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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  • ‘Pending bank dues great concern’

    New Delhi: Stressing that banks cannot lend further unless there is recovery, Finance Minister Pranab Mukherjee asked the chairpersons of Debts Recovery Appellate Tribunals (DRATs) and presiding officers of Debts Recovery Tribunals (DRTs) to suggest ways and means to expedite the unlocking of resources of various banks, locked in the form of Non Performing Assets (NPAs).

    ‘Pending bank dues great concern’
    CommentQuote
  • Manav builders and several small ones are giving all tax free + additional rate discount once you negotiate with them. This means atleast 11-15% price cut. Even floor rate hike, PLC charges are being waived off.

    On other hand, builders like Gera, Kolte Patil are selling their flats by backdoor channels like agents at lesser price than what is being told at the office.

    Alongwith builder, also keep a check on agents ad, who knows they will offer new flat (agreement with builder) but at substantial discount.
    CommentQuote
  • Rate Cut not for Home Loans

    Some members, especially RE bulls may get excited after reading news of rate cuts by SBI between 50-350 bps, but please note that this rate cut is not applicable for home, auto, personal etc. loans and will be given only to industries & SMEs, agri sector.

    " India’s largest lender State Bank of India on Friday slashed lending rates across various categories by a wide range 50-350 basis points. The rate cut was originally applicable from June 01. However, the bank's base rate remains unchaged at 10%.

    The revision in rates will primarily bring down cost of money in the small and medium enterprise (SME) sector and agriculture sector. But it is not applicable to personal loan segements (home, auto and others) as well as some select export credit segments. "

    SBI cuts lending rates by 50-350 bps across categories - Moneycontrol.com -

    >> This indicates that bank can lend to different sector at different interest rates and after recent RBI directive, getting commercial loans for builder or buyer as home loan.
    CommentQuote
  • Thats why they are putting him out to pasture!

    Originally Posted by realacres
    New Delhi: Stressing that banks cannot lend further unless there is recovery, Finance Minister Pranab Mukherjee asked the chairpersons of Debts Recovery Appellate Tribunals (DRATs) and presiding officers of Debts Recovery Tribunals (DRTs) to suggest ways and means to expedite the unlocking of resources of various banks, locked in the form of Non Performing Assets (NPAs).

    ‘Pending bank dues great concern’



    Since Pranab Da (perhaps the one of the very few in the Congress with public confidence - Jairam Ramesh and Jaipal Reddy may be others) seems to be getting too close to hitting the corrupt crowd among the politicians and builders they decided to put the old warhorse to pasture (in this regard Pranab's repeated statements about how much he likes to walk on the lawns and how large the lawns of Raisina Hill is to be noted! :)) and get him out of (their) harm's way!

    Anna is going to be a historic anachronism and this country has no hope on the corruption front! Thats my final conclusion!

    cheers
    CommentQuote
  • We're currently in a situation where properties are not getting sold - but still prices are not being reduced - instead they are jacked up artificially . Also everybody wants prices to be reduced so that he can buy and then expects prices should get increased exponentially .... :) There is lot of demand sitting on the fence and the number of people apart from IT earning good incomes(10 L+) is increasing .
    India is a poor country and that status will not change at least for next 50 years - so expecting RE to be in tune with developed country paradigms is wrong .
    CommentQuote
  • Originally Posted by wiseman
    Since Pranab Da (perhaps the one of the very few in the Congress with public confidence - Jairam Ramesh and Jaipal Reddy may be others) seems to be getting too close to hitting the corrupt crowd among the politicians and builders they decided to put the old warhorse to pasture (in this regard Pranab's repeated statements about how much he likes to walk on the lawns and how large the lawns of Raisina Hill is to be noted! :)) and get him out of (their) harm's way!

    Anna is going to be a historic anachronism and this country has no hope on the corruption front! Thats my final conclusion!

    cheers


    Kya baat kar rahe ho Wisey - Pranab is widely thought to control Taneja developers in Kundli. He is one of the builder lobby himself !!!
    CommentQuote
  • Sorry! My ignorance ...

    Originally Posted by Venkytalks
    Kya baat kar rahe ho Wisey - Pranab is widely thought to control Taneja developers in Kundli. He is one of the builder lobby himself !!!


    Had no idea. But then, my last sentence about India having no hope on the corruption front seems to be reinforced! :(

    cheers
    CommentQuote
  • Real,

    Any reason, Pawar seems to have mellowed these days.. He is not his usual belligerent self, Lavasa is not still off the block.. He hardly seems to go against the congress these days..

    Is something up or he is waiting to strike back.. or the slap from the sardar woke him up.. :)
    CommentQuote
  • Originally Posted by wiseman
    Had no idea. But then, my last sentence about India having no hope on the corruption front seems to be reinforced! :(

    cheers


    We have always been like this. Muslim commentators 600 years ago and British commentators 200 years ago have already reached the same conclusion.

