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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  • Folks, use the Edit button ...

    Originally Posted by tsongt
    my earlier post was incomplete.

    Contra - proximity to Mumbai is another hype. While Mumbai itself got corrected in RE prices by 30-40%, Pune builders still hold tight to their mahals.

    How do you think job opportunities are increasing in Pune? Do you think the IT industry is going to hire like it happend a few years back? And for other people around who are in service, affording a home with current rates is far away from their dreams.
    Pune is the worst city for a average earner. I am still able to find a decent meal for Rs25 in Bangalore or Mumbai. You show me such a place in Pune. This is just an example, there are hundred things like this.

    wait for one more month, Pune builders will raise the rates saying water has become costly and not available for construction.



    Folks

    I frequently use the Edit feature whenever I need to add more stuff to my posts.

    cheers
    CommentQuote
  • Nope. Big difference !!!

    Originally Posted by shekhar7
    Premium RE stocks like
    DLF, Unitech, Omaxe, HDIL
    & Infra Stocks like IVRCL, GMR, GVK
    are under tremendous pressure from last few days...
    Today, it all came down...
    Is it realistic to equate this fall to RE prices ?



    Shekar,

    Nope. The Stock market is full of nervous guys with a hair-trigger. When they see a trend emerging 6-9 months before it happens, they will take action. So, you saw RE stocks fall 95% many months ago.

    Builders are the other end. They hang on to their "hawa mahals" (as someone said) with a lot of misplaced hope - hoping that buyers will continue to be suckers well after their salary is cut or job is gone, hoping that govt will force banks to lend to unworthy people, hoping that there are enough fools in the market to listen to them.

    6-9 months after everyone has realised that prices have crashed 30%, they will belatedly come to market to dump their inventory when their creditors finally come calling to wind up their company!!! :D

    Big difference of around 12-18 months :D:D:D

    cheers
    CommentQuote
  • Originally Posted by contra
    But Kanchipuram is not Pune.

    Pune itself is a large city (among the top 10 cities in India) and than it is closer to Mumbai (the financial capital of India). So comparing the Mumbai-Pune success combination to Chennai and some Kanchi will not hold any water.

    As tsongt rightly said that Mumbai rates have fallen to even 50%. What makes Pune immune, especially when prices are already falling? Few months back, bulls were saying that RE prices would remain constant, then said drop of 5-10%, then 10-15% max. It is now down more than that.

    Also you need to understand that Mumbai rates fell despite having no IT or large number of speculators unlike Pune.
    54% of flats in Pune are unsold. Add to it investors or rather speculators inventory. Supply is more than demand. Visit the following link:-

    ]http://www.businessworld.in/images/stories/infrastructure/massive_pile_up.gif
    For full story:-

    http://www.businessworld.in/index.php/Infrastructure/The-Rise-Fall-Of-Realty.html

    RE Prices in Pune will crash as they have pan-India.:)

    RE Prices in Pune will crash as they have pan-India.:)
    CommentQuote
  • Originally Posted by shekhar7


    Just now, got a call from their Mrktg head, saying that, he is ready to offer below 3000 :)

    What would be realistic rate for us, from this side of table ???

    The biggest problem for Crossover County (CC):- Nanded City. Nanded city has reduced the prices to INR 2500/sq ft & is located just a stone throw away from CC. Will you prefer a township or regular building project that too if township prices are lower than regular project? Hence, prices of CC should be less than INR 2000/sq ft in any case.

    Btw, avoid Nanded City too. Farmer problems are yet to be sorted out & project has been delayed.
    CommentQuote
  • Originally Posted by wiseman
    Folks

    I frequently use the Edit feature whenever I need to add more stuff to my posts.

    cheers


    tried that. Edit feature works like a charm. Thanks ;)
    CommentQuote
  • Originally Posted by realacres
    As tsongt rightly said that Mumbai rates have fallen to even 50%. What makes Pune immune, especially when prices are already falling? Few months back, bulls were saying that RE prices would remain constant, then said drop of 5-10%, then 10-15% max. It is now down more than that.

