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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  • Property price falls across 7 cities.....

    The cities which have shown significant correction (drop in property prices) during January to March 2011 are
    Bangalore (-17.6 per cent),
    Kochi (-14.92 per cent),
    Faridabad (-6.37 per cent),
    Hyderabad (-4.6 per cent),
    Surat (-3.76 per cent),
    Bhopal (-3.55 per cent) and
    Jaipur (-2.63 per cent). In
    Kolkata, prices dipped marginally by 0.77 per cent.

    Among others,
    Ahmedabad showed an increase of 0.4 per cent,
    Chennai 1.66 per cent,
    Mumbai 1.39 per cent.
    Patna showed no change. Of those which have witnessed an increase in prices are
    Pune (5.02 per cent),
    Lucknow (3.09 per cent), and
    Delhi (2.64 per cent).

    Property price falls across 7 cities

    Let's watch how high Pune builder can raise. ...:bab (35)::bab (35)::bab (35): . higher the speculation much deeper will be the correction.
    If IT/ITS were the driving factor then with Banglore/Hyderabad it should have shown the correction but Pune Cartel is artifically raising the prices.
    CommentQuote
  • Originally Posted by khbarilal
    The cities which have shown significant correction (drop in property prices) during January to March 2011 are
    Bangalore (-17.6 per cent),
    Kochi (-14.92 per cent),
    Faridabad (-6.37 per cent),
    Hyderabad (-4.6 per cent),
    Surat (-3.76 per cent),
    Bhopal (-3.55 per cent) and
    Jaipur (-2.63 per cent). In
    Kolkata, prices dipped marginally by 0.77 per cent.

    Among others,
    Ahmedabad showed an increase of 0.4 per cent,
    Chennai 1.66 per cent,
    Mumbai 1.39 per cent.
    Patna showed no change. Of those which have witnessed an increase in prices are
    Pune (5.02 per cent),
    Lucknow (3.09 per cent), and
    Delhi (2.64 per cent).

    Property price falls across 7 cities

    Let's watch how high Pune builder can raise. ...:bab (35)::bab (35)::bab (35): . higher the speculation much deeper will be the correction.
    If IT/ITS were the driving factor then with Banglore/Hyderabad it should have shown the correction but Pune Cartel is artifically raising the prices.

    When will Gurgaon RE prices fall.Any guess:o
    CommentQuote
  • Originally Posted by saggii
    Again if to assume that value of Rupee goes down then-
    1. Oil will be costlier
    2. inflation will increase
    3. growth will decrease
    4. FDI will decrease
    5. Venky's points holds true

    But how is that going to happen given FDI is robust and growth is still intact?
    All 5 pointers holds true if growth stall, but question is- is it going to happen?


    Hi Saggi,

    Life is full of suprises. And the best part of future is its UNCERTAIN.

    4 years ago gold was approx Rs. 10,000 and nobody wud've even imagined it wud spike to 23K. Today its there and ppl are talking abt 30K and even 50K in next few years. Who had imagined our beloved BSE heading from 21K to 6K in just 2 years.

    Coming back to your point - all the points listed by you may not happen simultaneously. Remember, when u talk in terms of economy everything has a ripple effect, some good - some bad.

    Tension in middle east --> Rising oil prices --> More Inflation
    More FDI inflow --> Rupee appreciation --> Export hit
    More FDI inflow --> More Inflation (since for every dollar coming in u need to print Indian Rupee & release in market).
    Rupee appreciation --> reduced Oil bill in USD
    Rupee appreciation --> Reduction in inflation due to stronger currency
    More FDI inflow --> More capital to companies --> Easy availability of funds for investment
    Exports hit --> Reduced export earnings

    So growth would get impacted either +vely or -vely by intermingling of all these situations and many more that i have missed. Important thing - HOPE FOR THE BEST AND PREPARE FOR THE WORST :bab (4):
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  • Originally Posted by khbarilal
    T

    Let's watch how high Pune builder can raise. ...:bab (35)::bab (35)::bab (35): . higher the speculation much deeper will be the correction.


    Think this is good enough for bears to hang on for next few years :).
    CommentQuote
  • Quote:
    Originally Posted by khbarilal
    T

    Let's watch how high Pune builder can raise. ... . higher the speculation much deeper will be the correction.


    Originally Posted by compuwalah
    Think this is good enough for bears to hang on for next few years :).


    Twisted logic and word play come to mind...
    CommentQuote
  • Originally Posted by saggii
    Again if to assume that value of Rupee goes down then-
    1. Oil will be costlier
    2. inflation will increase
    3. growth will decrease
    4. FDI will decrease
    5. Venky's points holds true

    But how is that going to happen given FDI is robust and growth is still intact?
    All 5 pointers holds true if growth stall, but question is- is it going to happen?


