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
    +100000000000000000000000000000000000000000
    And not to forget that taking loan also means RENTING MONEY.
    So, either you rent a house or rent money, at the end of the day, one remains a tenant, maybe of bank in case of purchase, that's all.

    Btw, hope you all must have seen ad of Ultra tech cement of EMI proof houses. If not, link is here:-

    afaqs!> Advertising> Creative Showcase


    Agree completely & this should form the crux of calculation while making such major decisions.

    Also one needs to add the duration for which s/he is going to use the property.

    Eg. A friend of mine in gym, much elder than me & married with 1 kid informed me last week that he is leaving the gym. Asked why, he informed that he has been transfered to Hyderabad & will be there for atleast 5 years. Said he will be going by Jan end, while his wife & kid will come in April after the school exams get over so that admission can be done in school from mid 2012 onwards in new academic year.

    Now, this is a chap who purchased a flat in early 2010, to be precise in Feb 2010 & now is in fix whether to sell it or rent it. Don't want to rent as he has done good furniture & doesn't know how tenant will use it; nor does he want to sell as his wife is opposing it (why are all wife same ?:D) but he on other hand says that in such case, he will be paying EMI of this flat + rent in Hyderabad, which will be too heavy on his pocket.

    And this is not a stand-alone case, I have already mentioned cases about my neighbors where they left for abroad for stay of over 5-7 yrs within 1-2 years of flat purchase.

    I find it really stupid & equally funny when people buy houses when they are not even sure of their stay in the city & 90%+ of such buyers belong to IT/allied services, don't know why.


    You are correct!!!! This is typical scenario for people in IT. Its something which happens almost to 70% people in IT. It is just societal pressure under which IT guys buy houses and then go through this dilema and end up paying twice. not sure what the solution is!!!! its difficult choice to just ignore societal presure and dont buy!!!!
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  • Originally Posted by realacres
    Some Pune RE updates:-

    > Rahul Park, Warje is offering cash discounts on all the unsold flats,

    > Some builders have started referral scheme where if the existing buyer brings in another buyer, the new buyer won't have to pay stamp duty, reg, VAT, ST etc. while existing buyer gets gift voucher. Classic case of making buyers as agents :D.

    > Builders like Mittal, Goel Ganga, Pride-Purple etc. have hired agents who posts ads mentioning 'INVESTOR FLATS' whose agreement have not been done; while in reality they are unsold flats of the builder himself. These flats are sold at rates lower than the quote given by builder in his sales/site office.

    > In case of under-constro scheme, who possession is in 2013 or more, builders are giving good discounts if buyers are ready to make 80% or more as downpayment.

    If one reads between the lines above, one can easily know where the RE market is heading.



    Cool... Nice to know this... It has already started!!!! they were giving discount of about 5% already and i am sure with these "Pl cover my face" strategy they would go down substaintially!!!
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  • Hey Realacres,
    I am not too sure about the discount offered by Rahul park. I visited their site office last weekend and the fellow sitting in their office informed me that only 3 BHKs are available and no cash discounts as such. The total package was coming around 81 Lakhs for a 1350 Sq Ft area with 100% on terraces etc plus the regulars like Club House & 1 Yr Maintenance. One more thing Parking cost is no longer a part of many of the Projects and you have to pay for it separately under some miscellaneous header(obviously this is due to the SC ruling and more people becoming aware of it)

    Anyway, on a different note, the resellers market has become totally stagnant in the past quarter. Check for resale flats on portals like mgcbrks/99acs etc and the same ads are seen since the last 2 - 3 months indicating they are yet to find buyers.

    Thanks
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  • Originally Posted by ajaya21
    You are correct!!!! This is typical scenario for people in IT. Its something which happens almost to 70% people in IT. It is just societal pressure under which IT guys buy houses and then go through this dilema and end up paying twice. not sure what the solution is!!!! its difficult choice to just ignore societal presure and dont buy!!!!



    This situation is not specific to IT as such. All private sector employees go through this !! Societal pressure is also nothing specific to IT..Every person want a home to call their own..

    When I bought my flat , I was overseas and did not know when and where I shall end up..But the desire to own was always there. Today I am lving in the flat and I am OK with it..
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  • Investor flats make an "ullu" out of thieves at Rose County - Pimple Saudagar

    I couldn't help but laugh at this. Thieves broke into 7 flats at Rose Country to find 6 out of them completely empty (i.e. investor blocked/booked), they only managed to get hold of one unfortunate family who happened to live there.

