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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  • FIIs have started reducing the stake in real estate companies

    But limit realty exposure

    Guys, FIIs are rushing in to reduce their stake in real estate companies! Things are turning out to be exactly similar to last recession. Builders are trying to hold up prices artificially just like at the start of last recession.

    Last time it did not crash completely, because govt bailed out RE business by infusing stimulus. But this time, govt itself doesn't have enough corpus due to rising fiscal deficit.
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  • Originally Posted by realacres
    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


    Bill if passed as it is will be a boon for customers . It will give credibility to RE as an industry and confidence to all stakeholders .
    However , this should also happen : Transparency is needed, but it should also apply to the government and civic bodies - Why should government and civic bodies be not accountable ?
    CommentQuote
  • Excellent post

    Excellent Post on Ravi's blog.

    Why investors should quit at this point
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  • Philippines overtakes India as hub of call centers

    MANILA — Americans calling the customer service lines of their airlines, companies and banks are now more likely to speak to Mark in Manila than Bharat in Bangalore.

    More Filipinos — about 400,000 — than Indians now spend their nights talking to mostly American consumers, industry officials said, as companies like AT&T, JPMorgan Chase and Expedia have hired call centers here, or built their own. The jobs have come from the United States, Europe and, to some extent, India as outsourcers followed their clients to the Philippines.

    Read complete story here:-

    http://www.nytimes.com/2011/11/26/business/philippines-overtakes-india-as-hub-of-call-centers.html?pagewanted=all
    CommentQuote
  • Originally Posted by realacres
    MANILA — Americans calling the customer service lines of their airlines, companies and banks are now more likely to speak to Mark in Manila than Bharat in Bangalore.

    More Filipinos — about 400,000 — than Indians now spend their nights talking to mostly American consumers, industry officials said, as companies like AT&T, JPMorgan Chase and Expedia have hired call centers here, or built their own. The jobs have come from the United States, Europe and, to some extent, India as outsourcers followed their clients to the Philippines.

    Read complete story here:-

    http://www.nytimes.com/2011/11/26/business/philippines-overtakes-india-as-hub-of-call-centers.html?pagewanted=all


    Its bound to happen since there is a paradox in call center business in current situation.
    (1) The only skill required is basic English speaking. In India there are lot of college school guys who find the job lucrative enough in beginning. But once into job they know the job is not great and it doesn't pay well. The way inflation is catching up in India even the skilled job fall short of proving you with comfortable life.
    (2) The salaries cant rise beyond a certain limit. Since other cheap locations are available the job shift to another country. The shift is smooth as the skills required are minimal.

    The same can be true for Soft-ware jobs, but may take a little more time as level of skill required is bit higher but certainly not critical. I think Chinese university produces better engineers at lesser price than India the only handicap is English Language. But slowly this Language gap would also diminish and then we can see real impact of JOBS in Indian soft-ware Industry.
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  • Some Offers

    Lorelle, Wakad is selling through agents by back-door channels. These agents have 15+ flats alloted to them. The builder will say SOLD OUT, while agents will sell at less than market rates;

    Solitaire, PS offering free SD, reg, VAT,

    Mittal Bros Crosswinds, Balewadi. Direct cash benefits or cash savings.

    Pudumjee Greens, Wakad-Thergaon are negotiating on total package,

    Also check out woodsville by Pharande. Good deals are offered for phase2,

    Resales/agents flat at Kohinoor Towers & Vayona, near Pimpri market, behind Croma Showroom.

    Btw, there is absolutely no moment being seen in projects like Kasturi Voyage, forgot the name but builder is Nimhan at Baner-Pashan link road, Sky Vie, Vimannagar. Also, my friend had been at Aloma County, Aundh & informed that seeing the current status, & pace of the project; there will be big delay in terms of possession for this project. Nandan's Festiva, Aundh also didn't get good response after launch. Ample of availability is there in Vascon Willows too at Balewadi.
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  • Pledged shares: Promoters staring down the barrel of a gun

    If the downturn in the stock market continues for some more time, promoters of quite a few mid-cap companies risk losing control of their empires. According to a report by rating agency CRISIL , promoters of nearly a third of the 1200-plus listed companies have pledged their shares with finance companies to raise money. Of these, promoters of around 45 companies have pledged between 80-100% of their holdings.

    Pledged shares: Promoters staring down the barrel of a gun - Moneycontrol.com -


    Pledged shares haunt promoters

    Pradeep Jain, chairman of Delhi-based Parsvnath Developers, must be a worried man. Share prices of his firm have halved in the past five sessions, wiping off Rs 750 crore of its market capitalisation.

    The market was abuzz since last Friday that there had been margin calls from lenders with whom Parsvnath promoters had pledged their shares. As of September 30, Jain and his family, who own 70.16 per cent stake in Parsvnath Developers, had pledged 71.24 per cent of their stake in the real estate developer.

    Pledged shares haunt promoters

    ‘Promoters pledge shares, investors mostly unaware’

    Hypothecation of shares by promoters have reached all-time highs. According to a Crisil report close to one-third of 1,214 listed companies having market capitalisation in excess of Rs 100 crore, have some portion of their promoters’ shares pledged.

