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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  • Fri, Sep 21, 2012 at 13:56

    Mumbai Real Estate - Slackness across segments]

    By Prabhudas Lilladher
    Mumbai Real Estate

    Sector Update - Slackness across segments

    - Sales registerations slip 3rd month in a row; 5% MoM

    - Lease registrations too continue on its downward trajectory

    - Rates unchanged, RBI maintains its anti-inflationary stance

    - FDI in retail to provide impetus to leasing as investments kick-in


    Slide from June onwards continues

    The slide in Mumbai sales registrations numbers that started from June has continued in August as well with a 5% MoM decline and a 2% YoY decline. The absolute decline from the peak of May stands at 13%. The lack of new launches, sticky prices coupled with high interest rates are of no help to home sales. The stressed affordability equation continues amid high property prices.

    Lease registrations, though higher by 10% on a YoY basis, on a MoM basis continued to decline by 6% post the 17% decline witnessed last month. The slowdown in commercial real estate is clearly visible from these numbers.

    Mumbai Real Estate - Slackness across segments - Moneycontrol.com
    CommentQuote
  • I think people had enough discussions earlier regarding NPA's of a bank. Come on man... We are now tired of reading your posts..... At first during (Nov'09), your post regarding RE crashes really appealed to me and I also fantasized of buying RE in a cheap crashed market... But this has never happenned.. Instead I am pained to inform that I have lost considerably till I made buying decision in Dec'10... We are now very much confused regarding the real motive behind your posts.

    Do you something which happened in 2009 ? It is called Restructuring of bad loans & teaser rates for buyers. It was only because of these 2 things which helped the builders survive, else many would have gone bust that time.
    This time though, situation is lot worse, the banks are having huge NPAs & NPAs in realty are registering 30% growth YoY, which is huge. Add to it fiscal deficit & RE being termed as HIGH RISK by RBI, monetary situation is worse for RE.

    Guys dont worry regarding few bad transactions posted by realacres..This is bound to happen in such a diversified market with thousands of transactions per day...

    Issue is not just number, issue is the percentage rise in bad transactions, which is huge. Over 15,000 Cr worth houses being sealed in 1 year is not a joke (Please check previous post for the details).

    IT is true that there is a stagnation in RE demand and prices.. But this is only due to the factors such as high interest rates on home loans and high inflation rates.... There are millions of Indians who do not even have there first home... Once these factors turn in favor of buyers, there will be a strong demand back again.

    Now you spoke typical words of CREDAI/PBAP :D.
    Interest rates is nothing compared to absurd rise in realty prices. When flats don't sell, builders are first to point towards high interest rates, as if, if banks lower interest rates, builders will become Mother Terresa. :D

    And which millions you are talking about ?
    Those staying in rural areas don't have builders there, there are people who stay in slums & then worse case is staying on platform & footpaths.

    Saying millions don't have home is a sham. And those who stay on rent stay in aashram or what ?? :D Those who buy flat with loan also don't own the flat in reality, as flat remains with the bank & not buyer till entire loan is repaid. Please don't forget this fact.

    Yes, I agree that demand is there, but at right prices. People earning above 10L/annum are not even 2% of India's population & if these 2% are finding it hard to buy, imagine what will be the plight of remaining 98% ??

    Infact, now is the correct time to buy as RE market has already corrected (not reduced)) considerably....

    LoL. One on hand you say prices won't correct & now you say they have already corrected & won't fall further ??
    It is true that prices have indeed started to fall but there is ample scope for further downfall. RE bulls make the statement like you above so that people buy at inflated prices which will help you to hold on to the bubble even a bit longer, but my friend this is not going to happen this time. Fun has already started in RE, just keep an eye around & who knows you may get a deal that one may not have expected of just 3 months ago. :)

    BTW, when US subprime crisis took place, people thought nothing will happen that way & now we all know what happened next.

    I have more RE downfall news of this week, will post them below.
    CommentQuote
  • Originally Posted by pande1
    NPAs indeed are on the rise, however I did not come across the 30% downpayment news, can we get the source of this news?