    We have always been like this and "we are like this only"
    CommentQuote
  • Originally Posted by Venkytalks
    We have always been like this. Muslim commentators 600 years ago and British commentators 200 years ago have already reached the same conclusion.

    We have always been like this and "we are like this only"


    And don't forget the "This happens only in India" tag. I can picture Govinda dancing to this tune. :)
    CommentQuote
  • CREDAI disappointed at RBI status quo

    CREDAI national President Mr Lalit Kumar Jain has expressed his disappointment at the RBI maintaining status quo in its credit policy.

    RBI appears to be sadly ignorant of the importance of real estate sector in the national economy and GDP, Mr. Jain, who is also the Chairman and Managing Director of Kumar Urban development Limited (KUL) said.

    He pointed out that the capital and labour intensive sector plays a key role in employment generation and accelerating growth.

    He recalled that the encouragement given to real estate in 1998 had kick-started the growth of cement and steel industries along with over 165 other industries including transport that with no additional cost incurred by the government.

    The risks attributed to real estate and the RBI advisories against lending to real estate have only harmed the sector and made housing costlier for consumers, apart from badly impacting the economy. "The governments at various levels have been losers on revenues," he pointed out.

    The status quo on interest rates will further dampen the sentiment though RBI may justify its action. "I hope further policies will see rate cuts positively and conservatism does not become a lasting attitude," Mr Jain added.

    CREDAI disappointed at RBI status quo - The Economic Times
    CommentQuote
  • Originally Posted by RealHunter1
    CREDAI national President Mr Lalit Kumar Jain has expressed his disappointment at the RBI maintaining status quo in its credit policy.

    RBI appears to be sadly ignorant of the importance of real estate sector in the national economy and GDP, Mr. Jain, who is also the Chairman and Managing Director of Kumar Urban development Limited (KUL) said.

    He pointed out that the capital and labour intensive sector plays a key role in employment generation and accelerating growth.

    He recalled that the encouragement given to real estate in 1998 had kick-started the growth of cement and steel industries along with over 165 other industries including transport that with no additional cost incurred by the government.

    The risks attributed to real estate and the RBI advisories against lending to real estate have only harmed the sector and made housing costlier for consumers, apart from badly impacting the economy. "The governments at various levels have been losers on revenues," he pointed out.

    The status quo on interest rates will further dampen the sentiment though RBI may justify its action. "I hope further policies will see rate cuts positively and conservatism does not become a lasting attitude," Mr Jain added.

    CREDAI disappointed at RBI status quo - The Economic Times


    Yes agree with this. RBI should have gone and done a 50-75 bps cut. RBI was behind the curve while raising interest rates and this time as well its behind the curve in reducing rates.
    CommentQuote
  • Fitch revises India’s outlook to ‘negative’ from ‘stable’

    Worse thing for Indian economy. Definitely not a good time for buying a property (at least for investment).

    NEW DELHI: In a fresh blow to India, Fitch ratings revised its outlook for the Indian economy to 'negative' from 'stable'. The rating agency has affirmed the economy's long-term foreign- and local-currency issuer default ratings (IDRs) at 'BBB-'. Fitch said that India's growth outlook could deteriorate if policymaking and governance don't improve.

    According to Fitch Ratings, the revision reflects heightened risks that India's medium- to long-term growth potential will gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments.

    The negative outlook also reflects India's limited progress on fiscal consolidation and, in particular, on reducing the central government deficit despite improvement in the financial health of state governments.

    "Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," said Art Woo, Director in Fitch's Asia-Pacific Sovereign Ratings group.

    Fitch, however, notes that India faces an awkward combination of slowing growth and still-elevated inflation. Real GDP grew just 6.5% yoy in FY2011-12 (end-March 2012), down from an 8.4% rise in FY2010-11.

    "India's public finances are a key rating weakness compared with other 'BBB'-rated sovereigns, which constrains scope for fiscal policy flexibility. Fitch estimated general government debt stood at 66% of GDP at end-FY2011-12, against the 'BBB' median of 39%," the agency said.

    Stating that the government cannot ignore the outlook revision to 'negative' for the Indian economy, Bimal Jalan, Former Governor of the RBI said that there was a need to revive investment cycle. Jalan told ET Now that the fiscal and monetary authorities need to work together to bolster investment.

    The confluence of weaker economic growth and a large subsidy bill means India will likely miss its 5.1% of GDP deficit target for FY2012-13; Fitch expects it to be 5.6%-5.9% of GDP.
    According to Fitch, India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms. Fitch forecasts real GDP to rise 6.5% yoy in FY13, down from a previous projection of 7.5%.

