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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  • Originally Posted by realacres
    Very good links. Add to this the following:-

    > The NPAs of SBI has gone up by whopping 20.5% YoY,

    > The auto sales have dipped by 25% this festive season, which is the biggest drop in past 10 years,

    > The IIP numbers have fallen to 2 year low,

    > The loan tenure for home loan, if to maintain the same EMI has increased by 14.2 yrs !! A chap who takes loan for 20 yrs 3 yrs back, now will have to increase the duration to 34.2 yrs !!

    And man, despite doing all this, do you get a good quality home on time ??
    I have myself seen cases where people who bought loans with 80-85% loan 2.5 yrs ago are now using bikes (parked their car in basement) to save fuel cost. Those who have kids will also know the hikes which have taken place in the fees of school, colleges in past 3 yrs.

    And now SBI wants INR 8,000 Cr from Govt. Now, from where the hell the Govt will give this money when it is itself under severe fiscal deficit ??

    Btw, this UB saga was already discussed before & now we see the consequences of over-leverage through Kingfisher. Hey, what happened to air-hostess ??? Kingfisher first was known for ..........:bab (59):

    in short builders have dragged the economy into mess. The themselves must have earn really FAT profits over last couple of years...
    now, common man have to work for it...
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  • Originally Posted by frugality
    'New law draft to benefit home buyers'



    New Delhi: Registration of builders, adherence to approved plans and refund of money in cases of default will become mandatory under a new law that the Government plans to bring in to usher in "accountability and transparency" in land selling and housing transactions. A Real Estate Regulatory Authority will also be established under the Real Estate (Regulation and Development) Bill, 2011, whose draft was made public today by Union Minister for Housing and Urban Poverty Alleviation Kumari Selja here.

    The long-pending legislation that seeks to protect home-buyers from fly-by-night developers is likely to be sent to the Union Cabinet for its approval during the Winter Session of Parliament.
    Once the law comes into force, no promoter or builder will be able to develop any immovable property without registering the real estate project and obtaining a registration certificate from the proposed authority.
    "The Government of India has been planning such a legislation for a very long time and real estate sector and others have approached me on a number of occasions on such kind of a law. The aim is to intervene and ensure transparency and accountability on part of the promoter to the consumer," Selja told a press conference here.
    The major aim of such a legislation, the Minister said, was to regulate the activities of the real estate sector and usher in an era of "accountability and transparency" in land selling and housing transactions.

    The Minister has also written a letter to Chief Ministers enclosing a copy of the draft bill seeking their views on the legislation.
    Asked about the possibility of criticism from the sector of the proposed Bill, Selja said: "I do not wish to convey that I have a rigid stand on the issue. We will talk to everyone whoever wishes to and strike a balance."
    The proposed law also has a provision asking the promoter to compulsorily deposit a portion of funds received from the allottees in a separate bank account, to be used for that project only.
    Once the promoter registers his project, the firm will be asked to open an online account through which all the necessary documents will have to be sent to the authority, which will further verify them.
    The authority will have a chairperson and not less than two members having adequate knowledge and experience of the sector.

    It will also have the powers to impose penalty on erring promoters and to direct them to refund the money that they have charged from the consumer.
    Selja said "much of the apprehensions" of the real estate and other sectors would be met in the legislation and expressed her desire to listen to suggestions.
    "We are open to suggestions. In fact, I will be holding a meeting with real estate sector, private sector and other stakeholders on this issue," the Minister said.
    The legislation also proposes establishment of a 'Real Estate Appellate Tribunal' to hear appeals from the Authority's orders and to adjudicate on disputes.
    "The tribunal will be headed by a sitting to retired judge of Supreme Court of Chief Justice of High Court with 4 judicial and at-least 4 administrative/technical members," she said.
    A Central Advisory Council will also be established to advise the Centre on matters concerning implementation of the Act.

