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 tsongt

    And looking at the P/E - price/rent ratios that has been sky rocketing for RE, the bulls theory has to be wrong. Its time to sit back and keep your money in safer places.

    Agree 100% with you, tsongt. Had got an email from friend with these following simple calculations.

    Following is one of my simple calculation why buying a house at this rate is financially not so sensible decision:

    I will take example of Aundh/Aundh annex/ area.

    A – Min price of a 2BHK house in Aundh Annex: 30 lacs

    B – Average rent of a 2BHK in same flat in Aundh annex: 9000 Rs per month – 1,08,000 Rs per annum => round it off to 1.2 lacs

    By simple calculation, even if you invest 30 lacs in a bank FD at 8/8.5% rate, you will get approx 2.5 lacs as interest every year!

    Thus, Renting is absolutely a +ve cash flow!

    You might want to add your homeloan tax saving as a potential benefit but then on the other hand you will end up paying huge interest to the banks!

    So, in practical financial sense, it is a BAD decision to purchase a home at this rates.

    Infact, one can rent a 2BHK in Aundh – a much much better area, for 12k per month, grossing approx 1.5L and still save money while leaving in better location!

    If you feel that realty prices will appreciate, that means you feel that market will get better than what it is right now. If you so strongly feel market will go up, invest in stock markets! Risk is lesser as you can diversify your investments!

    This calculation is only from financial point of view, not considering the emotional point of view of dream (if you call it) of owning a home.

    The surge in realty during 2003-2004-2005 was because the rental and EMI difference was tiny. The surge in realty following these yrs was simply due to the momentum created during these years.

    1000sqft 2BHK for about 20 lacs will more or less fit in this equations.

    Thus, Renting is absolutely a +ve cash flow!

    You might want to add your homeloan tax saving as a potential benefit but then on the other hand you will end up paying huge interest to the banks!

    So, in practical financial sense, it is a BAD decision to purchase a home at this rates.

    Infact, one can rent a 2BHK in Aundh – a much much better area, for 12k per month, grossing approx 1.5L and still save money while leaving in better location!

    If you feel that realty prices will appreciate, that means you feel that market will get better than what it is right now. If you so strongly feel market will go up, invest in stock markets! Risk is lesser as you can diversify your investments!

    This calculation is only from financial point of view, not considering the emotional point of view of dream (if you call it) of owning a home.

    The surge in realty during 2003-2004-2005 was because the rental and EMI difference was tiny. The surge in realty following these yrs was simply due to the momentum created during these years.

    1000sqft 2BHK for about 20 lacs will more or less fit in this equations.

    Thus, Renting is absolutely a +ve cash flow!

    You might want to add your homeloan tax saving as a potential benefit but then on the other hand you will end up paying huge interest to the banks!

    So, in practical financial sense, it is a BAD decision to purchase a home at this rates.

    Infact, one can rent a 2BHK in Aundh – a much much better area, for 12k per month, grossing approx 1.5L and still save money while leaving in better location!

    If you feel that realty prices will appreciate, that means you feel that market will get better than what it is right now. If you so strongly feel market will go up, invest in stock markets! Risk is lesser as you can diversify your investments!

    This calculation is only from financial point of view, not considering the emotional point of view of dream (if you call it) of owning a home.

    The surge in realty during 2003-2004-2005 was because the rental and EMI difference was tiny. The surge in realty following these yrs was simply due to the momentum created during these years.

    1000sqft 2BHK for about 20 lacs will more or less fit in this equations.
    CommentQuote
  • I would like to add some more.

    Ownership also comes with these:-


      Property Taxes and Special Assessments
      Home/Hazard Insurance
      Utilities
      Maintenance
      Home Owner Association (HOA) Fee: Doesn't apply to all purchases. It pays for trash removal and maintenance of common grounds if applicable.
      Membership Fee
      Insurance etc

      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
      Total Cost of flat = 200 * x; x = monthly rental.
      Hence, a INR 10k/month flat value should not exceed INR 20L; else makes better sense to rent than to buy.