    If its true then it is a commendable move indeed and will reduce participants willing to over leverage themselves


    The link was uploaded here over a month ago. RBI has now also stated that all the taxes (stamp duty, reg, ST etc.) shall be kept out of home loan amount, which means additional 10% downpayment for the buyers. And very few banks now lend over 75%-80% loan, hence net effective down-payment of total cost becomes atleast 30%.
    CommentQuote
  • 2 bhk for 82 lakhs in a society where it was 60 lakhs in 2010....this is builder quote..clearly prices have not cooled down..they are only heading upwards without any reason
    CommentQuote
  • Originally Posted by mymarji
    What!!! Should we rejoice for saving 6K, when we are getting ripped by thousands more. Doesn't sound right logic to me....

    Hey lovepune, where is the party for saving 6K annually?


    Good evening.... mymarji....

    its not about 6k as it has got no value... Its about the sentiments of the market... and most of the markets move based on sentiments (may it be gold, stocks, re etc)

    0.25% decrease in lending rates will also lead to 0.25% decrease in bank deposit rates. This has got a double impact. and with every downfall in interest rates (which is widely expected by market experts in coming months) more people will be attracted towards other investment options such as shares, gold, re etc as they are reportedly fetching better returns than bank deposits.

    Why did RE market surged from 2009 till 2011 and stagnated in 2012.. It has simply followed the interest rate movement (being inversely proportional)... So the current market situation is the best situation for taking a buy decision in RE as interest rates are widely expected to fall...
    CommentQuote
  • Originally Posted by puser
    2 bhk for 82 lakhs in a society where it was 60 lakhs in 2010....this is builder quote..clearly prices have not cooled down..they are only heading upwards without any reason



    I think realacres should answer why the market has always moved contrary to his expectations..
    CommentQuote
  • 2.25 million homes empty, people still homeless in state- What can we predict for years to come?

    The news in Hindustan times

    http://www.hindustantimes.com/India-news/Mumbai/2-25-million-homes-empty-people-still-homeless-in-state/Article1-934276.aspx


    There are 2.25 million vacant houses in Maharashtra, more than in any other state in the country, but there is still an acute shortage of homes, according to a report by the ministry of
    housing and urban poverty alleviation.

    Analysts say this paradox could have been avoided if a regulatory authority had been created to monitor the real-estate market. Instead, people in need of homes do not drive the real estate sector, investors and NRIs with surplus capital do. Thus, in Mumbai, more than half the houses are owned by investors and industrialists who do not even need to give out these houses on rent. They just keep them locked up as prime assets, says Anirudh Wahal, director (West India) of Occupier Services.
    "Maharashtra is an investor-friendly market, and cities such as Mumbai, Pune, Nagpur, Nashik and Kolhapur are good investment destinations too," Wahal adds. "Because of this, a large number of houses are lying vacant."
    A special tax on empty homes and incentive policies for lessors would help address this paradox, the report said.


    My own comments (manojsti):



    If we follow this trend I guess following are two possibilities:


    1. Investors & NRI's continue to have 50% share in RE in future
    Remaining 50% will be with real users (highly leveraged)


    2. As a wise investor will always enter into market when the valuations are attractive i.e. comparatively lower than current price. Envestors will shy away with investing now. If the property market is stagnant now, will you expect it to appreciate by more than 10% in a year?


    Could you please share your view for these two cases?
    CommentQuote
  • similiar news in today's delhi hindustan times that 62% of houses in india r vacant.
    CommentQuote
  • In NCR, you won't get to see vacant houses. Here demand is high. Just see example of NE, Neharpar,
    To save rent, people are still ready to buy in areas which are still not ready to live.
    CommentQuote
  • Originally Posted by lovepune
    Good evening.... mymarji....

    its not about 6k as it has got no value... Its about the sentiments of the market... and most of the markets move based on sentiments (may it be gold, stocks, re etc)

    Why did RE market surged from 2009 till 2011 and stagnated in 2012.. It has simply followed the interest rate movement (being inversely proportional)... So the current market situation is the best situation for taking a buy decision in RE as interest rates are widely expected to fall...