    Selja also said both Centre and States will have powers to make rules over subjects specified in the Bill, and the Regulatory Authority to have powers to make regulations.
    Noting that poor have very little access to credit as financial institutions are "very reluctant" to encourage them, Selja said the Credit risk Guarantee Fund announced by Finance Minister Pranab Mukherjee during his budget speech this year would go a long way in addressing their concerns.
    Under the scheme, she said, the Government will provide credit guarantee support to collateral-free/third-party- guarantee-free housing loans up to Rs 5 lakh extended by lending institutions for low income housing.
    "The CGFS will cover the housing loans to EWS/LIG borrowers for the purposes of repairs, home improvement, construction, acquisition, and purchase of new or second-hand dwelling units, involving an amount not exceeding Rs 5 lakh per loan," she said.

    Selja said Rs 1000 crores has been earmarked as an initial corpus for CGFS.


    Like every one else on this forum I too would wish such a Regulatory body is set up bringing about some accountability to the builders it is long time due. Not to sound pessimistic but I always think the real part is the actual implementation of these rules.Forget the builder following any such rules, but how many of us will actually go to the consumer court, make use of these new rules & fight against the builder if he has not fulfilled some of his commitments .I see so many of us writing in this forum forming groups suggesting group buying , tomorrow if the project delayed or after completion something builder promised is not delivering half of us from that group will say' forget it why waste time with consumer court kuch nahin hoga' if it does not impact me why should I take the trouble of court and all....we have all become so used to adjusting to each and every thing that somewhere down the line majority of us have forgotten our right to demand what is ours for which we are paying.Also not to forget there will also be a section of people who may not even know of any such new rules. To ensure that the rules are successfully implemented and see it effects on the builder lobby it is we the consumers who should take responsibility to make use of these rules and make the builders accountable.Obviously there will always be some who will try to fight it , at least now we can say we have some governing body to which we can complain.
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  • Originally Posted by realacres
    Very good links. Add to this the following:-

    > The NPAs of SBI has gone up by whopping 20.5% YoY,

    > The auto sales have dipped by 25% this festive season, which is the biggest drop in past 10 years,

    > The IIP numbers have fallen to 2 year low,

    > The loan tenure for home loan, if to maintain the same EMI has increased by 14.2 yrs !! A chap who takes loan for 20 yrs 3 yrs back, now will have to increase the duration to 34.2 yrs !!

    And man, despite doing all this, do you get a good quality home on time ??
    I have myself seen cases where people who bought loans with 80-85% loan 2.5 yrs ago are now using bikes (parked their car in basement) to save fuel cost. Those who have kids will also know the hikes which have taken place in the fees of school, colleges in past 3 yrs.

    And now SBI wants INR 8,000 Cr from Govt. Now, from where the hell the Govt will give this money when it is itself under severe fiscal deficit ??

    Btw, this UB saga was already discussed before & now we see the consequences of over-leverage through Kingfisher. Hey, what happened to air-hostess ??? Kingfisher first was known for ..........:bab (59):


    How does it proves Builders & RE Bulls Theory Wrong? :bab (59): Please enlighten. They are still enjoying the riches and this Thread in its 3rd year.
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  • Originally Posted by realbee
    How does it proves Builders & RE Bulls Theory Wrong? :bab (59): Please enlighten. They are still enjoying the riches and this Thread in its 3rd year.


    then i guess you got everything wrong my friend...

    the builders and RE bulls are spreading a message that RE is a bull market and this thread is trying to prove them wrong... it is because people are buying in spite of obvious problems, the builders are getting richer and economy is going down the drain...

    so take the advice, dont trust the bullish theories of builders and then you can see the impact if more people think like you..

    of course, you can become a builder yourself (you probably need to join NCP first) and then SC$#W the mango man, spread lies about how everything is hunky dory and then you can also join the elites of Mittal's, Goyal's and Pawars etc... the list is endless...
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  • Originally Posted by wiseman
    This week, I really saw the effect of inflation. Usually buying vegetables on a daily basis, I went as usual and bought the daily quota that would come to, say, 50-60 bucks. The price yesterday was over 100 bucks. And this was not for fruits (which is at stratospheric levels) but vegetables.

    If a middle-class family spends well over 100 bucks for vegetables alone on a daily basis, our inflation rate is far, far above the 11% Govt is talking about.

    While most of the world is slumping down into what will turn out to be the worst depression we will see in out lifetime, inflation is completely killing the value of our money. Stagflation!

