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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  • To be or not to be

    Originally Posted by khbarilal
    The NHB Residex is consistently showing uptick in prices whereas BSE RE index is consistently showing downtick. If prices are really appreciating then why RE companies value is going down?
    It’s explained that builders-brokers are manipulating the prices. It’s just a matter of time that both the index will reflect same trend.:bab (59):


    Do you know what happens in closed boardrooms of Bank RBI meetings...

    The Mango Man like us does not know that .... BUT Investor\FII\Institutional Investor who buys 1% or 3% of RE Stocks knows what’s cooking....

    Is this NOT entirely like US RE bubble? The books are looking good with inflated values now ... what about a 15% correction at India wide level....

    Unless RBI starts printing a lot of this money can disappear in few months....

    let’s assume West is playing game by pushing our consumerism so that Audi/BMW are sold most in china .... if for some reason that game changes where are we left with ....

    like the BPO game is now in someone else's favor...
    BPO biz: Philippines overtakes India - The Times of India

    If the IT sectors registers -4% growth for next 2/3 yrs what will happen to some of these top cities ..
    (Nasscom, the industry's apex body, predicts that overall sectoral growth this year will fall between 11 to 14 per cent from 16.3 per cent that it recorded last year.)

    Taking jobs granted is foolish ... and with over leverage is more ....
    a 5% negative growth in next 10 yrs is impossible ?

    The RE prices will come down ... 10% and the whole cycle starts....

    so coming back to point .. the situation is pretty tight and insiders know pretty well about it(Price reflection in RE index)
    Neither the Boardroom guys nor the II/FII/I can come in open and say that ....
    what you hear is exactly reverse...

    Warren Buffet bought Train stocks few yrs back when they were cheap ... now you see bcoz of high oil prices the fright is reaping him benefits.

    of course he is one off .... many try to be like him ....
    and Indian middle class is doing exactly opposite of what he says ....

    change every 20 days , change car every 30 .... change home every year ...
    these are the buyers of the Bubble ... oops sorry the dirt cheap Real estate that you see in the graph ...
    and these are the "Derivative" in disguise ... ;)
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  • Builders offer 30% bait for unsold commercial properties

    Trying to wade through the sluggish real estate market, developers have started coming up with various offers to lure buyers and dispose ofcommercial properties in the city

    Many prominent developers are asking buyers to make a down payment of 30-40% and own the property. Depending on the area and developer, buyers are also being given the option of paying the rest in instalments over five years with a fixed rate of interest or no interest at all, as opposed to taking a bank loan and trying to keep up with a floating rate of interest.

    Anand Gupta, treasurer of the Builders’ Association of India, admitted that developers are offering various schemes to survive the liquidity crunch in the market. “For more than a year now the real estate market has been in bad condition. Sales are not happening, and banks too aren’t giving loans to developers.

    Builders offer 30% bait for unsold commercial properties - Mumbai - DNA
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  • All India CREDAI chiefs to brainstorm in Pune

    With the real estate industry reeling under an unprecedented crisis, top developers from across the country will meet in Pune for a two-day CREDAI conclave starting Wednesday to brainstorm and find solutions to revive the sector that contributes 6.5% to the GDP. Presidents of CREDAI (Confederation of Real Estate Developers’ Associations of India) from 19 States and 112 cities will gather for the first time in the 13-year history of the apex body to focus attention on all the key issues impacting the industry from the point of both the developer community and home buyers.
    “The national conclave assumes significance in view of the fact the industry has been at a virtual standstill in many States like Maharashtra, thanks to various delays in official sanctions, coupled with the rising cost of inputs,” said Lalit Kumar Jain, National President, CREDAI.
    CREDAI claims it has been trying to sort out the issues with a missionary zeal, but unfortunately the response from powers that be – both at the Centre and States – has been abysmal, Jain lamented and said, “Now we will take stock and some out with ready-to-implement industry solutions.”
    The session will also discuss the impact of the Union Budget, GST, Direct Tax Code, accounting guidelines, Maharashtra Government’s directive to reserve 20% of the development for affordable housing and so on.
    “We will also scrutinize the available opportunities in affordable housing arena since we are equally keen to ensure that the government’s goal for housing for all is met,” he said.
    Recalling that CREDAI has recently tied up with NSDC for a unique programme called Kushal for enhancing the skills of labour in the construction sector, Mr Jain said “we are keen on taking this forward on all India basis”.
    Apart from dealing with the obstacles in the form environmental clearances, the CREDAI conclave will also formulate ways to encourage green building and energy saving concepts.
    CREDAI will also work towards encouraging the entire gamut of realty – ranging from developers, architects to engineers – with a gala awards event on the lines of AIIFA or the various national film awards, he added.