    Fitch projects a rise in WPI by an average of 7.5% in FY2012-13 which, though lower than the 8.8% rise in FY2011-12, continues to be higher and stickier than Fitch previously expected, diminishing scope for monetary policy flexibility.

    http://economictimes.indiatimes.com/news/economy/indicators/fitch-revises-indias-outlook-to-negative-from-stable/articleshow/14238832.cms
    CommentQuote
  • Good times ahead for property buyers as tepid market gives more bargaining powers

    Finally TOI-Let Paper (and its subsidiary) have now started revealing the fact/truth.:)

    A sluggish market brings good tidings for potential home buyers. One, they have ample time to decide which house they want to buy and secondly, they have a vast variety of unsold properties to choose from. Also, since there is little scope for property prices to appreciate and developers need money to continue their projects, they often come up with special offer prices for limited periods. This doesn't mean that they will not be willing to negotiate further. In fact, if a developer believes you are a serious buyer and not just a 'window-shopper' he might be inclined to offer you something extra.


    So, if you hone your bargaining skills, you could get a good discount, which is difficult in a bullish market. Says Anuj Puri, chairman & country head, Jones Lang LaSalle India: "Buyers can leverage a flat market and ask for discounts on the stated price, bargain to have the one-time maintenance charge waived or ask for the parking space to be included in the price."

    You could also request for more amenities to be included within the same price. "Developers may not be comfortable doling out cash discounts as it would reflect on the purchase agreement and lead to other buyers demanding similar incentives. However, they may be willing to offer incentives in kind which are not evident in the agreement, such as a gym membership or discounting the floor rise price," says Gulam Zia, national director, research and advisory services, Knight Frank India.

    It's best if you research well before starting negotiations. Check how long the property has been on the market. If it's been there for more than a year, the seller may be more willing to lower his asking price. This will be true again if the seller has to make a distress sale. "In a flat market, you will always come across some sellers who are desperately trying to sell their properties for various reasons. They could be shifting to another city or country, or may be finding it difficult to repay their loans. In such cases, you may be able to finagle a better deal if you are willing to pay a larger portion of the price in cash," says Ganesh Vasudevan, VP and business head of Chennai-based realty portal .

    As the market is expected to continue to be flat for some more time, you can easily outwait a seller.

    Rental returns

    Generally, a slowdown in property purchases tends to indicate a higher demand for rental housing. Demand for rental properties has been growing, on an average, between 10-13% annually in various pockets of the country.

    Annual rentals, which were in the range of 4-5% of the value of the property till five years ago, have now grown to 5-7.5%. "When the market is tepid, home buyers tend to wait and watch, expecting realty prices to come down in the near future. So, the demand for rental properties increases," says Zia. ET Wealth

    However, you shouldn't rush to buy a house simply to earn a high rental income. There are various factors to be considered. "You need to be sure that the location will continue to be attractive. Rental demand tends to remain high in areas surrounding workplace hubs, where capital values are usually the highest," says Puri. You should also check for other amenities, such as schools and hospitals, and whether beneficial infrastructure projects are likely to come up soon in the vicinity of the property you want to buy.

    Good times ahead for property buyers as tepid market gives more bargaining powers - The Economic Times
    CommentQuote
  • Originally Posted by RealHunter1
    CREDAI national President Mr Lalit Kumar Jain has expressed his disappointment at the RBI maintaining status quo in its credit policy.

    RBI appears to be sadly ignorant of the importance of real estate sector in the national economy and GDP, Mr. Jain, who is also the Chairman and Managing Director of Kumar Urban development Limited (KUL) said.

    He pointed out that the capital and labour intensive sector plays a key role in employment generation and accelerating growth.

    He recalled that the encouragement given to real estate in 1998 had kick-started the growth of cement and steel industries along with over 165 other industries including transport that with no additional cost incurred by the government.

    The risks attributed to real estate and the RBI advisories against lending to real estate have only harmed the sector and made housing costlier for consumers, apart from badly impacting the economy. "The governments at various levels have been losers on revenues," he pointed out.

    The status quo on interest rates will further dampen the sentiment though RBI may justify its action. "I hope further policies will see rate cuts positively and conservatism does not become a lasting attitude," Mr Jain added.

    CREDAI disappointed at RBI status quo - The Economic Times

    LK Jain should rather focus on giving timely delivery of projects, maintaining good quality & keeping promises given to builders rather than instructing the banks. It is just that the builders are used to easy money, from banks, PEs & advances from buyers & for past 6 yrs, it was a free run for them. It is only now they are getting the heat which they should have much earlier.

    And more than interest rates, the concern for builders is the sentiments in the market which has led to drop in sales to almost 60% in last quarter (will post link below).

    Car cos are now giving discounts, in cash, accessories, added extended warranty at no extra cost, etc. RE sector too will have to do this soon, infact commercial property rates are already coming down, be it purchase or lease.
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