    Anecdotal evidence (Hong Kong, which had one of the very few growing RE market saw a 50% drop in sales last month and is slipping into recession. The Shipping Index is leading for a new low, lower than 2008 lows) is telling is that this time, not only will the slowdown be very steep, it will also last longer.

    Upto a point RE will go up as people get desperate and keep buying at ever higher rates thinking RE is the only hedge against inflation.

    But when job losses, salary cuts and interest rate hikes dramatically reduce the surplus in one's pocket, the EMIs become impossible to pay, especially when home prices start stagnating and sales decline sharply.

    This should happen sometime in the next 1-2 quarters. And when this happens the speculators who are churning homes will be finally stuck with all their "profits" locked into the last purchase heading into an illiquid market with no ability to pay up.

    This happened in 1995-98 and when the crash got going seriously, bubble areas saw declines of 50% to 80%. I was there and saw it happening.

    I expect similar trend this time too.

    Gold/Silver seems to have come back quickly to center stage (yesterday 28900) and seems poised to cross previous peak due to much worse global economic climate - one step away from economic collapse with no higher power to perform bailouts. This SIP averaging under all conditions is working very well indeed! :)

    cheers


    spot on my man. this time all major economies barring asia pacific are on an extended life support. now their worry is not a slowdown but going bankrupt. in 2008 they were trying to spend their way out of it. this time they do not have that luxury. so austerity measures are going to kill purchasing power of people in the west. and India this time itself is in a mess with fiscal deficit so India itself can't give the sops to stimulate demand. So all in all this time around i guess it would be a prolonged correction which if not interfered with might actually get the world back on track. but as in all cases. quite a few companies and people will go bankrupt
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  • Originally Posted by punerebuyer
    then i guess you got everything wrong my friend...

    the builders and RE bulls are spreading a message that RE is a bull market and this thread is trying to prove them wrong... it is because people are buying in spite of obvious problems, the builders are getting richer and economy is going down the drain...

    so take the advice, dont trust the bullish theories of builders and then you can see the impact if more people think like you..

    +1. Also, the rising NPAs indicate that defaults are rising. Realbee, hope you know what the situation persists when NPAs go up. When existing buyers who purchased below current rates are defaulting, imagine how careful the bank would be in disbursing new loans. Still, if you don't believe, ask any senior banker & he will inform how they are rejecting home loan applications now-a-days based on factors which banks didn't considered just over an year ago. The down-payment amount which the banks is now asking for the buyer to pay, too has gone up.

    Not to forget that rising NPAs are not only of home loan buyers but also those of builders. DLF is one of the latest eg. how things are working in RE. The small time Pune based builder story is even worse, but it remains secret till you don't get insider views & trust me, even insecure private loans are hard to get for the builders. Many builders are selling off land at below market rates to repay debt while rest are selling TDR, which they themselves could have utilized.

    * As said before, simply monitor the RE projects near your home, workplace. You will yourself notice drastic reduction in pace of constro. Some even look halted & there is hardly anyone except for the watchman.

    Btw, I am getting offers for projects in Mumbai, Bangalore & NCR :D.
    It seems builders are trying to make bakras outside the buyers' cities nowadays !!
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  • Originally Posted by pcpune
    Real, All,

    Been very busy lately, but just posting this on behalf of a friend. A friend gave a token amount of rs 51000 by cheque, for a resale flat. He has a original receipt and copy of the cheque and the seller has no copies or anything in writing.Now, he wants to cancel the deal for some personal reasons and wants the full booking amount in return. No Mou or agreement was made. He will shortly talk to the seller, but can the seller legally refuse to give back the token amount ?

    Token amount for resale flats is actually non-refundable, be it through cash or cheque. However, this can be solved amicably by the buyer & seller. I think proper nego will yield atleast 50% refund if not complete.
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  • Originally Posted by wiseman
    This week, I really saw the effect of inflation. ..........

    cheers

    Very good post wisey :).

    Originally Posted by medhapp
    Very well said..This is exactly how we should be thinking instead of just obsessing and going with the herd mentality of just owning a property at no matter what cost.The monthly cost associated with owning your own house should not be so high that you are always stressed out worrying about repaying installments and do away with your vacations for next 5 years.Add to that the increasing food inflation, every day cost of living and other sundry expenses.Also one should never assume your home of primary residence as investment coz no matter how much the value of the house increases you will never sell it but will definitely be paying very high installments for long years ahead.