    FDI is no longer robust. FII inflows are happening but they are no substitute for FDI.

    Hot money is flowing, but rest of India story has gone cold | Firstpost

    Growth is also not intact. While Manmohan Singh continue to talk about 9% GDP growth rate, RBI has already lowered its prediction to 8% and FIIs like RBS and Citi are already talking about sub 8% numbers like 7.25 to 7.5%.

    Rupee is not depreciating because interest rates are still rising. Just wait for interest rate hikes to end and then you will see the fireworks.
    CommentQuote
  • Originally Posted by ThePunjabi
    FDI is no longer robust. FII inflows are happening but they are no substitute for FDI.

    Hot money is flowing, but rest of India story has gone cold | Firstpost

    Growth is also not intact. While Manmohan Singh continue to talks about 9% GDP growth rate, RBI has already lowered its prediction to 8% and FIIs like RBS and Citi are already talking about sub 8% numbers like 7.25 to 7.5%.

    Rupee is not depreciating because interest rates are still rising. Just wait for interest rate hikes and then you will see the fireworks.

    +1

    High inflation interest rates slow demand; will impact Q1 performance say brokerages - Moneylife Personal Finance site and magazine
    CommentQuote
  • It’s a market saying that “Either Bear makes money OR Bull makes money”, we strongly believe in this. In current market scenario & price condition we know who is going to win. Looks like some builders are in permanent bull phase & desperately looking for bakaras.
    Off-course playing a wedding music in funeral doesn’t make any sense. The music may be good but the time & situation is not correct.
    BTW, it’s not called timing the market.

    Originally Posted by stoxxx
    Quote:
    Originally Posted by khbarilal
    T

    Let's watch how high Pune builder can raise. ... . higher the speculation much deeper will be the correction.



    Twisted logic and word play come to mind...
    CommentQuote
  • Factors which RE Bulls Forget

    There are many things which RE bulls forget when they talk about RE hikes.

    > The home loan interest rates have gone up by whopping 25% in 1 year, more hikes likely by the end of the year,

    > The demand took place in 2009, mainly due to TEASER RATES offered by banks to indirectly bail out builders. As RBI intervened, the teaser rates no longer exist, including that of SBI,

    > The loan sanctioned in terms of %age has fallen when compared to 2009 or before. This means more downpayment required by the buyer,

    > IT, the main driver of RE growth in city has shown poor performance in last fiscal. IT sector in general was downgraded by several rating agencies,

    > There is no change in city's infra from past 3 years so as to justify the hike in rates. The DP is still in air, no metro in site, no improvement in water supply etc.

    The Baner road is still going on & water probs are still there in Kharadi, Vimannagar, BP link rd etc.

    > Banks have pressurised builders to repay the loan, no roll-over permitted. This has resulted in massive sell on non-core assets by RE cos like hotels, lands etc.

    Even in Pune, the DLF has sold acres of land of IT SEZ. Hiranandani has dropped the launch of their township at Hinjewadi. Blue Ridge (a darling of investors), is still busy selling its flats, old as well as the new ones, shown alongwith mangoes !!

    > Projects like Amanora are offering lower interest rates, while others are offering freebies like modular kitchen, semi-furnishing etc.

    > Hike in fuel prices have increased inflation & further taken a dent in savings. This means less money for expenditure, which in turn results in lower eligibility for home loan.

    > The banks' number of rise in RE NPAs show how rotten the sector has become from beneath.

    Man, a car can go from 40 kmph to 80 kmph with ease, but to expect it to go from 80 kmph to 160 kmph is naive.
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  • Does any one has figures of number of flats sold monthwise, that can clearly state whether the demand is still alive or gone down
    CommentQuote
  • Originally Posted by vishal1406
    Does any one has figures of number of flats sold monthwise, that can clearly state whether the demand is still alive or gone down

    I don't have figs but the sale or rather agreements has dropped by 70% QoQ in Mumbai & this includes resales also. Hence, the number of units sold by builders can be even less.
    CommentQuote
  • Originally Posted by realacres
    There are many things which RE bulls forget when they talk about RE hikes.

    > The home loan interest rates have gone up by whopping 25% in 1 year, more hikes likely by the end of the year,

    > The demand took place in 2009, mainly due to TEASER RATES offered by banks to indirectly bail out builders. As RBI intervened, the teaser rates no longer exist, including that of SBI,

    > The loan sanctioned in terms of %age has fallen when compared to 2009 or before. This means more downpayment required by the buyer,

    > IT, the main driver of RE growth in city has shown poor performance in last fiscal. IT sector in general was downgraded by several rating agencies,

    > There is no change in city's infra from past 3 years so as to justify the hike in rates. The DP is still in air, no metro in site, no improvement in water supply etc.

    The Baner road is still going on & water probs are still there in Kharadi, Vimannagar, BP link rd etc.

