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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  • Not again .. abt weak INR and real estate

    Originally Posted by puser
    dear khabrilal, please explain how rising dollar makes real estate sector feel the heat? according to alternate theory provided by some on this forum, rising dollar makes it inexpensive for NRIs to buy property in india and so it actually attracts real estate investment.


    That quote was from ET attributed to someone else not!!

    ANyways, once again ...

    RE is not a liquid investment. To benefit from currency fluctuations you need liquid investments that can be bought / sold freely and ideally with derivatives products.

    Asking NRIs to invest today means

    1. Assuming rupee will appreciate going forward
    2. Assuming they can 'quickly' lock-in today's rate for the RE transaction that will take a few months to complete! (or that INR rate does not move for that long)
    3. Assuming Indian Real estate will appreciate so much that no matter what happens to the currency, you will get good returns


    None of the above seem to be related to any sound logic or fact. Please think - don't blindly follow what some vested interests will tell you.

    RE may or may not collapse. INR may or may not appreciate. In such situation RE or any long term investment is not wise.


    AJ
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  • I am not sure why NRIs would come here to invest in RE . Only those who are working and fear losing their jobs or those returning to India for good, are the ones going to buy just in case....but that too, they must have worked there for 3 years atleast, to have some accumulated savings. If they have worked for 3 years, then wouldn' they prefer to apply for GC and stay there. We cannot compare the infra in US with what we have. Other than social-interaction, they don't lack anything.

    If I was in US, I would buy something there and lead a happy life without worrying too much about Indian RE and Rupee depreciation.
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  • Rupee weakening against the dollar is going to help bursting the bubble. This is because all top builders in India have taken FDI in the form of bonds and debentures.

    Now if I have taken a loan of USD 100 when exchange rate was 45, redeemable after 1 year at USD 110, with a 10% interest. Now I believe that redemption will cost me only Rs. 4950, and I have the cash flow to deal with that.

    When rupee weakens to 56, I now have to get Rs 6160 from somewhere to pay back USD 110, while my cash flow is only 4950. The only way to raise the extra money is through distress sales to other investors. But other investors are facing their own redemption problems and no one has cash to invest.

    Slowly the only option is to let prices fall thru the backdoor, allowing agents to sell investor's flats in the retail market, at deep discounts. But the retail market does not keep deals confidential, and once the downward spiral starts, it spills out in the public
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  • Originally Posted by abeerbagul
    Rupee weakening against the dollar is going to help bursting the bubble. This is because all top builders in India have taken FDI in the form of bonds and debentures.

    Now if I have taken a loan of USD 100 when exchange rate was 45, redeemable after 1 year at USD 110, with a 10% interest. Now I believe that redemption will cost me only Rs. 4950, and I have the cash flow to deal with that.

    When rupee weakens to 56, I now have to get Rs 6160 from somewhere to pay back USD 110, while my cash flow is only 4950. The only way to raise the extra money is through distress sales to other investors. But other investors are facing their own redemption problems and no one has cash to invest.

    Slowly the only option is to let prices fall thru the backdoor, allowing agents to sell investor's flats in the retail market, at deep discounts. But the retail market does not keep deals confidential, and once the downward spiral starts, it spills out in the public


    too good to be true. however don't think this will be the case. there is no sign of any correction so far even though rupee has plummeted.
    CommentQuote
  • Originally Posted by puser
    dear khabrilal, please explain how rising dollar makes real estate sector feel the heat? according to alternate theory provided by some on this forum, rising dollar makes it inexpensive for NRIs to buy property in india and so it actually attracts real estate investment.


    Sorry, I didn’t understand the alternate theories about weak currency & asset appreciation.
    I totally agree with you. Why the Assocham the CREDAI advisor is spreading such false news.

    If you are referring below theory, then it’s not a theory it’s an advertisement by CREDAI. Only Lallu can explain this funda.
    http://timesofindia.indiatimes.com/city/mangalore/Rupee-depreciation-makes-real-estate-attractive-to-NRI/articleshow/13611665.cms
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  • Pulse of Indian Economy

    The slowdown comes after nearly 20 years of almost unbroken rapid growth, and fears are growing of an end to, or at least a pause in, the long-running boom.

    "We've been OK until now, but from now on all the economics will start impacting. People are feeling the crunch. The brakes are coming on," Chopra said.

    India's 20-year economic boom gives way to doubt in Delhi's malls | World news | guardian.co.uk
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  • India's business cycle loses momentum

    The re-emergence of the euro area crisis and recent weakness in Chinese data suggest downside risks to the global economy. Given India’s twin deficits and fragile recovery, weaker external demand can trigger non-linear effects, such as capital flight, exacerbating the slowdown. We see downside risks to our GDP growth forecast of 7.4% year on year in FY13 (year ending March 2013).

    Sector-wise details are not available, but we judge that the services and real estate sectors have probably seen the maximum outflow. In our view, both push and pull factors are responsible. Global deleveraging may have forced companies to sell their Indian assets and repatriate funds to their home country.

    Moneyguruindia - India's business cycle loses momentum in March-April
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  • Too much of real estate can be drag on your portfolio

    First and foremost, real estate — be it residential or commercial — is not a liquid asset. It’s not even semi-liquid. Realty, in fact, is considered very low from the liquidity point of view,” says a Mumbai-based financial adviser.
    Investing hefty sums of money just for tax breaks is not always a very good idea. You can possibly make more money by paying the tax on what you have and investing it in a better class of assets,” says another asset manager.

