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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  • मुंबईत आवाज 'भाडे'करूंचा!

    http://maharashtratimes.indiatimes.com/articleshow/9308539.cms

    भाड्याच्या घरात राहणे हे नेहमीच कमीपणाचं मानलं जातं. मात्र देशाची आर्थिक राजधानी असलेल्या मुंबईनगरीत निवासी जागांच्या गगनाला भिडलेल्या किंमती लक्षात घेऊन अनेक चाकरमानी मुंबईत मालकीच्या घराच्या स्वप्नावर पाणी सोडून भाड्याने राहणे पसंत करत आहेत. गेल्या काही वर्षांमध्ये मुंबईत भाडे-तत्वावर राहण्याचा ट्रेंड विकसित झाला आहे.

    मालकीच्या घरासाठी येणारा प्रचंड खर्च आणि त्यापुढे ओघाने येणारे मेन्टेनन्ससारखे पुढील खर्च या सगळ्या कटकटीपेक्षा डिपॉझिट आणि महिन्याला ठराविक भाडे भरून अनेकजण मुंबईत स्थिरसावर होताना दिसत आहेत.

    आकडेवारीवर नजर टाकली तर डिसेंबर २०१० ते आतापर्यंत लीजवर घरे देण्याच्या करारांमध्ये थोडीथोडकी नव्हे तर तब्बल २० टक्यांनी वाढ झाली आहे. जून २००९ मध्ये ७ , ५९२ घरे भाडेतत्वाने देण्यासाठी आवश्यक करारपत्रांची सरकारदप्तरी नोंद करण्यात आली. हे प्रमाण वाढून जून २०१० मध्ये ९ , १९५ एवढे झाले आहे. फेब्रुवारी २०११ मध्ये मुंबईत ८ , ०५५ करारांची नोंदणी झाली आहे , गेल्यावर्षीच्या ६ , ७०४ करारांच्या तुलनेत हे प्रमाण झपाट्याने वाढल्याचे प्रभुदास लिलाधर यांनी सांगितले.

    भाडेतत्वावर राहण्याचं प्रमाण वाढलं याचं द्योतक म्हणजे रजिस्ट्रेशन कार्यालयात घरांच्या विक्रीच्या करारात झालेली घट. जून २०१० मध्ये ६ , ००० घरांच्या विक्रीकरता करार नोंदणी झाली होती. हे प्रमाण कमी होऊन जून २०११ मध्ये ४ , ७२१ वर आले आहे.

    जागांचे दर सातत्याने वाढत असल्याने मुंबईत स्वतःचं घर घेणे हे सामान्यांसाठी दिवास्वप्नच ठरत आहे. मालकीच्या घरासाठी कर्ज काढा , ते फेडण्यासाठी प्रचंड रकमेचा हप्ता पगारातून जाणार , त्यामुळे कष्टप्रद होणार रोजचं जीणं , या सगळ्या प्रकारापेक्षा भाड्याचं घर घेण्याकडे मुंबईकर चाकरमान्यांचा कल वाढत आहे. प्रॉपर्टी एजंट्सनीही भाड्याने राहण्याचा ट्रेंड वाढत असल्याचं सांगितलं. गृहकर्जावरील व्याजदर जादा असल्याने अधिकाअधिक लोक या ट्रेंडकडे वळत आहेत.
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  • Godrej Properties Q1 net falls 55%

    Godrej Properties Q1 net falls 55% - Indian Express

    Eye opener....about Real Estate scenario...
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  • Wht builders are pushing rates?

    Originally Posted by saprovo
    I simply donot understand one thing...why are the builders constantly pushing up rates? If there is no demand rates are supposed to go down i think!

    Secondly due to too much of black money in real estate the prices will remain high always...cause investors will not sell at a loss. For an end user if he/she gets a nice flat at nice location does 4%-5% price drop here any there, this time and that time really matter? I dont think you can predict when prices will go down. So how long you gonna wait? And I also donot think once you retire you would still like to live in a rented house? If yes I salute you. I cant. :bab (59):

    And as far as IT is concerned the domestic market is still nascent stages and the companies like TCS and infosys are waking up to the internal home demand for IT.


    Hi

    We are seeing evidence of it. Generally rental property returns are very low. So black money invested flats are yielding lower than bank FD returns.

    So black money holders are happy with lower returns so does bulders investing black money.
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  • Godrej and Tata whole cash deals

    Originally Posted by patilbha
    Godrej Properties Q1 net falls 55% - Indian Express

    Eye opener....about Real Estate scenario...


    Hi

    Can we say Godrej and Tata are whole Check deals? If so then they are good indicators of Market environment otherwise note?