    Seven proves unlucky for Pimple thieves, News - City - Pune Mirror,Pune Mirror

    Things took a slightly disappointing turn for four robbers on Thursday morning after they broke into seven flats in a posh society in Pimple Saudagar — they could rob only one of them as all the rest were vacant because their owners live elsewhere.


    Time and again, cases like these suggest that most of these "sold out" flats belong to investors and the "real" demand from genuine buyers is relatively lower than builders would like to project. :)
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  • Originally Posted by ronnybonny
    Hey Realacres,
    I am not too sure about the discount offered by Rahul park. I visited their site office last weekend and the fellow sitting in their office informed me that only 3 BHKs are available and no cash discounts as such. The total package was coming around 81 Lakhs for a 1350 Sq Ft area with 100% on terraces etc plus the regulars like Club House & 1 Yr Maintenance. One more thing Parking cost is no longer a part of many of the Projects and you have to pay for it separately under some miscellaneous header(obviously this is due to the SC ruling and more people becoming aware of it)

    On nego, this builder is reducing manmaani charges & cash discounts are also being offered. Infact, on last Sat 14th Jan 12, he had even given ad in Sakal newspaper about cash discount. Get a copy of the same.
    My friend who enquired with them in first week on Jan is getting follow ups from the builder.

    Anyway, on a different note, the resellers market has become totally stagnant in the past quarter. Check for resale flats on portals like mgcbrks/99acs etc and the same ads are seen since the last 2 - 3 months indicating they are yet to find buyers.

    That's true & nowadays I am getting emails from builders located in Mumbai, Delhi-NCR, Bangalore & Hyderabad :D. Wondering from where these guys are getting my email . Maybe builders are sharing data amongst themselves now.

    Btw, came to know that there are serious quality issues in Diamond Park, which is actually the signature project in Park Street, Wakad. Now even if one pays high cost, there is no guarantee that one will get assured quality, hence better to buy ready poss or from good builders, which unfortunately are very few in Pune.
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  • Fitch: Negative Outlook for Indian Real Estate Sector in 2012

    CHENNAI/SINGAPORE, January 16 (Fitch) Fitch Ratings says it has a Negative Outlook for the Indian real estate sector in 2012 due to weak overall demand and higher construction costs, which are likely to continue to squeeze margins.

    High equated monthly instalments, resulting from significantly higher interest rates, lower household surplus due to high inflation and high residential unit prices, have reduced the affordability of homes. Both material and labour costs increased during 2011.

    TEXT: Fitch: Negative Outlook for Indian Real Estate Sector in 2012 | Reuters
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  • Originally Posted by amoldeshmukh
    I am fine with areas between narhe to baner/bavdhan. price expectation is around 4k p.sq.ft

    How is Nandan Astra by nandan buildcon and g-orbit. They are offering 4k p.sq.ft for 1400 sq.ft 3 bhk in wakad.
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  • 44% of housing units under Rs 35 lakh unsold in major Indian cities

    Around 44% of apartments under Rs 35 lakh are lying unsold across the top seven cities in India. According to the research conducted by Knight Frank Research and Indicus Analytics under the product name eyestate, 28% of the total residential properties under construction in the seven urban centres- Mumbai, the national capital region, Kolkata, Bengaluru, Hyderabad, Pune and Chennai-are under the Rs 35 lakh price bracket, catering to almost 80% of urban households.

    " Contemporary market belief would lead us to assume that all or most of this product would be absorbed as it is within the affordability criteria, but this is not the case," says the report.

    44% of housing units under Rs 35 lakh unsold in major Indian cities - The Economic Times
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  • Realtors seek RBI nod for loan rollover

    What we expected has come true. Builders are bankrupt & now want RBI to rollover the loans.
    I hope bubble bursts this time as RBI will be in no mood to do this especially after seeing what happened to Aviation sector.

    KOLKATA/BANGALORE: Developers across the country have sought Reserve Bank of India's permission for a rollover of real estate loans due for repayment by March 31, 2012. They have also appealed for a reduction in risk weightage for real estate loans to help reduce the cost of loans.