    Remember all assets have varying cycles. Five years back, it would probably have been a good idea to have an extra house. Today, it doesn’t really make much of a sense as realty across India is witnessing an oversupply situation.

    Moneyguruindia - Too much of real estate can be drag on your portfolio
    CommentQuote
  • Originally Posted by puser
    dear khabrilal, please explain how rising dollar makes real estate sector feel the heat? according to alternate theory provided by some on this forum, rising dollar makes it inexpensive for NRIs to buy property in india and so it actually attracts real estate investment.

    Do NRIs now have money to Invest in RE ? Man, see what's happening in EU, US. They are more worried about local economy, let alone they coming here & investing heavily in already hyped RE market. The foreign equities are pulling money out from RE, then why will NRI come in that too when their own home is not secure ?

    Lets not forget that the builders are now having several exhibis in US, Aus etc. :D
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  • Reality sector resents black money accusations

    Seems RE has already started feeling the heat about black money being banned or difficult to get in RE according to new Govt policies.See what Lallu Jain says below :-

    A top realty developers' association Tuesday castigated the central government for targeting it as one of the prime investment destinations for those with black money.

    Reacting to a White Paper on Black Money released by Union Finance Minister Pranab Mukherjee, the Confederation of Real Estate Developers Association of India (CREDAI) said that builders and developers have been reduced to a favourite punching bag, whenever there is talk of black money in the country.
    The real estate developer community has become a favourite punching bag for many whenever they talk about the national curse. Everybody talks about black money, but nobody does anything about it, lamented CREDAI president Lalit Kumar Jain, addressing the media here. :D

    "We, too, hate the system that labels us as crooks, cheats and breeders of black money,":D Jain declared and called for realising the fact that the various bottlenecks at government level at central government and in several states are equally responsible for this menace.

    Reality sector resents black money accusations
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  • Originally Posted by realacres
    Seems RE has already started feeling the heat about black money being banned or difficult to get in RE according to new Govt policies.See what Lallu Jain says below :-

    A top realty developers' association Tuesday castigated the central government for targeting it as one of the prime investment destinations for those with black money.

    Reacting to a White Paper on Black Money released by Union Finance Minister Pranab Mukherjee, the Confederation of Real Estate Developers Association of India (CREDAI) said that builders and developers have been reduced to a favourite punching bag, whenever there is talk of black money in the country.
    The real estate developer community has become a favourite punching bag for many whenever they talk about the national curse. Everybody talks about black money, but nobody does anything about it, lamented CREDAI president Lalit Kumar Jain, addressing the media here. :D

    "We, too, hate the system that labels us as crooks, cheats and breeders of black money,":D Jain declared and called for realising the fact that the various bottlenecks at government level at central government and in several states are equally responsible for this menace.



    No number of references / articles / blogs can change one simple fact...

    When I have to sell my 2 BHK - I will not find a buyer who is willing to pay 35 Lacs

    When I want to buy a 2 BHK - I will not find a builder who is willing to sell
    below 50 Lacs

    This is the reality... take it or leave it....
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  • Originally Posted by tarcap
    No number of references / articles / blogs can change one simple fact...

    When I have to sell my 2 BHK - I will not find a buyer who is willing to pay 35 Lacs

    When I want to buy a 2 BHK - I will not find a builder who is willing to sell
    below 50 Lacs

    This is the reality... take it or leave it....

    +1. It is therefore best to look at resale/ready poss from investors. No risk of delays in poss, see what you are going to buy & that too at better rate than builder. And since investors were over 50% in several areas during RE boom time, finding one is quite simpler than before.
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  • Yes, you are right. Even if the property is little more than the launch rate, it is well worth the wait. You never know what the builder will do during construction, milking us regularly after every slab.

    Originally Posted by realacres
    +1. It is therefore best to look at resale/ready poss from investors. No risk of delays in poss, see what you are going to buy & that too at better rate than builder. And since investors were over 50% in several areas during RE boom time, finding one is quite simpler than before.

    -------------------------------------------------------------------------------

    Looks like, for once, Lallu Jain was talking honestly, maybe drunk also. In his sober state, he wouldn't dare say such things about the godfather helping him in his business.

    Originally Posted by realacres
    Everybody talks about black money, but nobody does anything about it, lamented CREDAI president Lalit Kumar Jain, addressing the media here.
    "We, too, hate the system that labels us as crooks, cheats and breeders of black money," Jain declared and called for realising the fact that the various bottlenecks at government level at central government and in several states are equally responsible for this menace.
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  • Agents have started providing discounts

    Originally Posted by puser
    too good to be true. however don't think this will be the case. there is no sign of any correction so far even though rupee has plummeted.


    I recently got a call from an agent selling a ready to occupy property below the so-called builder rate. The discount is 5% without considering so-called floor rise. If the floor rise is considered in the builder rate, the discount is close to 10%. This is in the first discussion. (Mumbai)
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  • Great News !!! Atleast you gave the news that was not "ignorance is bliss" or "khatta-mango" type.

    Very soon the agents will be calling and asking "Aho Saheb, kiti discount pahije? Devto yaa kii!!" ("Sir, how much discount you want ?" ).

    Originally Posted by AJ2008oo
    I recently got a call from an agent selling a ready to occupy property below the so-called builder rate. The discount is 5% without considering so-called floor rise. If the floor rise is considered in the builder rate, the discount is close to 10%. This is in the first discussion. (Mumbai)
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