    The report cautions that retail investors are unaware of finer details of pledging such as purpose of funds raised through pledging, price at which initial pledging is made and price and conditions that will trigger the margin call and that can go against them.

    ‘Promoters pledge shares, investors mostly unaware’ - Indian Express
    CommentQuote
  • Well Said, Real.

    The following article also emphasizes the similar facts. Builders in Mumbai are under severe credit crunch and are in hurry to sell off to cover their short term debts.

    Can sales drop 70% and prices rise 20%? Yes, in Mumbai realty it can | Firstpost

    Over the last two years, developers have raised a lot of debt through the private equity channel and have now almost exhausted this option, Pankaj Kapoor, MD at real estate firm Liases Foras told Firstpost. And dwindling sales have put further pressure on their capability to raise funds. Another report by Knight Frank points out that developers have resorted to selling-off assets in terms of land, leased property and transferred development rights to raise more funds.

    The highest impact of the drop in sales has been on Central Mumbai, where the quantum of unsold inventory has gone up to more than 45 percent of the launched units, says the report.

    It would be interesting to watch how long can the worst of the lot (i.e. Pune builders) can hold on against the sensibility. The India growth story is all but a dream now and there doesn't seem to be any silver lining to the bad news of slow growth for the next 2 years.
    CommentQuote
  • The bursting of the global housing bubble is only halfway through

    Nice article,

    The bursting of the global housing bubble is only halfway through
    CommentQuote
  • Corruption Perception Index 2011- India ranking

    Originally Posted by suryawork
    Bill if passed as it is will be a boon for customers . It will give credibility to RE as an industry and confidence to all stakeholders .
    However , this should also happen : Transparency is needed, but it should also apply to the government and civic bodies - Why should government and civic bodies be not accountable ?


    Continuing on the topic of corruption just sharing a link for the latest ranking of Corruption Perception Index India is ranked 95th out of 182.

    Corruption Perceptions Index: Transparency International
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  • Knight Frank research report Nov 2011 -

    All you need to know about Mumbai's residential market
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  • Will property prices come down now?

    The residential real estate sector is set to decelerate, according to a report by Nirmal Bang Institutional Equities.

    One of the main reasons is that the inventory level is expected to go up over the next one year because of declining sales amid increased launches of new projects.

    The consequent weakness in transaction volumes will exert pressure on developers in servicing their debt.

    This could lead to a softening of prices as banks could force realtors to cut their inventory levels to repay the debt. Here are some excerpts from the report:

    Will property prices come down now? - The Economic Times
    CommentQuote
  • news or no news ...

    Originally Posted by realacres
    The residential real estate sector is set to decelerate, according to a report by Nirmal Bang Institutional Equities.

    One of the main reasons is that the inventory level is expected to go up over the next one year because of declining sales amid increased launches of new projects.

    The consequent weakness in transaction volumes will exert pressure on developers in servicing their debt.

    This could lead to a softening of prices as banks could force realtors to cut their inventory levels to repay the debt. Here are some excerpts from the report:

    Will property prices come down now? - The Economic Times



    Real ...

    Prices have to come down and for the sales to happen ....
    Consider for example a fruit restricted due to XYZ reason and price goes from 130 to 5000/- in span of a year - A.pple
    Today if A.PPLES start selling at 5000/- Rs Kg of course there will be many investors who have bought from 120/- level to 5000/- ... even at this level many people and a few investors will buy thinking it will go to 6000/-
    So now all the investors who bought at lower level will have to sell ... and they know very well that now it cannot go above 5000/- in near future...

    To sell they will use the same MEDIA (TOI / ET ) thru which they jacked the price initially.

    So be ready to see more such news .....

    And if you don't find any ... don't be worried ... that journey will be straight from 5000/- to 130/- .....

    With news .. losses might have been distributed to some buyers too.. .... without news buyers are safe ... the pain will be beared only by the investors....
    CommentQuote
  • Originally Posted by frugality
    Real ...

    Prices have to come down and for the sales to happen ....
    Consider for example a fruit restricted due to XYZ reason and price goes from 130 to 5000/- in span of a year - A.pple
    Today if A.PPLES start selling at 5000/- Rs Kg of course there will be many investors who have bought from 120/- level to 5000/- ... even at this level many people and a few investors will buy thinking it will go to 6000/-
    So now all the investors who bought at lower level will have to sell ... and they know very well that now it cannot go above 5000/- in near future...

    To sell they will use the same MEDIA (TOI / ET ) thru which they jacked the price initially.

    So be ready to see more such news .....

    And if you don't find any ... don't be worried ... that journey will be straight from 5000/- to 130/- .....

    With news .. losses might have been distributed to some buyers too.. .... without news buyers are safe ... the pain will be beared only by the investors....


    I could not understand the lines "
    With news .. losses might have been distributed to some buyers too.. .... without news buyers are safe ... the pain will be beared only by the investors..."

    Can you elaborate more ? If prices fall, everyone will loose, right ?
    CommentQuote