    Regards,
    Amit
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  • Originally Posted by patilbha
    Godrej Properties Q1 net falls 55% - Indian Express

    Eye opener....about Real Estate scenario...


    in today's tit bits era and attention deficiency syndrome we go by only headline...

    complete news item says
    Godrej Properties reported 55.17 per cent decline in its consolidated net profit for the quarter ended June 30 at Rs 10.06 crore.
    The compnay had posted a net profit of Rs 22.44 crore in the corresponding period last year, Godrej Properties said in a filing to the Bombay Stock Exchange (BSE).
    The consolidated total income from operations, however, increased by over three-fold to Rs 130.62 crore from Rs 41.21 crore, it added.
    Reacting to the results, shares of the company were trading 1.74 per cent up at Rs 814 on the BSE in the late afternoon trade.


    which actually tells nothing specific....it is still making profit...it actually grew much stronger in terms of revenue and RE companies profit depends on how much PE they are using and the interest rates , revenue recognition process etc.....

    for more details seeStrong growth for Godrej Properties this year Adi Godrej

    he revenues have come in this quarter at Rs 136 crore and that’s versus just Rs 41 crore if you compare on a year on year (YoY) basis.


    The margins depend on how much of private equity we bring in during the quarter. Just like the first quarter last year, there was considerable amount of private equity in the fourth quarter as well.

    So actually, the operational profit was much higher this quarter than in the same quarter of last year. This private equity does not come every quarter uniformly; it varies from quarter to quarter. The best comparison is on an annual basis for that.
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  • Poor demand, cost pressures likely to hurt realty space

    With earnings season kicking off, it's time for a reality check on realty. Traditionally, the first quarter has been weak for the sector. But it looks like the cues this time could be even weaker, with the three top companies expected to post negative sales growth. CNBC-TV18’s Priyanka Ghosh delves deeper.

    To further complicate matters, the demand scenario remains lukewarm. Negative growth in revenue for the three top players is a major concern and may indicate a slowdown in execution of projects.

    On the other hand, any further increase in mortgage rates will only further dent the volume of sales.

    Poor demand, cost pressures likely to hurt realty space - CNBC-TV18 -
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  • Originally Posted by realacres
    With earnings season kicking off, it's time for a reality check on realty. Traditionally, the first quarter has been weak for the sector. But it looks like the cues this time could be even weaker, with the three top companies expected to post negative sales growth. CNBC-TV18’s Priyanka Ghosh delves deeper.

    To further complicate matters, the demand scenario remains lukewarm. Negative growth in revenue for the three top players is a major concern and may indicate a slowdown in execution of projects.

    On the other hand, any further increase in mortgage rates will only further dent the volume of sales.

    Poor demand, cost pressures likely to hurt realty space - CNBC-TV18 -


    Realacres, please note that,
    1) the companies are not making any LOSSES its just that the profit %age has reduced compared to last Quarters / Years
    2) even the market watchers speculate a maximum fall of 15%, whereas the prices have risen more than 15% in last one year, so a correction does not really mean anything for home buyers who have waited for 1 year for price correction
    3) Lastly, not to sound negative, but in the last 2 months we have read / heard many such stories but the fact is there is minimal drop in Pune RE. It seems Pune RE follows its own CNBC Awaaz (which is really builders ki Awaaz) :bab (35):

    Do you agree ?
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  • Originally Posted by tarcap
    Realacres, please note that,
    1) the companies are not making any LOSSES its just that the profit %age has reduced compared to last Quarters / Years

    The RE firms would have been in deep mess had they not sold their land. The profits which they are showing are coming through the sales of land & non-core assets like hotels, malls etc. They have also sold their TDR to other builders to get some cash.

    2) even the market watchers speculate a maximum fall of 15%, whereas the prices have risen more than 15% in last one year, so a correction does not really mean anything for home buyers who have waited for 1 year for price correction

    15% reduction is not going to happen. It will be more than that.

    3) Lastly, not to sound negative, but in the last 2 months we have read / heard many such stories but the fact is there is minimal drop in Pune RE. It seems Pune RE follows its own CNBC Awaaz (which is really builders ki Awaaz) :bab (35):

    You should see the link where I had posted about the drop in stamp duty revenues by almost 70% in YoY just couple of weeks ago in RE Bulls Proved Wrong thread.