      Returns/annum on rental at current RE prices is just 3.6%, much less than even bank FD!!
    CommentQuote
  • Hi,

    U have made calculations taking into consideration a ready cash : full

    amt avble. This is option avble only to black marketeers/ business

    community/ rich. Taking Home loan is the cheapest loan option currently.


    However agree that RE is not the best option avble, considering also the

    huge run up in last three yrs.

    Investors be warned!
    CommentQuote
  • Another Wise one fm

    Prophetic words said last year beginning in some other post:

    I’m not a finance guy who can make great forecast on future But I base my views on pure commonsense and reasons
    1. Land scarcity in India and rise of middle class in india with greater liquidity to spare has been driving real estate and will play a great role in long run in future ( as Indian population wont come down and land wont increase in india unless we dry up sea or invade burma, pak, bhutan or even bangladesh and kill the existing population there :)…)
    2. Government’s attempt to hike interest rate is to take away that liquidity from the buying class ( not HIG who dont care for the amount they invest for luxuary home) Inflation has already taken away a great part of surplus an average middle class could save. So Ranjit’s ( and others )prediction of weakening real estate does make logical sense.
    3. Real estate Price in india in general will see a low in 2008-2009 ( as double figure inflation and oil price hike are here to stay or even rise in next 12- 24 month…Not my views but those of finance ministry officials)
    4. I can see the indications in IT hub cities like bangalore where a big real estate builder with a lot of projects is selling his flats at 22-30 lac and to lure buyers offering 1200 sq ft plot near mysore highway free plus 2 lac worth furniture free plus 50 yr warranty on building plus 20 year free maintainance… Sounds too good to be true, isnt it but I have been contacted by the builder a number of times.}
    5. But it is wise to be realistic- u wont sell flats at throwaway price if u were a builder and wish to be in business… So what they do ( even DLF and other mega playesr doing doing the same) is delay the project till the profit margin are again suitable for them. They end up holding a lot of empty flats as inventories based on the logic that as the number of people’s salary goes up and they seek flats in scarcity they will be willing to pay a premium.
    6. Remember these builders had bought the land at a premium, cost of steel rods, cement etc has gone up as well. So if they dont sell at a hike price for profit it doent make business sense to be in business.
    7. But then there are a lot more jokers into speculations business turning themselves as fly by night real estate… For them profit is selling small chawl made of inferior materials at a market price with lot of ifs and buts. These jokers laugh all the way to the bank by sucking us the middle class. They pressure the guilable buyers with false info and offers like offer valid for two days only etc or even create artificial hype with their own people possing as buyers in front of you.
    When things dont suit them they may just delay the project year after year or do a hodini’s vanishing act one fine day.
    8. There will be demand for Pune and Nagur as Mumbai is over saturated… but then for that to take place big companies need to move away from mumbai in large numbers A boeing base here an air port there or a few small regional office here may only generate speculation in short term.
    You end up with flats remaining unsold begging to be sold…and advertised time and time again…

    My question is to all readers -A) Since timing real estate is difficult and rents are low should one buy a house now at a premium now or wait for the overheated market to cool off a bit by year end 2008 or even mid of 2009? a couple of 100 less per sq ft does make lot of economic sense to an average middle income group

    9. It is true that the population density of India is much higher than USA. But, when you compare New Jersey and India – New Jersey is actually slightly more densely populated. And New Jersey is much more densely populated than Haryana, India.
    10. Also one may keep in mind the average per capita income is far low when compared to those in india. Commonsense tells us that this means only a handful of those population hiking the density of population can afford to buy land. Thus speculators have hiked the price of the land for personal gains and in the process the number of people able to afford the high premium price for land has sunk. Will such a bubble of rosy growth in real estate last long?
    11. Issue of regulation and availability of land are intermixed - real-estate is regulated in India with laws that prevent easy buying and selling and land records that are poorly maintained. This simply means that the prices can be artificially inflated in the near term (that could last several years) but in the long-term must return to rational values.
    If u r a speculator and want to be in market for short time to make money over middle class miseries then create such artifical hype and hike in price in short term making hay while sun shines… sooner than later the rest of the buyers can see through the hype or the price act as deterent to shy away leading to price tumbling down before it is reasonable again to pick up and climb another set of speculation ladder


    What a thought!