    Also you need to understand that Mumbai rates fell despite having no IT or large number of speculators unlike Pune.
    54% of flats in Pune are unsold. Add to it investors or rather speculators inventory. Supply is more than demand. Visit the following link:-

    ]http://www.businessworld.in/images/stories/infrastructure/massive_pile_up.gif
    For full story:-

    ]http://www.businessworld.in/index.php/Infrastructure/The-Rise-Fall-Of-Realty.html

    RE Prices in Pune will crash as they have pan-India.:)

    realacres,
    The demand for affordable housing is huge and the supply is non-existent.

    I can think of any number of reasons why a crash could potentially bypass Pune, with various probabilities of likelihood:
    1. Huge drop in interest rates.
    2. Borrowing from hawala system to stay solvent.
    3. Governments continuing to offer lifeline by permitting debt restructuring
    4. Sharp recovery in stock markets.
    5. More outsourcing to India due to dwindling profit margins worldwide.
    6. Builders cartel financing vulnerable projects to maintain Pune prices at a premium level.
    7. Continuing one sided narrative from the builders. It 's unfortunate that we are unable to team up with brokers, regulatory bodies or RE consultancies to argue the consumer side of the price debate.
    8. Sharp increase in rentals.
    9. Irrational expectations, obsolescence reducing demand for resale apartments.
    10. Successful appeal to Indian snobbery and emotions. I.e. Builders discover a successful marketing strategy or mind control tricks which persuades consumers to buy at crazy prices.
    11. Increased in tax incentives for home owners.
    12. Reduction/removal of HRA benefits.
    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D

    At least of few of the above factors could conspire to keep the prices high for consumers. conspire to keep the prices high for consumers. conspire to keep the prices high for consumers. conspire to keep the prices high for consumers. conspire to keep the prices high for consumers.
    CommentQuote
  • The demand for affordable housing is huge and the supply is non-existent.

    I can think of any number of reasons why a crash could potentially bypass Pune, with various probabilities of likelihood:
    1. Huge drop in interest rates.
    >> What about salary cuts? Will you buy a 2BR for 1Cr at interest rate of 1%? Banks are not lending more than 50-60% of total amount. Forgot this factor?

    2. Borrowing from hawala system to stay solvent.
    >> Mafia in Mumbai is asking the builders, "Please give us money". Look at the word Please. D-company requires over 300Cr/month just to carry out regular functions including bribes to customs, police, judges, politicians etc. D company has lost over INR 2500 Cr is stocks & falling land prices. Where will new money come from? Had this been the case why the need for DLF to reduce prices by 50%?

    3. Governments continuing to offer lifeline by permitting debt restructuring
    >> Against shares as collateral. How many Pune builders are listed companies? 80% of Pune RE is from pockets of politicians especially from NCP. Why did Lallu Jain sell off Kumar Builders to RMD of Manikchand?

    4. Sharp recovery in stock markets.
    >> Yet the RE stocks are not even 1/3rd of their peak. Stocks are driven by FIIs due to p-notes.

    5. More outsourcing to India due to dwindling profit margins worldwide.
    >> Perhaps, you did not read about tax benefits by the Govt. of home states? Add to it competition from Vietnam & East Europe. We can't compete here as Indioans hardly know any European language & business is based solely on US which is giving tax breaks to companies here.

    6. Builders cartel financing vulnerable projects to maintain Pune prices at a premium level.
    >> :D

    7. Continuing one sided narrative from the builders. It 's unfortunate that we are unable to team up with brokers, regulatory bodies or RE consultancies to argue the consumer side of the price debate.
    >> Is anyone accepting this? Had this been the case why 54% of builders' properties are unsold?

    8. Sharp increase in rentals.
    >> They have dropped. Where do you stay? Many people from IT & auto have left or are asking for low rentals now. Brokers are charging just about 1month rent as against 2 months earlier.

    9. Irrational expectations, obsolescence reducing demand for resale apartments.
    >> Lets see how long they can survive.

    10. Successful appeal to Indian snobbery and emotions. I.e. Builders discover a successful marketing strategy or mind control tricks which persuades consumers to buy at crazy prices.
    >> Why isn't buying taking place then? More than emotions, you need money for RE. It is like filmi dialogue that house in built on only love. What would you do when baniya comes knocking you door?:D

    11. Increased in tax incentives for home owners.
    >> Can it compensate for the current RE rates & salary cuts & high interest rates?

