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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  • Exactly - my other questions was - if I am staying on rent now, the delay in constructing would cause me additional cost which the builder should be penalised for.
    This is not in Pune but in Ahmedabad- so apologise if I have put it in wrong thread.IT seems this is common practice in Ahmedabad - builder straiht away says that as he has managed to increase the price of your property after you bought,he deserve that amount!!!

    As I mentioned, these is a clause in the construction agreement of the bunglow about increase in material cost with the cost of all material at the time of the agreement!
    Apparently most of the people in this scheme have paid this so called escalation charge and typical issue I see in India is - they do not get togather or check with any other member before paying such charges.That works good for builder who would quoet 1000rs escalation charges, give him a discount in that and not to tell any other member about that
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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?


    People are so naive . Did you read the terms now when he has started demanding more or you signed even after knowing those terms ? Why not sign that you'll finance the builder if he runs out of money later just because its in his terms and he can't get funds from the market cheaply ?
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  • Good question!!
    Of course people are naive when it comes to real estate in india and that's why they need some sort of awareness.
    This is something which is in his brochure and seems you are agreeing to all those terms in the brochure.

    Again, the main issue here is - we take it for granted that the market works like this - every one is paying this amount so there is no use of argueing.

    What i wanted to know if - whether this is faced by anyone in the forum and what can be the course of action in such case.
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  • EMI increase

    Home loan EMIs to rise by 6k cr - The Times of India

    Another blow to the over leveraged right when everything else is getting ever more expensive.

    "The impact of rising interest rates is best reflected on the EMI of a borrower with a 15-year home loan for Rs 15 lakh. With the current mortgage rates hovering around the 11%, the borrower's EMI would have risen by by 15% from Rs 14,771 to Rs 17,049. If rates were to go up to 13%, his EMI will rise to Rs 18,979. "
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  • RBI has cautioned banks from taking higher exposure to real estate

    Getting home loan will get more difficult.

    SBI sees sharpest rise in realty loans

    Builders said prospective home buyers have postponed planned purchases. Poor demand and delays in securing approvals have resulted in a drastic drop in the number of new projects in recent months, they said.
    ...
    Traditionally, RBI has cautioned banks from taking higher exposure to real estate, citing the probability of defaults on account of volatility in prices.
    ...
    “You are very likely to see more defaults from home loan borrowers in such a market. Already, many of the borrowers have sought restructuring of their loans,” said Anand Gupta, honorary treasurer at Builders’ Association of India lobby group. “Many borrowers, who had drawn home loans at a rate of 8-8.5% a year back, have now seen their repayment rates going up to 12-14% on account of successive rate hikes by banks.”
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  • Property prices expected to fall by 25 per cent in next quarter

    "The realty market is over-heated at present. We expect prices to come down by at least 25 per cent by the next quarter," Sachin Sandhir, managing director of Royal Institution of Chartered Surveyors (RICS), South East Asia, said. "Home buyers are holding back their decision to buy property. The sales in Delhi and Mumbai have gone down drastically," he added.

    The report, which studies the debt burden of leading companies, including DLF, Unitech, HDIL, Oberoi Realty and Sobha Developers shows that these companies together piled up nearly Rs.14 crore of debt every day. If large unlisted real estate companies are also taken into account, the daily debt burden will shoot up further.

    I friend of mine is a small builder in Pune, he is few steps away from his bankruptcy, he had to sell his car and office to pay the debt :(
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  • Realtors squeeze as funds turn scarce

    Originally Posted by vivek.cap
    Property prices expected to fall by 25 per cent in next quarter

    "The realty market is over-heated at present. We expect prices to come down by at least 25 per cent by the next quarter," Sachin Sandhir, managing director of Royal Institution of Chartered Surveyors (RICS), South East Asia, said. "Home buyers are holding back their decision to buy property. The sales in Delhi and Mumbai have gone down drastically," he added.

    The report, which studies the debt burden of leading companies, including DLF, Unitech, HDIL, Oberoi Realty and Sobha Developers shows that these companies together piled up nearly Rs.14 crore of debt every day. If large unlisted real estate companies are also taken into account, the daily debt burden will shoot up further.

    I friend of mine is a small builder in Pune, he is few steps away from his bankruptcy, he had to sell his car and office to pay the debt :(

    Over-leverage & greed is what has harmed RE sector. Frankly, there is a huge demand for housing, if priced correctly. Unfortunately, most of the builders' vision is myopic. Good price, high volumes is the way to go forward, if not, one will find today's builders being wiped out from RE scene just as it did in 1990s.