    Yes you are right, markets are driven by sentiments, but if the sentiments are negative or depressed, then what happens, will the prices stay put or increase ? Do keep in mind that in todays situation, if the price stays put, it is like reduction due to overheads.

    Somebody posted a 2BHK for 82L, I think it was puser . If a 2BHK costs 82L, then is it worth buying that ? Or think of buying a 3BHK a little far away but better infrastructure. I would choose latter instead of 2BHK. So if people think like this, will the 2BHK still sell for 82L ? I don't think so. If that 2BHK owner needs money, he has to sell for an reduced rate, bringing down the rates in that area. when a 2BHK costs 82L, I am better off staying in a 3BHK on rent for nearly 0.2-0.4% of that value.

    Value upto a certain time looks good and justifiable, after that it is not worth it. Current RE prices are in that "not-worth" range. Any TDH (Tom-Dick-Harry) will quote any amount that comes in his/her mind .

    Any investor will have to rent his property, as he cannot keep it vacant, since they have to shell out the maintenance charges for that society. So, there will always be rental houses to stay in and the rents will be reasonable.

    Even today RBI was saying that Banks Asset Quality has reduced. NPAs are increasing...where are things headed...one can only guess.
    CommentQuote
  • Eco booster continues: Package for realty soon

    Eco booster continues: Package for realty soon
    Sep 24, 2012, 12.22AM IST TNN

    Chidambaram said there were nearly five lakh apartments lying vacant in Mumbai alone and asked IBA to look at ways to prop up demand, get builders to complete projects and sell unoccupied dwellings.
    NEW DELHI: The government is readying a package to boost real estate activity by easing lending and provisioning norms for banks as part of a strategy to prop up the sector that provides significant employment in the country after developers expressed their inability to cut prices to increase demand.

    The steps follow an interaction that finance minister P Chidambaram had with public sector bank chiefs last month, where he also asked the Indian Banks' Association (IBA) to prepare a simplified education loan scheme, backed by a credit guarantee fund.

    While a new education loan code is a work in progress, bankers said a funding boost for real estate was discussed by financial services secretary D K Mittal with bankers and industry representatives in Mumbai last week and the government will seek simplification in norms by the Reserve Bank of India (RBI).

    On education loans, while IBA is still working out the norms, a bank chief said the FM's suggestion to provide loans to students getting admission under the management quota was virtually accepted. Similarly, banks will change the service area approach for these loans and students will be able to avail of the facility from any branch.

    At the meeting, Chidambaram sought feedback from banks on various sectors and has already taken up the issue of clearing infrastructure projects that are held up in the absence of land, fuel or environment clearances. Besides, he has asked state-run banks to devise schemes to push consumer durables sales, which was seen as a message to cut rates on auto loans.

    Chidambaram said there were nearly five lakh apartments lying vacant in Mumbai alone and asked IBA to look at ways to prop up demand, get builders to complete projects and sell unoccupied dwellings.

    A banker said developers had argued that it was tough to cut prices given the high labour and land cost as well as inputs such as cement and steel. Besides, they said the profit margin was not very significant to justify a reduction in prices. As a result, the government is now looking at ways to help the sector that can have a rub-off effect on sectors such as cement and steel besides creating jobs.

    At the meeting, lenders demanded a change in approach by real estate developers, asking them to move to a project-specific borrowing model, which will make it easier for lenders to track funding. "We do not lend to a corporate house which is in the cement or power sector. We lend to a project that is being developed, which also provides us comfort," said a public sector bank chief.

    Another bank chief said that for these projects, an escrow amount will be opened, where buyers would deposit their money and lenders would be able to take charge of those funds. "But when it comes to builders, it is easier said than done," the chairman added.

    A key area where lenders are seeking a change in norms is to get the regulator to simplify norms so that the loans extended for residential projects to the builders are not treated at par with those for commercial real estate. Currently, all exposure to developers requires higher charge on capital, which means banks have to set aside more funds if they lend to companies.