    +1. Isn't there any life beyond RE ??
    There are so many beautiful things in this world to do in this lifetime. The RE buyers should first watch channels like TLC for atleast 6 months before buying RE. It will be only then they will understand what's there to do in life beyond buying pigeon holes with 100% terrace & 30% or more loading with delayed possession.
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  • Eurozone sinking into recession: Analysts

    BRUSSELS: The latest growth data indicated Tuesday that the eurozone is sinking into recession, thanks to a vicious circle of sharp cutbacks in government and household expenditure, and reduced bank lending.

    Eurozone sinking into recession: Analysts - The Economic Times

    China vulnerable to asset bubbles, warns IMF

    China vulnerable to asset bubbles, warns IMF - The Economic Times
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  • Only people who say there is no bubble are the builders..
    If at all the bubble bursts (price corrects) only people who had bought these houses for investment purpose will be the one to impacted.. correctly these people are also responsible for the bubble.


    Can u imagine if people bought flats at 40 lakhs and demanding 55 lakhs after 3 months. But If u ask those people they said that they have invested their money for such type of return. God Bless.
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  • Originally Posted by realacres
    BRUSSELS: The latest growth data indicated Tuesday that the eurozone is sinking into recession, thanks to a vicious circle of sharp cutbacks in government and household expenditure, and reduced bank lending.

    Eurozone sinking into recession: Analysts - The Economic Times

    China vulnerable to asset bubbles, warns IMF

    China vulnerable to asset bubbles, warns IMF - The Economic Times


    The Worst case possibility is all world Stock market falling 90% in matter of days/a Month
    and best case possibility is all world Stock market falling 90% in matter of 3 years-6 years. :) (with tons of money printing daily this could be achieved)

    Either of them will come true

    Rest all defaulting/war etc is at your imagination.

    at some point of time the Debt supercycle has to stop ... stop today and take 90% losses or stop it over a period of time.

    Indebtedness after the financial crisis: World debt | The Economist

    Repent at leisure | The Economist
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  • Originally Posted by Sharpj
    Normally depends on the seller.. The seller has a claim if he/she had turned down any offers on the flat post the buyers offer..

    But if you beg and plead.. sellers return the money once someone else buys the house.. Till then he has to wait..

    Or if someone else wants to buy and he can arrange for a replacement buyer.. he can get it back..

    It is better settled between two parties.. instead of involving lawyers

    Sorry, I forgot to mention, he has a small agreement on plain paper about the deal, and receipt also mentions sale of flat with no timeline. Moreover, he has informed me that he has now received 50% of the token back, and now he is thinking of the next steps. Any ideas?
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  • Hi Pcpune,

    See technically the seller has agreed to sell to your friend.. Your friend has to wait till the flat gets sold or a agreement to sell has been made and then he can claim the money back the balance money as the seller cannot sell again as he has an intention to sell to your friend and there is a document.

    At that moment get the money back and hand back the receipt..

    Originally Posted by pcpune
    Sorry, I forgot to mention, he has a small agreement on plain paper about the deal, and receipt also mentions sale of flat with no timeline. Moreover, he has informed me that he has now received 50% of the token back, and now he is thinking of the next steps. Any ideas?
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  • Hello all,

    I have come across a builder who has finished the project after 9 months than originally planned and now have asked for an escalation charge of about 10% of the project cost! Is this a practice in India? I can see in his terms that if the cost of construction material rise during construction period, he is entitled to increase the price but the hike upto this extent is justified with the material cost increase in last 1 year and the fact that delay is from his side due to what ever reasoning he has?
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  • Originally Posted by dnkumar
    Hello all,

    I have come across a builder who has finished the project after 9 months than originally planned and now have asked for an escalation charge of about 10% of the project cost! Is this a practice in India? I can see in his terms that if the cost of construction material rise during construction period, he is entitled to increase the price but the hike upto this extent is justified with the material cost increase in last 1 year and the fact that delay is from his side due to what ever reasoning he has?


    which builder is this? and this is not a practice in india unless builder is crook. does it mean builder will refund or reduce rate if cost of material comes down?
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