    What a thought!
    CommentQuote
  • Originally Posted by Sansei

    What a thought!

    Hate to be a speculator, but still I am ;).
    I will share personal experience of RE in Mumbai suburb through 1999 to 2004.
    My 1BHK flat's worth went up to 15 lacs in 1998-99. I sold it for 9.5 lacs in 2004 to move into 2BHK. A correction of whopping #50%.

    I learned few lessons:
    1) Amount of liquidity in mkt decides RE value.
    2) Don't buy house when there is high inflation/interest rate and everybody is rushing to buy. Buy during slump to get best value.
    3) Invest the money thus saved in safe-instruments so as to leverage it in slump period.

    Hate to be a speculator, but still I am ;).
    I will share personal experience of RE in Mumbai suburb through 1999 to 2004.
    My 1BHK flat's worth went up to 15 lacs in 1998-99. I sold it for 9.5 lacs in 2004 to move into 2BHK. A correction of whopping #50%.

    I learned few lessons:
    1) Amount of liquidity in mkt decides RE value.
    2) Don't buy house when there is high inflation/interest rate and everybody is rushing to buy. Buy during slump to get best value.
    3) Invest the money thus saved in safe-instruments so as to leverage it in slump period.

    Hate to be a speculator, but still I am ;).
    I will share personal experience of RE in Mumbai suburb through 1999 to 2004.
    My 1BHK flat's worth went up to 15 lacs in 1998-99. I sold it for 9.5 lacs in 2004 to move into 2BHK. A correction of whopping #50%.

    I learned few lessons:
    1) Amount of liquidity in mkt decides RE value.
    2) Don't buy house when there is high inflation/interest rate and everybody is rushing to buy. Buy during slump to get best value.
    3) Invest the money thus saved in safe-instruments so as to leverage it in slump period.

    Hate to be a speculator, but still I am ;).
    I will share personal experience of RE in Mumbai suburb through 1999 to 2004.
    My 1BHK flat's worth went up to 15 lacs in 1998-99. I sold it for 9.5 lacs in 2004 to move into 2BHK. A correction of whopping #50%.

    I learned few lessons:
    1) Amount of liquidity in mkt decides RE value.
    2) Don't buy house when there is high inflation/interest rate and everybody is rushing to buy. Buy during slump to get best value.
    3) Invest the money thus saved in safe-instruments so as to leverage it in slump period.
    CommentQuote
  • I think now is the best time for me to retire!!!

    Originally Posted by hitmady
    Hate to be a speculator, but still I am ;).
    I will share personal experience of RE in Mumbai suburb through 1999 to 2004.
    My 1BHK flat's worth went up to 15 lacs in 1998-99. I sold it for 9.5 lacs in 2004 to move into 2BHK. A correction of whopping #50%.

    I learned few lessons:
    1) Amount of liquidity in mkt decides RE value.
    2) Don't buy house when there is high inflation/interest rate and everybody is rushing to buy. Buy during slump to get best value.
    3) Invest the money thus saved in safe-instruments so as to leverage it in slump period.



    I now see that every one on the post is wise to the nuances of financial maths, now that its been so nicely explained!:)

    Someone said that most people are not financial savvy enough. Arguing against that statement, I said that if most people are savvy enough to refrain from buying pattani at Rs.120 (imagine, that was the price per kilo 2 days ago!) and buying it only at Rs.6 (95% down from the peak!:D), then they are savvy enough to do the calculation to buy RE at the right time.

    Now that everyone here is savvy enough to calculate the Rental Yield and peg exactly what price they should buy and are willing to wait till it is reached, while parking their funds to earn interest, my objective to warn and educate people not to be too hasty has been reached.

    Don't you think its time to retire and look at newer opportunities and interests?:D

    cheers
    CommentQuote
  • Real estate sector has reason to whine.