    > Banks have pressurised builders to repay the loan, no roll-over permitted. This has resulted in massive sell on non-core assets by RE cos like hotels, lands etc.

    Even in Pune, the DLF has sold acres of land of IT SEZ. Hiranandani has dropped the launch of their township at Hinjewadi. Blue Ridge (a darling of investors), is still busy selling its flats, old as well as the new ones, shown alongwith mangoes !!

    > Projects like Amanora are offering lower interest rates, while others are offering freebies like modular kitchen, semi-furnishing etc.

    > Hike in fuel prices have increased inflation & further taken a dent in savings. This means less money for expenditure, which in turn results in lower eligibility for home loan.

    > The banks' number of rise in RE NPAs show how rotten the sector has become from beneath.

    Man, a car can go from 40 kmph to 80 kmph with ease, but to expect it to go from 80 kmph to 160 kmph is naive.



    Agree with you.
    +1 important point.
    In 2008-09 when recession was there pune RE prices didn't corrected heavily. One of the main reason was builders has earned huge profits during 2005-08 and they had hold the prices by reducing supply. Also recession/slag period was hardly there for 1.5 years. But this time if current enviornment persists for more than two years then PUNE RE will have a major price correction. A person can fast for 10 days (bcaz health bears it) but after 10 days everyday is like a dying day :)
    CommentQuote
  • In India, Pune is only the exception where prices are always rising.
    This thread talks only at macro level about what is happening in world
    Interest rates are rising, job market is down,credit policy.. bla..bla..bla

    But my friends , what is a ground reality ?
    On ground , you go to any area in baner,waked,pashan , rates are always going up day by day

    Ground reality is rates are increasing year after year
    I stay in a reputed society at baner-pashan link road
    In May 2010 1 bhk resale flat sold there for 22 lac
    In Nov 2010 same type bhk resale flat sold there for 25 lac
    And last week one more sold at 28 lac

    So no matter what is happening to economy, interest rates, job market, industry, share market , Pune RE least bothered about it and it has nothing to do with this.

    At micro level, on ground rates are always up in last 2-3 years
    So no pint in discussing what is happening to economy ,credit policy, banks interest, IT slowdown. Nothing has any impact on rates and they are always up.

    There is one thread here which says put property prices rates reduce post here. Visit that thread, you hardly find any project which has reduced the rates , But ask any member list the project where prices are increase in last 2 yrs, this list will never ending and anybody who have booked a flat 2-3 yr ago can tell, how much appreciation they are getting now.

    So realize the fact and discuss ground reality of pune instead of discussing what is happening globally or in india or noida or with banks or with govt.
    CommentQuote
  • Originally Posted by sandy_pune
    In India, Pune is only the exception where prices are always rising.
    This thread talks only at macro level about what is happening in world
    Interest rates are rising, job market is down,credit policy.. bla..bla..bla

    But my friends , what is a ground reality ?
    On ground , you go to any area in baner,waked,pashan , rates are always going up day by day

    Ground reality is rates are increasing year after year
    I stay in a reputed society at baner-pashan link road
    In May 2010 1 bhk resale flat sold there for 22 lac
    In Nov 2010 same type bhk resale flat sold there for 25 lac
    And last week one more sold at 28 lac

    So no matter what is happening to economy, interest rates, job market, industry, share market , Pune RE least bothered about it and it has nothing to do with this.

    At micro level, on ground rates are always up in last 2-3 years
    So no pint in discussing what is happening to economy ,credit policy, banks interest, IT slowdown. Nothing has any impact on rates and they are always up.

    There is one thread here which says put property prices rates reduce post here. Visit that thread, you hardly find any project which has reduced the rates , But ask any member list the project where prices are increase in last 2 yrs, this list will never ending and anybody who have booked a flat 2-3 yr ago can tell, how much appreciation they are getting now.

    So realize the fact and discuss ground reality of pune instead of discussing what is happening globally or in india or noida or with banks or with govt.


    PUNE is not impacted by global economy, IT slowdown, bank interest, credit policy then I wish finance minister should consult you and make different policies for pune :)
    CommentQuote
  • Originally Posted by khbarilal
    It’s a market saying that “Either Bear makes money OR Bull makes money”, we strongly believe in this. In current market scenario & price condition we know who is going to win. Looks like some builders are in permanent bull phase & desperately looking for bakaras.
    Off-course playing a wedding music in funeral doesn’t make any sense. The music may be good but the time & situation is not correct.
    BTW, it’s not called timing the market.


    What does a bear make money from RE correction? Can you please care to explain.

    'Timing' seems to have hurt someone.

    Anyway as I said personally my RE requirements are fulfilled so I don't care either way. Only thing is last time when I bought people told me exactly same things and I am glad I didn't listen. Otherwise I would still be on the forum wishing for an RE crash.
    CommentQuote