    Here is similar story:-

    Rising cost of construction, depleting sales volumes and increasing interest burden on debt are hitting the margins of developers as they struggle with a fund crisis.

    According to the Reserve Bank of India (RBI), Indian developers held a total of $ 24.4 billion (about Rs.1.22 lakh crore) of outstanding credit at the end of June, up 23 per cent from last year. With the continuous rise in interest rates, developers are struggling with repayment burden month after month.

    Realtors squeeze as funds turn scarce : India News - India Today
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  • Delhi: Man slaps Sharad Pawar at NDMC centre

    Man, this bastard bobada Pawar has been slapped in full public view :).
    Hats off to this Sardar :).

    Read more & see video here:-

    Delhi: Man slaps Sharad Pawar at NDMC centre - Politics - Politics News - ibnlive
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  • Proposed real estate bill brings confidence to consumers

    PUNE: The central government's draft real estate (regulation & development) bill, 2011 has special significance for Pune as the city has added 63,49,667 sq m in floor area of construction in 2010 and continues to grow rapidly. However, it is fraught with complaints and disputes between property developers and buyers.

    The bill hopes to establish a regulatory oversight mechanism to enforce disclosure, fair practice and accountability norms in the real estate sector and to provide adjudication machinery for speedy dispute redressal.

    However, the new regulatory mechanism has caused an uproar in CREDAI, a group of leading promoters and builders in Pune. The association feels that more regulations will have an impact on the realty sector and the government should bring transparency in its own functioning along with the civic bodies while dealing with it. However, consumer forum Akhil Bharatiya Grahak Panchayat has said such a mechanism is necessary.

    "Another regulation will not achieve much. In a free market economy such once-sided acts will have a negative impact. It will also have serious consequences on the growing realty sector. Transparency is needed, but it should also apply to the government and civic bodies," CREDAI (Pune) president Satish Magar said. :D:D:D:D

    The bill primarily aims at restoring confidence of the general public in the real estate sector, by instituting transparency and accountability in real estate and housing transactions. Currently, the sector is largely unregulated with consumers often unable to procure complete information, or enforce accountability in builders and developers in the absence of effective regulation, the union housing and urban poverty alleviation in a press statement said.

    "The proposed bill is the result of haphazard construction elsewhere which has no proper regulation act. In Maharashtra, regulations including the Maharashtra Apartments Ownership Act, exist. If the government wants more regulations, it should strengthen existing acts instead of enacting a new one," Magar said.

    CREDAI, with 296 members who account for about 70 % of the construction activities in Pune, has its own mechanism to address consumers' grievances.

    Rohini Hasabnis, organizer of Akhil Bharatiya Grahak Panchayat, highlighted the other side.

    "More than 70 % of complaints are against builders and developers. These include not giving possession in time, refusing conveyance deal and failure to keep commitments. transparency in real estate sector" she said.

    Hasabnis added that the central government steps to bring in regulation for real estate will help consumers to raise their voice and get justice in stipulated time period. "However there is other side as well. We also receive complains that consumers not paying builders. But these complains are not in big number. Grahak Panchayat is pursuing with builders association that agreements signed during property deal should be easy to understand and precise. There should not be any room for interpretation. Even consumers should go through the details of agreement and then sign a deal" said Hasabnis.

    "Our builder had promised us many things when we struck deal with him, but later he just feigned ignorance. Even the basic amenities like lift and garden were left incomplete and we had to contribute to complete the same," says Sunanda Rendale from Hadapsar.

    Power of the Bill

    The bill is expected to promote regulated and orderly growth through efficiency, professionalism and standardization. It seeks to ensure consumer protection, without adding another stage in the procedure for sanctions.

    The bill will help to establish a 'Real Estate Regulatory Authority' in each state by the appropriate government with specified functions, powers, and responsibilities to facilitate the orderly and planned growth of the sector. It will be mandatory registration of developers / builders, who intend to sell any immovable property, with the Real Estate Regulatory Authority as a system of accreditation. Also the mandatory public disclosure norms for all registered developers, including details of developer, project, land status, statutory approvals and contractual obligations are included in the bill.

    The authority will act as the nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector; as also establish dispute resolution mechanisms for settling disputes between promoters and allottees/ buyers. Authorities will comprise of one chairperson and not less than two members having adequate knowledge and experience of the sector.