    The stamp duty revenues speak for themselves.
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  • Yet another 25bps rate hike on July 26

    Industrial production numbers were down to 5.6% in May; corporate results are showing telltale evidence of falling sales and margins. Falling margins indicate an inability of producers to pass on prices. And yet on the other hand inflation remains high at 9.4% and is set to go higher if producers pass on the fuel price hikes. The Reserve Bank of India (RBI) faces an ugly contradiction-slowing growth and rising inflation. So what's the market expecting it will do on July 26, in its credit policy? CNBC-TV18's Gopika Gopakumar and Vidhi Godiawala give a lowdown.

    Yet another 25bps rate hike on July 26, says CNBC-TV18 poll - CNBC-TV18 -




    Btw, I had spoken with a construction contractor recently & he said that the issue is that greed overtook profits to such a large scale that builders despite hiking rates also started compromising on quality. He informed me that builders ask him to cut cost as much as possible . The quality in this is compromised & even the laborers sent to do the work are unskilled ones with very less experience:o. This contractor now focuses more on commercial projects, industries & bungalows as he said that he doesn't want to be part of something which may lead to heavy loss in coming years.

    * PS:- He said that RE became insane from 2006 onwards. Earlier the builder didn't asked him to do such 'chindhigiri', then something went in builders' head & rest is what we know. He said that the building which he constructed in 2003 have almost no issues compared to those done in 2008.


    Really wonder what we get after paying so much of money ??? Not to forget that loading factor has increased + terrace being charged at 100% now which makes the same flat even more expensive even if the rate/sq ft remains the same. :bab (24):
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  • Billionaire's Properties You Can Rent

    An interesting article :-

    Billionaire's Properties You Can Rent | Lifestyle | Luxpresso.com
    CommentQuote
  • Housing sector faces $70bn funding gap over next 5 yrs: CREDAI

    Housing sector faces $70bn funding gap over next 5 yrs: CREDAI - The Economic Times

    This is statement coming from President, CREDAI. Mr. Lalit Kumar Jain, who is MD of pune based Kumar Builders(KUL).

    Hope, this is better understood by buyers (prospective buyers, and not the investors). Today, RE Builders and Developers are facing the severe shortage of Finance (rather, I should say from last 6 to 8 months, because, nothing happens suddenly).

    This statement may be due to the fact that, (inspite of lot many pressure tactics employed by builders and politicians), RBI is definite to go ahead with its eleventh hike in repo rate since March 2010, on 26 July 2011.
    CommentQuote
  • Originally Posted by patilbha
    Housing sector faces $70bn funding gap over next 5 yrs: CREDAI - The Economic Times

    This is statement coming from President, CREDAI. Mr. Lalit Kumar Jain, who is MD of pune based Kumar Builders(KUL).

    Hope, this is better understood by buyers (prospective buyers, and not the investors). Today, RE Builders and Developers are facing the severe shortage of Finance (rather, I should say from last 6 to 8 months, because, nothing happens suddenly).


    This is going to result in further shortage of accomodation. If this is true its better to go for resale. You realize return from day1 onwards instead of just gettign some false promises from builders and solving all problems assocoated with a new setup.
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  • In India people tend to think that investment in property is best option available. whatever level of detailed analysis we perform on rent vs buy ROI or world economic situation.

    I moved to Gurgaon around four months back and noticed even theremost of the propertty possession is after 3 years , people are ready to pay 55-60 lakhs for 2 BHK.

    even in office i know people who had invested in 1-2 projects which has delivery schedule 3 after 3 years. they are opting for construction linked plan and paying from there savings. all IT professional with 10 plus years experience working even had exposure of working financial service vertical, but when it comes to investment they are looking towards property as destination and avoiding stocks.

    Although most of the realty companies are struggling with high DEBT but still on ground prices are not reasoable.

    Pune property prices has reached 3600-4000 level in pimple saudagar, balewadi,baner .

    In gurgaon u wont find anything less than 5500 in area near rajiv chowk, sohna road
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  • Originally Posted by compuwalah
    This is going to result in further shortage of accomodation. If this is true its better to go for resale. You realize return from day1 onwards instead of just gettign some false promises from builders and solving all problems assocoated with a new setup.

    This will not lead to shortage of accommodation but large scale NPAs in RE sector. These situation gives the builder only 2 options:-
    Reduce the inventory or go bankrupt.

    Resale is always the better solution after ready poss from builders. When the unit is ready, you are then least bothered about what happens to the RE firm which did your project.
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  • Mumbai housing prices may rise up to 30%! - Rediff.com Business

    Kumar has put forth a proposal before the state government that the Brihanmumbai Municipal Corporation charge a premium of 100 per cent of the ready reckoner rates on construction of lobbies, terraces and balconies compared to the 25 per cent charged earlier.


    Buliders are crying foul over proposed 100% charges for lobbies, terraces and balconies whereas they have been charging 100% for customers for long time now....
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