    All India CREDAI chiefs to brainstorm in Pune | Track2Realty || India's real estate e-newspaper
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  • Originally Posted by frugality
    Do you know what happens in closed boardrooms of Bank RBI meetings...

    The Mango Man like us does not know that .... BUT Investor\FII\Institutional Investor who buys 1% or 3% of RE Stocks knows what’s cooking....

    frugy dude. No we don't know what cooks behind closed walls. Why don't you post the recording of your hidden videos on youtube for everyones benefit :), so we know what goes behind those doors . But good throw lien to start with . Already I have a impression "this guy knows something man .. I am scared ..."

    Originally Posted by frugality

    Is this NOT entirely like US RE bubble? The books are looking good with inflated values now ... what about a 15% correction at India wide level....


    You post this year after year and we have seen no sign of bubble . If it had been a bubble it would have burt in 2008 itself. In reality at best it may be slight overpricing due to market dynamics, but all in all the prices have sutained ... oops ... appreciated fast continuosly.

    Originally Posted by frugality


    like the BPO game is now in someone else's favor...
    BPO biz: Philippines overtakes India - The Times of India

    If the IT sectors registers -4% growth for next 2/3 yrs what will happen to some of these top cities ..

    I sometime wonder if you are one of those "baahari takat" . Every year you post such news of country X takes over India. I am not sure of that but we need to find out what has overtaken you btw :)

    Originally Posted by frugality

    The RE prices will come down ... 10% and the whole cycle starts....

    so coming back to point .. the situation is pretty tight and insiders know pretty well about it(Price reflection in RE index)
    Neither the Boardroom guys nor the II/FII/I can come in open and say that ....
    what you hear is exactly reverse...


    I think you are conservative in your estimates. ajha etc are predicting 30 to 50% fall. Anyway 30% or 10% , when will we see that fall. Show us the fall yaar. Can you give some date ( Diwali as answer is not acceptable :)) so that we can benefit from it.

    Originally Posted by frugality

    Warren Buffet bought Train stocks few yrs back when they were cheap ... now you see bcoz of high oil prices the fright is reaping him benefits.

    of course he is one off .... many try to be like him ....
    and Indian middle class is doing exactly opposite of what he says ....


    Good diversion . By this time the reader has forgotten what you started discussing. Standard pattern. End the post with some big name thrown in and then some hilarious statements ... read further ... hope at least you know what you are posting. Did you buy those train stocks btw ? What has this to do with the prop bubble (ok its hallucination but for a moment lets assume there is a bubble) ?
    Originally Posted by frugality

    change every 20 days , change car every 30 .... change home every year ...
    these are the buyers of the Bubble ... oops sorry the dirt cheap Real estate that you see in the graph ...
    and these are the "Derivative" in disguise ... ;)


    munna bhai kee style mein ek sawaal poochta hoon (munnabhai to dean) "teri depressing post padhne kee wajah se bahut log 2008 mein ghar nahi khareed sake , ab rate double ho gayele hain , oos nuksaan ka jimmedar kaun " :)
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  • Originally Posted by hitmady
    Hi realacres
    It seems we think alike on Rent vs Emi analysis. It is quiet true and practical. Had decent savings living in rented apmt.

    After booking a house, I almost felt poorer thinking of future EMI payments for 15 years.
    Ultimately. cancelled home-loan and booking becoz of low-value in return and job-insecurity.

    May take risk and buy one if price falls 20% from current-level.
    For me price at 2006 level would be affordable.

    I think there is a similarity between buying a house at inflated price and buying a luxury car.(I can survive on hired vehicle).
    Its more of ego-statement. But how many of middle/upper-middle-class people can go on such ego-trip?


    Sirs,

    I virtually argued every single point with myself and my family when i was deciding for my flat. I also did the opportunity cost analysis of renting v/s owning. Renting was a clear clear winner. It just doesnt make a financial sense .ALso, I would be living in a not so great location , add to that the extra fuel cost incurred travelling to office.The only 2 points which forced me to go for a flat

    * In my wife's opinion it would be a real hassle to keep on shifting every year (I have done my schooling from 10 different places in India, so I was pretty OK with that)

    * Inflation - There is no denying the fact that inflation will keep devaluing the money that means the EMI I am paying will be much affordable 6-7 year down the lane. For eg. sbdy who took a home loan 5-6 years back with a EMI of 10-15k are now pretty comfortable paying that coz salaries in long run have to match inflation. EMI also would be rising coz. of interest rates but not to that extent.