    The move does not come as a surprise as talks of rollover has been doing the rounds for sometime now. Since the industry has not witnessed much growth for sometime now due to overall weak demand, higher construction costs and inventory, margins of real estate firms have come under pressure. Fitch Ratings' outlook for 2012 for the Indian real estate sector, published recently, is negative and endorses the industry

    Realtors seek RBI nod for loan rollover - The Economic Times
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  • This is the time to go in for the kill!

    Originally Posted by realacres
    What we expected has come true. Builders are bankrupt & now want RBI to rollover the loans.
    I hope bubble bursts this time as RBI will be in no mood to do this especially after seeing what happened to Aviation sector.

    KOLKATA/BANGALORE: Developers across the country have sought Reserve Bank of India's permission for a rollover of real estate loans due for repayment by March 31, 2012. They have also appealed for a reduction in risk weightage for real estate loans to help reduce the cost of loans.

    The move does not come as a surprise as talks of rollover has been doing the rounds for sometime now. Since the industry has not witnessed much growth for sometime now due to overall weak demand, higher construction costs and inventory, margins of real estate firms have come under pressure. Fitch Ratings' outlook for 2012 for the Indian real estate sector, published recently, is negative and endorses the industry

    Realtors seek RBI nod for loan rollover - The Economic Times



    RBI has been time and again telling Bulders to lower prices and clear inventory over the last 2 years.

    In response, RE companies have been thumbing their nose at the Bank and raising prices instead (lets see what you can do to us attitude).

    Now RBI should simply tell them, "No chance! Take it as it comes!" and you will see how quickly prices will come down to clear inventory.

    But, given the state of the economy and its immediate future with increasing job cuts, etc) the builders may have left it for too long. The BEST time for them was in late 2009, early 2010 when the entire nation (except a few guys like me who were branded pessimists and worse :D - refer to various posts then when I said exactly the same thing) were super-bullish that the Crisis was over and markets would go up, up and away!

    Let us see what the rest of 2012 brings for RE companies as the global bear tightens its grip in the midst of Election Year for many important countries.

    cheers
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  • Originally Posted by wiseman
    RBI has been time and again telling Bulders to lower prices and clear inventory over the last 2 years.

    In response, RE companies have been thumbing their nose at the Bank and raising prices instead (lets see what you can do to us attitude).

    Now RBI should simply tell them, "No chance! Take it as it comes!" and you will see how quickly prices will come down to clear inventory.

    But, given the state of the economy and its immediate future with increasing job cuts, etc) the builders may have left it for too long. The BEST time for them was in late 2009, early 2010 when the entire nation (except a few guys like me who were branded pessimists and worse :D - refer to various posts then when I said exactly the same thing) were super-bullish that the Crisis was over and markets would go up, up and away!

    Let us see what the rest of 2012 brings for RE companies as the global bear tightens its grip in the midst of Election Year for many important countries.

    cheers



    It will be interesting to see what happens now. Whether RBI does or does not allow rollover of the loans causing a real estate crash or semi crash which in turn would cause the major section of investors including many politicians to lose money invested in real estate. Assuming the politicians to have a major deal of investment in real estate, would they want / allow this to happen?
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  • Timeless wisdom from wise men !

    Originally Posted by wiseman
    But, given the state of the economy and its immediate future with increasing job cuts, etc) the builders may have left it for too long. The BEST time for them was in late 2009, early 2010 when the entire nation (except a few guys like me who were branded pessimists and worse :D - refer to various posts then when I said exactly the same thing) were super-bullish that the Crisis was over and markets would go up, up and away!

    Let us see what the rest of 2012 brings for RE companies as the global bear tightens its grip in the midst of Election Year for many important countries.

    cheers


    In 1819 - 1820, American writer Washington Irving published a collection of stories that included a tale of a traveler who left England, bound for the West Indies.

    The traveler’s sailing ship was part of a convoy, and they had a favorable breeze for a rapid day of sailing, and then a beautiful sky at sunset when the wind died down and the sea lay calm. The traveler remarked to the captain that all augured well for a prosperous voyage, but the veteran ship’s master said the peaceful calm was a “weather-breeder.”

    And indeed, that night, a terrible storm battered and scattered the convoy, leaving some ships demasted, and others firing signals of distress. . . .