    12. Reduction/removal of HRA benefits.
    >> Read this:-

    1. You can claim HRA if you fulfill these three conditions:

    ~ You have an HRA allowance as part of your salary package.
    ~ You are staying in a rented accommodation and paying rent for it.
    ~ The rent exceeds 10% of your salary.

    2. You can claim rent given to your parents. Let's say you live with parents and pay them rent. This makes your parents the landlords. One of them will have to declare it in his/ her personal income tax return to prevent litigation in the future.
    3. You cannot claim rent paid to spouse. The relationship between a husband and wife is not commercial in nature; a husband and wife are supposed to stay together. So payment of rent to a spouse will not be accepted by the income tax authorities.
    4. You will need to keep all your rent receipts since it is the only proof that you are paying rent. HRA exemptions are only available on submission of rent receipts or the rent agreement. However, if the HRA is upto Rs 3,000 per month, then receipts/ agreement is not mandatory. It is only when your HRA exceeds this amount that you will have to keep the receipts.
    But it is wise to still keep them because, at the time of assessment, the Income Tax Officer may demand the receipts/ agreement.
    5. The actual HRA you will be entitled to will be the least of the following.
    ~ Theactual amount of HRA received.
    ~ 40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata.
    ~ Rent paid minus 10% of salary (basic component + dearness allowance)

    6. The HRA that does not get exempted is taxed. Let's see how it works with an example.
    Assumptions

    HRA per month = Rs 15,000
    Basic monthly salary = Rs 30,000
    Dearness Allowance = Nil
    Monthly rent = Rs 12,000
    Rental accommodation is in Mumbai.

    Exemption
    Actual amount of HRA = Rs 15,000
    50% of salary = 50% x (30,000 + 0) = Rs 15,000
    Actual rent paid - 10% of salary = Rs 12,000 - = 12,000 - 3,000 = Rs 9,000
    Rs 9,000 being the least of the three amounts will be the exemption from HRA. The balance HRA of Rs 6,000 (15,000-Rs 9,000) is taxable.
    7. If you took a home loan for a home in one city but reside in another, you will be entitled to:
    ~ Tax benefit on principal repayment under Section 80C
    ~ Tax benefit on interest payment under Section 24
    ~ HRA benefit

    Or, even if the home is in the same city but is not ready forcing you to rent a place, you will still be entitled to all the above benefits.
    Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops.
    If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above.
    However, in this case, the rent you receive would be considered as your taxable income.

    8. Let's say you took a home loan and have bought a home but are not residing in it for genuine reasons.

    It could be that the home is at a considerable distance from your work place. Or, it could be that the home is rather small and your parents are living in it so you have to stay elsewhere.
    Though your rental accommodation and home are in the same city, you can still get all the benefits.
    ~ Tax benefit on principal repayment under Section 80C
    ~ Tax benefit on interest payment under Section 24
    ~ HRA benefit

    However, it is necessary you have some of your belongings at your home (the one you own) and you stay there on and off on during weekends and holidays.
    Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns.


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)


    13. Gold/Oil/Uranium ore discovery in land banks :D:D:D
    >> Hey, I want to become a builder!!:)
    CommentQuote
  • I can think of following reasons for Mumbai rates to fall 50% but pune around 25 to 30 %.
    1. Mumbai rates were 6000/- to 10000/- too high to buy for even IT person. Pune rates are 2500/- to 6000/- so still affordable.
    2. In Pune buyer is mostly from IT but in mumbai buyers are from business.
    3. In mumbai schemes like MHADA helped to fall of prices.
    4. In mumbai loading factor is 35% , in Pune it is 25%.
    5. In mumbai people are already buying 2 bhk of 700 to 800 sq ft. In Pune builders manage to reduce prices by reducing sq ft area. 2 BHK area reduced in Pune from 1200 to 1000 an dthen to 750. which help to create some demand.

    But still their will be more pain for IT in future and so downside in Pune market can happen.
    CommentQuote
  • Wish list

    The eco survey is out.

    The growth rate has decreased.

    Some economist say its impractical eco survey:

    Consider

    - It forcasts 25000 cr from disinvestment every year for next 5 yr.

    - It forcast downward unemployment rate of less than 5% after 5 yr

    - It wishes reduced subsidy on fertilizer,fuel, sugar etc.