    Regards,
    MTB
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  • Interesting article on the global RE, check out -
    The world's house price hotspots - Yahoo! Finance UK
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  • good report from PL on the RE stocks

    Report is based for Mumbai based builders, but cannot be vastly different for all of them..
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  • Really nice article
    Attachments:
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  • When builders don't deliver

    In fact, a buyer has to sign with a builder one of the most one-sided commercial agreements one can come across in the world of business. It contains elaborate conditions that would enable the builder to get away with any defect in construction or delay in possession—that has to be suffered by the buyer.

    Nobody denies that an aggrieved buyer can always take recourse to legal action, but are we not aware of the inordinate delays in seeking justice from the courts? Such delays invariably work in favour of the defaulters. In the few cases that have managed to reach conclusion, courts have rarely imposed exemplary costs on builders; imprisonment is not even considered. In such a scenario, why should a builder bother about the buyer from whom, in any case, he collects almost 95% of the total consideration much before the building is completed?


    Real Estate: When builders don't deliver - Moneylife Personal Finance site and magazine

    Unless government wakes up to the virtual fraud being committed by a large number of builders, lakhs of buyers will continue to suffer and be cheated by builders.

    But Politicians are busy watching ...

    http://www.bloomberg.com/news/2012-03-29/-watching-politicians-are-india-s-moral-police.html
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  • TDS slips to be must for registering property

    "Buyers will need to show income tax challan to get their property registered from October," a finance ministry official said.

    Real estate is considered to be one of the most widely used means to generate and park black money. Cash component in land and property transactions could be as high as 60%, according to some estimates.

    Come October, TDS slips to be must for registering property - The Economic Times
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  • Competition commission flooded with complaints against realtors

    Encouraged by the penalty slapped on the biggest real estate company DLF in a Gurgaon case last August, there has been a rush of complaints at the Competition Commission of India (CCI) against several property majors since then. “At least 200 complaint letters came to us against real estate players, of them around 15 were official cases,” said an official at CCI.

    Competition commission flooded with complaints against realtors
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  • Sale of property in city hits 3-year low

    The city’s realty market seems to have reached an impasse with inventory mounting to a three-year high and absorption nose-diving to a three-year low. According to the latest report by Kotak Institutional Equities, Mumbai has seen a total absorption of 1.7 million sq ft residential space in January this year, a decline of 60 per cent as compared to January last year. This is the lowest recorded absorption since December 2008. Proportionately, the inventory or the number of unsold homes in Mumbai has peaked to a 32-month high.


    Sale of property in city hits 3-year low: Report - Express India
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  • Originally Posted by khbarilal
    The city’s realty market seems to have reached an impasse with inventory mounting to a three-year high and absorption nose-diving to a three-year low. According to the latest report by Kotak Institutional Equities, Mumbai has seen a total absorption of 1.7 million sq ft residential space in January this year, a decline of 60 per cent as compared to January last year. This is the lowest recorded absorption since December 2008. Proportionately, the inventory or the number of unsold homes in Mumbai has peaked to a 32-month high.


    Sale of property in city hits 3-year low: Report - Express India

    For a market to be called healthy, only 8 months of inventory should be present. In current times, the inventory is of over 32 months !! This clearly show poor off-take in sales.

    And the RE prices in Mumbai have already come down between 10-20%. Discounts are being given especially by following builders -

    Indiabulls, Oberoi, Wadhwa, Lodha (heard some of his projects are severely stuck), HDIL (it is going bust). Akruti is in also some dire situation, seems Bobada Pawar is not bailing it out .

    Btw, DNA has bought yet another RE exhibi at Pride Hotel :D. Man, how many exhibis ?
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  • RealHunter1,

    Nice image man :).
    Though all points mentioned are good, what I liked the most are the last 2 points. If these points are fixed properly in mind, people won't buy atleast due to peer pressure & sacrifice better things in life.

    Btw, came to know that a new 3 BR in Nanded City is up on rent for INR 10,750/month with 40-50k deposit. And there are loads of investors here, expect good competition not only in terms of sale but even on rents here.
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