    The final paragraph of the story is:
    “When a man of business, therefore, hears on every side rumors of fortunes suddenly acquired; when he finds banks liberal, and brokers busy; when he sees adventurers flush of paper capital, and full of scheme and enterprise; when he perceives a greater disposition to buy than to sell; when trade overflows its accustomed channels and deluges the country; when he hears of new regions of commercial adventure, of distant marts and distant mines, swallowing merchandise and disgorging gold; when he finds joint stock companies of all kinds forming, railroads, canals, and locomotive engines, springing up on every side; when idlers suddenly become men of business, and dash into the game of commerce as they would into the hazards of the faro table; when he beholds the streets glittering with new equipages, palaces conjured up by the magic of speculation, tradesmen flushed with sudden success, and vying with each other in ostentatious expense; in a word, when he hears the whole community joining in the theme of ‘unexampled prosperity,’ let him look upon the whole as a ‘weather-breeder,’ and prepare for the impending storm.”
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  • In my simple hanguage ...

    Originally Posted by SanjanaSingh
    In 1819 - 1820, American writer Washington Irving published a collection of stories that included a tale of a traveler who left England, bound for the West Indies.

    The traveler’s sailing ship was part of a convoy, and they had a favorable breeze for a rapid day of sailing, and then a beautiful sky at sunset when the wind died down and the sea lay calm. The traveler remarked to the captain that all augured well for a prosperous voyage, but the veteran ship’s master said the peaceful calm was a “weather-breeder.”

    And indeed, that night, a terrible storm battered and scattered the convoy, leaving some ships demasted, and others firing signals of distress. . . .

    The final paragraph of the story is:
    “When a man of business, therefore, hears on every side rumors of fortunes suddenly acquired; when he finds banks liberal, and brokers busy; when he sees adventurers flush of paper capital, and full of scheme and enterprise; when he perceives a greater disposition to buy than to sell; when trade overflows its accustomed channels and deluges the country; when he hears of new regions of commercial adventure, of distant marts and distant mines, swallowing merchandise and disgorging gold; when he finds joint stock companies of all kinds forming, railroads, canals, and locomotive engines, springing up on every side; when idlers suddenly become men of business, and dash into the game of commerce as they would into the hazards of the faro table; when he beholds the streets glittering with new equipages, palaces conjured up by the magic of speculation, tradesmen flushed with sudden success, and vying with each other in ostentatious expense; in a word, when he hears the whole community joining in the theme of ‘unexampled prosperity,’ let him look upon the whole as a ‘weather-breeder,’ and prepare for the impending storm.”


    Very nicely worded!

    In my simple language I used to ask ...

    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"

    Well, it turned out it was all a Ponzi scheme from the money presses of the US to our distant shores!!! :D

    And now its all starting to go back and then go down!

    cheers


    Very nicely worded!

    In my simple language I used to ask ...

    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"

    Well, it turned out it was all a Ponzi scheme from the money presses of the US to our distant shores!!! :D

    And now its all starting to go back and then go down!

    cheers


    Very nicely worded!

    In my simple language I used to ask ...

    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"

    Well, it turned out it was all a Ponzi scheme from the money presses of the US to our distant shores!!! :D

    And now its all starting to go back and then go down!

    cheers


    Very nicely worded!

    In my simple language I used to ask ...

    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"

    Well, it turned out it was all a Ponzi scheme from the money presses of the US to our distant shores!!! :D

    And now its all starting to go back and then go down!

    cheers


    Very nicely worded!

    In my simple language I used to ask ...

    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"

    Well, it turned out it was all a Ponzi scheme from the money presses of the US to our distant shores!!! :D

    And now its all starting to go back and then go down!

    cheers
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  • A little twist in the tale

    Originally Posted by wiseman
    Very nicely worded!
    "Where is all this money suddenly coming from?! Find that out and you will know if this is real or a scam!"
    cheers


    Talking from a strictly Indian real-estate point of view, I believe it would be unwise to believe all the money pumped in is FIAT !

    In India, for the last 60 years, real tax payer money if being siphoned off systematically. The real-estate boom in India has allowed this money to be now safely parked in Indian real estate!

    Maybe this is the reason the inevitable real estate crash all economist and oracle's are predicting is somehow eluding India !
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