    Wish list:

    Good monsoon
    Good US recovery to boost fallen export.


    Its a wish ful thinking.
    CommentQuote
  • Exports are down by 29.2% in last month, low monsoons, US lost over 425,000 jobs last month & US economy to shrink by 3% this year. No recovery in sight for Indian economy for next 1.5-2 years.
    No money, no RE. Hence, RE is falling.
    CommentQuote
  • Some specific data on US RE bubble ... to give you an idea

    Folks,

    I'm not trying to compare anything to anything. But this is very interesting information and might be used as a cautionary indication for those who believe the false thumbrule that prices cannot go below cost because people will not sell. Well, what if they do not have the financial endurance to hold. Or if the matter is taken out of the builders hands through foreclosure!

    Las Vegas is one of the foremost bubble areas. In Las Vegas, there is a huge condo complex called Meridian at Hughes Center located 2 blocks from the Strip. 2BR 2BA condos that sold for $540K in fall 2005 were going for about 120K at the beginning of 2009 (a 78% drop). The units have further droppd to $99K around March/April. Today those 2BR units 2 blocks from the Strip can be had for $75K, or about 15 cents on the peak bubble dollar (an 85% drop). People still think there is another 5% more to go for the absolute bottom to be reached, a 90% drop from 2005 to 2009 in just 4 years!!!!

    Of course much of this is to do with both overbuilding, over indebtedness and severe job losses. These may not happen out here in India to that level. But do not count your chickens too early. When we have a worse 2010 than 2009, and a prolonged depressed period completely saps the savings, hope and energy of the common man, there will be many more distressed assets in the market at prices you would think impossible now.

    Time will tell.

    cheers

    CommentQuote
  • wiseman the prophet

    wiseman predicts future vividly and correctly
    BEWARE
    CommentQuote
  • Eco survey

    Exports r down consecutively for 8 months in a row!

    Predicted by experts to continue same trend till next yr 2/4 qtr.

    Exports down to 10 billions, imports down to 15 billions.

    fuel imports r also down 60 % - 12 billions : eco activity is slowing down seriuosly.

    Bad monsoon will dash rural demand.

    Dont expect too much goodies except for BPL families.

    Consider : education bill to provide compulsory edu up till 14 yrs

    NREG programs further expanded.

    Food program to be announced. ( 30 kG Rice)

    The HUGE infra planned.

    WHERE IS THE MONEY???

    If Govt borrows it will increase fiscal deficit above 5.5% ( official estimate ), by the way it will be way above due to unbudgeted expenses + state deficits.

    Another factor it will push up interest rate of funds for growth in Pvt sector, as funds dry up.

    The bull story is some time away!

    Only positive aspect is NRI/ Funds inflows to provide the monies.
    CommentQuote
  • Video:-Builders facing liquidity problems, selling assets.

    Puravankara to sell 40% stake in Provident Housing:-

    ]http://economictimes.indiatimes.com/Puravankara-to-sell-40-stake-in-Provident-Housing/videoshow/4737430.cms

    DLF raises Rs 1000 cr through sale of plots:-

    ]http://economictimes.indiatimes.com/DLF-raises-Rs-1000-cr-through-sale-of-plots/videoshow/4729303.cms
    CommentQuote
  • one of my friends whom i visited today gave a great food for thought, and he was completely reverse engineering the equation of RE/rent/prices/salaries.

    he lives in a wonderul 3BHK apts paying a rent of 15K per month. He says he has always been paying around 12% of his gross-salary as rent for the last 10 years. And he believes with facts that this equation can never change unless he has a deep cut in his salary, and in that case it means the job market is terribly down -> and that would result in the rents coming down as well. Now this is true for folks paying a 20% as rent as well w.r.t what they earn gross. The % would remain same or come down, will never increase. If the rent increases (which sometimes has no dependancy on inflation), that means your gross earnings will have increased or going to increase soon. He gave me some investment tips and I was amazed to see how practical some folks think about things and hence is very happy in life - never will get affected by any downturn.

    And looking at the P/E - price/rent ratios that has been sky rocketing for RE, the bulls theory has to be wrong. Its time to sit back and keep your money in safer places.
    CommentQuote