    The bill will ensure obligations of promoters to adhere to approved plans and project specifications, and to refund moneys in cases of default and obligation of allottee to make necessary payments and other charges agreed to under the agreement and payment of interest in case of any delay.

    How will Pune benefit

    The Pune Municipal Corporation can fall back on the law to take action against developers and builders for incomplete works, not seeking no-objection certificates and failing to provide basic amenities and occupancy certificates to property holders

    "Pune's construction spree needs strong regulation. The civic body which issues building permissions is toothless to deal with rising complaints against builders. It cannot even resolve the issues of completion certificate and take action against builders," said a PMC official. A majority of the 6,60,000 identified/assessed properties in the city have not obtained occupancy (completion) certificates.

    The Environment Status Report for 2010-11 states that construction in all parts of the city is rising. Last year, the city added 63,49,667 sq m (floor area) construction of which 53,51,845 sq m was residential construction, while 9,97,822 sq m was for commercial purpose.

    The contents

    * A Real Estate Regulatory Authority in each state by the appropriate government (Centre for the UTs and state governments for states), with specified functions, powers, and responsibilities to facilitate the orderly and planned growth of the sector

    * Mandatory registration of developers / builders, who intend to sell any immovable property, with the Real Estate Regulatory Authority as a system of accreditation

    * Mandatory public disclosure norms for all registered developers, including details of developer, project, land status, statutory approvals and contractual obligations

    * Obligations of promoters to adhere to approved plans and project specifications, and to refund moneys in cases of default

    * Obligation of allottee to make necessary payments and other charges agreed to under the agreement and payment of interest in case of any delay

    * Provision to compulsorily deposit a portion of funds received from the allottees in a separate bank account, to be used for that real estate project only

    * The authority to act as the nodal agency to coordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector; as also establish dispute resolution mechanisms for settling disputes between promoters and allottees/ buyers

    * Authorities to comprise one chairperson and not less than two members having adequate knowledge and experience of the sector

    * Establishment of a 'Real Estate Appellate Tribunal' by the Central Government to hear appeals from the orders of the authority and to adjudicate disputes. Tribunal to be headed by a sitting or retired judge of the Supreme Court or Chief Justice of a high court with four judicial and at least four administrative/technical members

    * Chairperson of the tribunal to have powers to constitute benches, for exercising powers of the tribunal

    * Establishment of a central advisory council to advise the central government on matters concerning implementation of the Act.

    * Council to make recommendations on major questions of policy, protection of consumer interest and to foster growth and development of the real estate sector

    * Penal provisions to ensure compliance with orders of the authority and tribunal

    * Jurisdiction of civil courts barred on matters which the authority or the tribunal is empowered to determine;

    * Both Centre and states to have powers to make rules over subjects specified in the Bill, and the regulatory authority to have powers to make regulations;

    * Powers to central government to issue directions to states on matters specified in the Act
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  • unfortunately high debt is resulting in higher interst cost and builders are still sticking to there profit margin.

    end result end user rates are still quite high. buyers are paying for the builders greed. and banks are making money , from buyers aspiration and builders greed.

    just recalled the monkey and cat story heard in the childhood
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  • Originally Posted by hporwal


    just recalled the monkey and cat story heard in the childhood



    Second that, one hundred percent. One of the "call-backer" salesperson recently asked me - "which company do you work in, sir?"
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  • Pappaji tussi great ho..
    Though I don't think I approve as it generates some sympathy.. but whoever I spoke to felt good.. and said Pawar deserved it..
    It was funny..

    Happy Thanksgiving

    Originally Posted by realacres
    Man, this bastard bobada Pawar has been slapped in full public view :).
    Hats off to this Sardar :).

    Read more & see video here:-

    Delhi: Man slaps Sharad Pawar at NDMC centre - Politics - Politics News - ibnlive
    CommentQuote
  • Originally Posted by Sharpj
    Pappaji tussi great ho..
    Though I don't think I approve as it generates some sympathy.. but whoever I spoke to felt good.. and said Pawar deserved it..
    It was funny..

    Happy Thanksgiving


    True! We saw this on TV during lunch in office and everyone was feeling as if they have won!
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  • Sharad Pawar Slap Song - Why this Kolaveri Di ft. Harvinder Singh - YouTube

    Loved this video of Pawar getting slapped.. Laughed out loud
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