    Developers say they have been completely ignored
    Nilanjana Ghosh Choudhury & Dinesh Thite
    Tuesday, July 7, 2009
    Pune

    The real estate sector in the city expressed disappointment, pointing out at lack of tax incentives or relief for the middle class home buyers.
    Confederation of Real Estate Developers Association of India (Credai ), Pune president Satish Magar said they are extremely disappointed with the government ignoring the aspirations of the middle class to own a home.
    Expectations of boosting affordable housing, providing greater tax deduction in the interest paid on home purchases were not met. "While the finance minister talked about a slum-free India in five years, he seems to have completely missed the opportunity to offer relief and incentive to the middle class home buyers," he said, adding, "Overall, the budget doesn't address the needs of the housing industry at all," he said.
    Gera Developments executive director Rohit Gera said, "Given the huge deficits, it was probably not possible to provide additional tax breaks - however, the government could have provided impetus to affordable housing."
    "The FM has given the housing sector a complete go-by, which is unfortunate," he said.
    Kumar Properties director Manish Kumar Jain said the budget brings no cheer to the construction industry. The FM's proposal to raise the Minimum Alternate Tax (MAT) from 10% to 15% on 80 IB will hamper the growth of the industry. However, the abolition of FBT will reduce quite a bit of administrative work.
    Makaan.com business head and vice-president Aditya Verma said the budget has been a dampener for the real estate sector. "The sector, which has been among the hardest hit in the current meltdown, had high hopes from the government."
    The budget has ignored the wishes of both the property seekers and the developers. Seekers were expecting an increase in income tax exemption limit (on repayment of interest on home loans) from Rs1.5 lakh to Rs2.5 lakh per annum and developers were looking forward to an announcement to boost affordable housing in India, but both were left disappointed, he said.

    Source:- 3dsyndication

    This is what Pune builders have to say:-

    The finance minister completely ignored the housing sector
    The budget has a strong rural focus with some positive moves in terms of tax reforms and tax relief in small measures. Given the huge deficits, it was probably not possible to provide additional tax breaks. However, the government could have given an impetus to affordable housing. The finance minister has completely ignored the housing sector, which is unfortunate.
    —Rohit Gera, executive director, Gera Developments

    Nothing for the real estate sector to cheer about
    The vision of a slum-free India in five years could bring new avenues for real estate development. The budget offered nothing for the construction industry. I expected 80(1)(B) (tax holiday for five years) to be revived, but it was not mentioned. Neither was there any exemption on tax deduction for housing loans. The interest rate for housing loans also did not see any reduction. There was nothing for the real estate industry to cheer about.
    —Satish Magar, Managing Director, Magarpatta City

    * This is indeed a relief for buyers as the pressure on developers to crash rates sooner & at higher rate will only increase as they have no other option but to clear inventory to avoid going bankrupt.;)

    Thank you Mr. FM for kicking the RE developers hard.:)
    CommentQuote
  • Aamen!........
    CommentQuote
  • cracks

    Originally Posted by wiseman
    I now see that every one on the post is wise to the nuances of financial maths, now that its been so nicely explained!:)

    Someone said that most people are not financial savvy enough. Arguing against that statement, I said that if most people are savvy enough to refrain from buying pattani at Rs.120 (imagine, that was the price per kilo 2 days ago!) and buying it only at Rs.6 (95% down from the peak!:D), then they are savvy enough to do the calculation to buy RE at the right time.

    Now that everyone here is savvy enough to calculate the Rental Yield and peg exactly what price they should buy and are willing to wait till it is reached, while parking their funds to earn interest, my objective to warn and educate people not to be too hasty has been reached.

    Don't you think its time to retire and look at newer opportunities and interests?:D

    cheers


    Wise one we await ur wise cracks
    CommentQuote
  • Before making a flat purchase.

    Hello friends,

    This is what is very important for all of you before making a purchase of a flat irrespective of area,price,location etc.

    For the project of your interest,

    1.) Always check whether there exists a CONCRETE WALL/COMPOUND around the project. Having a CONCRETE WALL?COMPOUND means that the area has been properly demarcated for the project & a NOC has been obtained from the adjoining plot holders. This procedure is done in the presence of the adjoining plot holders in presence of concerned civic officials from city corporation (not Amanora) of PMC/PCMC etc.