    RBI has traditionally been wary of bank lending to real estate and even has a cap of 5% on loans to the sector. Although home loans are treated separately, the regulator has often discouraged banks from lending to individuals as well.

    Eco booster continues: Package for realty soon - TOI Mobile | The Times of India Mobile Site
    CommentQuote
  • Originally Posted by lovepune
    .....
    NEW DELHI: The government is readying a package to boost real estate activity by easing lending and provisioning norms for banks as part of a strategy to prop up the sector that provides significant employment in the country after developers expressed their inability to cut prices to increase demand.

    ....

    A banker said developers had argued that it was tough to cut prices given the high labour and land cost as well as inputs such as cement and steel. Besides, they said the profit margin was not very significant to justify a reduction in prices. As a result, the government is now looking at ways to help the sector that can have a rub-off effect on sectors such as cement and steel besides creating jobs.

    ......


    so builder's profit margins prevent them for any price reduction ?? hard to believe
    CommentQuote
  • High labour costs? The way builders put it, parking lot of construction workers should be full of cars.
    I dont see many construction workers even able to afford a bike.
    CommentQuote
  • Originally Posted by lovepune
    Eco booster continues: Package for realty soon
    Sep 24, 2012, 12.22AM IST TNN

    Chidambaram said there were nearly five lakh apartments lying vacant in Mumbai alone and asked IBA to look at ways to prop up demand, get builders to complete projects and sell unoccupied dwellings.
    NEW DELHI: The government is readying a package to boost real estate activity by easing lending and provisioning norms for banks as part of a strategy to prop up the sector that provides significant employment in the country after developers expressed their inability to cut prices to increase demand.

    Eco booster continues: Package for realty soon - TOI | The Times of India Site

    I find this a crazy idea. People are not buying becoz they are unaffordable. Looks like Chiddu is not well learnt and doesn't understand the economy as well. How is he going to make people buy, is he going to force them.

    Even if the Banks reduce interest or make available funds to RE developers/builders, will people be able to buy the houses, which are out of their reach.

    Anyway I did expect such a news article from TOI-Let paper. So, no big deal. We all know that Govt is coming up with FDI in Infrastructure, so that news they twisted in favour or RE builders/developers.

    I find this a crazy idea. People are not buying becoz they are unaffordable. Looks like Chiddu is not well learnt and doesn't understand the economy as well. How is he going to make people buy, is he going to force them.

    Even if the Banks reduce interest or make available funds to RE developers/builders, will people be able to buy the houses, which are out of their reach.

    Anyway I did expect such a news article from TOI-Let paper. So, no big deal. We all know that Govt is coming up with FDI in Infrastructure, so that news they twisted in favour or RE builders/developers.

    I find this a crazy idea. People are not buying becoz they are unaffordable. Looks like Chiddu is not well learnt and doesn't understand the economy as well. How is he going to make people buy, is he going to force them.

    Even if the Banks reduce interest or make available funds to RE developers/builders, will people be able to buy the houses, which are out of their reach.

    Anyway I did expect such a news article from TOI-Let paper. So, no big deal. We all know that Govt is coming up with FDI in Infrastructure, so that news they twisted in favour or RE builders/developers.

    I find this a crazy idea. People are not buying becoz they are unaffordable. Looks like Chiddu is not well learnt and doesn't understand the economy as well. How is he going to make people buy, is he going to force them.

    Even if the Banks reduce interest or make available funds to RE developers/builders, will people be able to buy the houses, which are out of their reach.

    Anyway I did expect such a news article from TOI-Let paper. So, no big deal. We all know that Govt is coming up with FDI in Infrastructure, so that news they twisted in favour or RE builders/developers.
    CommentQuote
  • Money collection for upcoming elections

    Re-package to collect money from builder lobby for elections. Money doesn't grow on trees except when govt. wants to save banks, builders with newly printed money.
    CommentQuote