy of this headline number and making redundant any comparison across the peer set.

    For example, DLF, India's largest real estate company, has a unique entry in its financial statements, 'unbilled receivables', that accounts for three fourths of its revenues.

    Real estate: Experts doubt 'percentage completion' method of revenue calculation by builders - The Economic Times
    CommentQuote
  • Why the property market is in BIG trouble - Rediff.com Business


    The real estate market in India is heading for what looks like a double dip.

    After correcting somewhat from the sharp setback suffered in 2008, with some sectors managing to exceed previous peak prices in 2010, the sector entered 2011 with cautious optimism.

    But halfway through the year, the outlook has turned distinctly sombre.

    The current economic deceleration is pouring cold water on demand for office space, always driven by the overall economic climate.
    CommentQuote
  • With 256,247 views and 4022 replies today this thread is completed 2 years. :)
    There are so many things we discussed VFM houses, buildings as per rule,unethical practices of builder, regulator for RE and much more. Lets us see what happens next.
    CommentQuote
  • Slowdown, high inflation likely to persist

    Slowdown, high inflation likely to persist
    CommentQuote
  • South Mumbai bungalow sold for record Rs 350 crore


    When builders are themselves ready to pay such exorbitant prices then they will defintely make the buyers pay for this....

    looks like they have no intentions of reducing the prices.....

    plus they have plenty of cash to keep holding than negotiating.........
    CommentQuote