    If there exists mere compound of just wired/mesh fencing, it means that demarcation has not been done. If proper wall is present on say 3 sides & while on the remaining 1 side, there exists wired compound, it means that NOC has not been obtained from the concerned plot holder & there exists some type of litigation over there.

    Such cases usually happen & later the builder (if has shown amenities etc on the such type of side later on could not built it as the adjoining plot holder claims right on that area.) Hence, make sure that before you buy, the concrete/walled compound wall is built around the project on all sides.

    Eg. One project in Wanowrie did not get the landscaped garden as the garden where it was planned was besides the fenced side & NOC was not obtained. However, later one of my friend met the adjoining plot holder & to his surprise, this plot owner too had stakes in city RE. Hence, an out of court settlement was reached & NOC was given. However, not all the projects are lucky enough.

    2.) If you are looking at almost close to completion projects, make a point to go on the terrace & see whether there exists some provision in form of small pillars & ducts (small ditch) on the terrace above the toilet/bathrooms of top floor. If such structures exists, it means that the builder is planning to build additional floor on here. Hence, be assured of smooth & leveled surface of the terrace which is pillar & duct free. In addition to this see whether the lift room is complete. This indicates that the building indeed has got over.
    Note that there may exist a duct in case of a penthouse where common terrace is absent. Hence, in such cases look out for lift room & overhead water tank.

    Eg. A project (don't remember the name) near moon city on suncity road even today doesn't doesn't have lift nor overhead tank. REASON:- The prices here shot up & builder wanted to construct additional floors. However, in the end he could not do so & left the project. Currently, the residents here don't have lift & they have installed a Sintex tank for water which proves insufficient for them. Note that this was a local builder, but in case of big builders (according to Pune RE), the projects get delayed as builders holds on for additional floors. Such instances have happened at Baner-Balewadi, Sahakarnagar etc. Hence, despite complete bookings, projects get delayed..

    Guys, the above 2 steps doesn't cost you a single dime but goes a long way in assuring some peace of mind once you are in the project. These are the things which even a lawyer can't tell as he judges everything based solely on the papers, but there exists a provision called 'PLAN REVISION' which can be given by the builder to PMC to make last minute modifications.
    (In the brochure/agreement in many cases it is written that 'THE BUILDER RESERVES THE RIGHT TO CHANGE/MODIFY THE LAYOUT,FLOOR PLAN, ELEVATION, COLOR SCHEME AMENITIES, FLOOR PLAN, NO. OF FLOORS/FLATS ETC. WITHOUT ANY PRIOR NOTICE'.)

    Always remember that the current laws are in favor of builders & not the buyers, but such cautions if taken on time will assure of some peace of mind. Now it is upto you to decide whether you want your mind to be in PEACE or in PIECES!
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  • Selling property can be taxing.

    Why buying property does not always make for good investing:-

    Buying property has always been considered a great investing exercise. A number of people even take home loans to buy property as a mode of investment.
    But is it really as great an investment as it is made out to be? Maybe not, if we take into account the various taxes that need to be paid.
    Let us take the example of an individual who bought a house for Rs 35 lakh around two years back and has been able to sell it for Rs 50 lakh, even in these difficult times.
    In an ideal world, where no income tax needs to be paid, his gain would have been Rs 15 lakh (Rs 50 lakh - Rs 35 lakh).
    But we don't live in an ideal world. In the one we live in, the individual would have to pay tax on the capital gain of Rs 15 lakh, unless he feels it is fine if the tax man comes knocking on his door.
    As per the tax laws, if one sells a property within 36 months of buying it, the resultant capital gain (the difference between the sale price and the purchase price, which is Rs 15 lakh in this case) is added to his income for that year, and taxed as per the tax bracket he is in.
    We assume that the individual we are talking about comes under the highest tax bracket of 33.99%. The tax to be paid on the capital gain of Rs 15 lakh then works out to Rs 5.1 lakh, which leaves Rs 9.9 lakh (Rs 15 lakh - Rs 5.1 lakh) in his hands.
    But even this Rs 9.9 lakh may not be his.
    Let us say the house was bought with a 15-year home loan. Two years back, some banks were desperate to give out loans and borrowers could even negotiate a 100% home loan. So let's say our man got the entire Rs 35 lakh as a loan from some bank. Assuming he has paid interest over the last two years at an average 11%, his equated monthly instalment (EMI) works out to Rs 39,780.
    Under Sec 80C of the Income Tax Act, the principal portion of the home loan can be claimed as a tax deduction. But, the Act also says that if a property is sold before five years from the end of the financial year the flat was bought in, the tax deductions claimed would have to be reversed. Since the flat was bought only two years back, the repayment of principal he has claimed as a tax benefit for two years has to be reversed.
    As per the Act, the aggregate amount of deductions so allowed in respect of the previous year or the years preceding such previous year shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
    Sounds complicated? Well, at an interest rate of 11%, the individual would have repaid principal of around Rs 2,05,600 over the last two years on the Rs 35 lakh loan taken by him and claimed that as deduction. This would be reversed and added to the income for the current year. So, on Rs 2.06 lakh, an income tax of around Rs 70,000 (33.99% of Rs 2.06 lakh), would have to be paid. This brings down the gain to Rs 9.2 lakh (Rs 9.9 lakh - Rs 70,000).
    The killjoys don't end there.
    As we all know, home loans come with a price. In the 24 months since the loan was taken, an interest of around Rs 7.49 lakh would have been paid, which whittles down the gain to Rs 1.71 lakh (Rs 9.2 lakh - Rs 7.49 lakh).
    At the same time the interest paid can be claimed as a deduction from income. A maximum of Rs 1.5 lakh can be claimed as a deduction in a given year. So over two years, a deduction of Rs 3 lakh would have been claimed, even though the interest paid on the loan is around Rs 7.49 lakh. Since the individual we are considering is in the top tax bracket of 33.99%. This would mean a saving of Rs 1.02 lakh ( 33.99% of Rs 3 lakh).
    This needs to be added to the gain of Rs 1.71 lakh. So the gain now increases to Rs 2.73 lakh.
    And there is at least one more deduction left.
    At the point of selling the house, the home loan outstanding will have to be repaid. For this, the bank will levy a prepayment charge on the principal outstanding. At a prepayment charge of 2% on a principal outstanding of Rs 32.94 lakh (Rs 35 lakh - Rs 2.06 lakh), the prepayment charge works out to Rs 66,000.
    That leaves him with Rs 2.07 lakh (Rs 2.73 lakh - Rs 66,000) — nearly a seventh of the gain he would have thought he had made.

    * Hope speculators learn something from this.
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  • Caution: Builders Modifying Projects.

    Dear members,

    Right from beginning we say that it is strongly recommended to go for ready possession flats. On some thread, some members were interested in Rohan Mithila, Vimannagar. As said before, it is not worth as most of the project is under-construction & builder may change the layout. This has come true. The builder has introduced 1BR flats & small 1100 sq ft,3BR flats too!! See, the so called premium project is no longer premium!! Hence, I reiterate, stay out of such projects whose completion is miles away or light years away!!:D
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  • Let's start another thread ... which will highlight dos and donts while buying property.

    Whats your thought ?
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  • Monetising borrowing

    The Govt seems to be doing a houdini trick by manipulating its book.

    It is issuing oil bonds. these dont show as deficits in account but,

    finally have to be repaid at some point of time.

    Thus the GOVT is just passing the buck some time in future. OR

    in simple words monetising its credit - printing more money literally.

    Add to it, the state Govt + local bodies Bonds - The deficit is HUGE.

    Not 6.9%

    So the net effect - credit squeeze gradually with onset of inflation at

    some later stage:

    Result, ur interest rates r going to go up to keep up with inflation.

    So dear investors think before u stretch ur self.

    Genuine Buyers will have to ADJUST - no choice
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  • Realacres

    You nailed it man.
    Though I am based in USA but looking to move in India within few years and looking for a decent house in Pune probably.

    When I see that if you rent a house for Rs 10k/month but to own it you need to pay Rs 30K/month then something is seriously wrong with the price or the rent
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