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 herohiralal
    While all that you have mentioned is happening some people still manage to climb higher in their profession / business and increase their earning capacity and go on to buy more assets (RE, stocks, gold, silver and what not) and earn decent returns. They also manage to teach the value of money to their kids and the tricks that they have learnt on how to ensure one can build wealth. Some people also manage to pursue their hobbies while others invest that time in more work (whatever makes one happy) Their kids go on to do even bigger things that their parents.

    So its all not all doom and gloom cause if it was then we all would still be monkey living on trees :) Human adaptability and intelligence is tremendous so enjoy this ride. It will be fun. guaranteed!!


    so why did humans stop evolving ? , its high time we evolve and have some kind of super human power :)
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  • Originally Posted by shashankgujjar
    so why did humans stop evolving ? , its high time we evolve and have some kind of super human power :)


    We did - poor are humans and rich are super humans !!!!
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  • Originally Posted by realacres
    Non-performing assets of public sector banks rose to Rs 1,11,664 crore in 2012 from Rs 52,807 crore in 2003, data from the Reserve Bank of India said.

    Non-performing assets of public sector banks rose to Rs 1,11,664 crore in 2012 from Rs 52,807 crore in 2003, data from the Reserve Bank of India said.

    "The asset quality of banking system has deteriorated significantly during the year 2011-12 after a period of sustained improvement. Inadequate credit appraisal during the boom period of 2003-07 coupled with the adverse economic situation in the domestic as well as the external front resulted in the current increase in NPAs," RBI said.

    The non-performing assets (NPAs) of country's bank SBI and its associates in 2012 (as of March 31) were at Rs 45,695 crore from Rs 16,958 crore in 2003, while that of nationalised banks' were at Rs 65,969 crore versus Rs 35,849 crore.

    Priority sector contributed to largest share of NPAs at Rs 23,911 crore (52.33 per cent), non-priority sector Rs 21,759 crore (47.62 per cent) while public sector NPAs Rs 25 crore (0.05 per cent) as of March 31, 2012 for State Bank of India and its associates.

    Gross NPAs (including SBI and its associates and nationalised banks) from the priority sector stood at Rs 56,201 crore as of March 31, 2012. Non-priority sector Rs 55,246 crore and public sector Rs 217 crore, showed the data.

    RBI said the spurt in NPAs could be attributed to deterioration in asset quality of the banks, the slowdown prevailing in the domestic economy as well as inadequate appraisal and monitoring of credit proposals.

    "The deterioration in asset quality was more pronounced in the case of public sector banks. During 2011-12, the gross NPAs of public sector banks increased at a higher rate as compared with the growth rate of NPAs at a system-level."

    The asset quality of banks is an important indicator of their financial health and it reflects the efficacy of banks' credit risk management and the recovery environment.

    To strengthen the NPA management framework of the banks, the RBI its in 2012-13 Monetary Policy has advised the banks to put in place a robust mechanism for early detection of signs of distress, and implement measures to preserve the economic value of assets.

    It has also asked the banks for a proper system-generated segment wise data on their NPA account.

    Bad loans of PSBs rise to Rs 1.12 lakh cr in 2012 - PTI

    >> Builders getting trapped under huge debt, NPAs of banks rising.......writing is very much clear on the wall.



    Look at this
    India to infuse capital into state-run banks: Chidambaram - Moneycontrol.com

    "NPA is reflection of the slowdown in the economy" Wow. Amazing analysis. So NPA is not due to bad business decisions made by people? So Kingfisher went down because of slowdown in the economy and not due to excessive tax, crazy business model, no price hike in rail fares for ages, etc.

    With such support to sick industries how can one expect any creative destruction to take place in India. Applying patches to structural problems will continue for some more time.

    The only real indicator of the bad economic policies that the govt of india has implemented for decades can be the rupee but even the rupee has been kept high due to FDI, FII and remittance.

    So the banks will continue to lend as before cause the show must go on :) Dont expect RE prices to fall based on the support the govt is willing to provide bad business decisions and the skin it has in the game.
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  • Originally Posted by herohiralal
    Look at this
    India to infuse capital into state-run banks: Chidambaram - Moneycontrol.com

    "NPA is reflection of the slowdown in the economy" Wow. Amazing analysis. So NPA is not due to bad business decisions made by people? So Kingfisher went down because of slowdown in the economy and not due to excessive tax, crazy business model, no price hike in rail fares for ages, etc.

    With such support to sick industries how can one expect any creative destruction to take place in India. Applying patches to structural problems will continue for some more time.

    The only real indicator of the bad economic policies that the govt of india has implemented for decades can be the rupee but even the rupee has been kept high due to FDI, FII and remittance.

    So the banks will continue to lend as before cause the show must go on :) Dont expect RE prices to fall based on the support the govt is willing to provide bad business decisions and the skin it has in the game.


    One very surprising fact is that there is a database for tracking the credit history of individual borrowers who may be borrowing a few thousand or lakhs. However, there is no database to track credit history of corporates who borrow thousands of crores.

    As of now, when a corporate says he has taken loans of 1000 crs from other banks, there is no way of even verifying the same. Case in point being Deccan Chronicles. Strange times we live in.
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  • Originally Posted by herohiralal
    Look at this
    India to infuse capital into state-run banks: Chidambaram - Moneycontrol.com

    "NPA is reflection of the slowdown in the economy" Wow. Amazing analysis. So NPA is not due to bad business decisions made by people? So Kingfisher went down because of slowdown in the economy and not due to excessive tax, crazy business model, no price hike in rail fares for ages, etc.

    With such support to sick industries how can one expect any creative destruction to take place in India. Applying patches to structural problems will continue for some more time.

    The only real indicator of the bad economic policies that the govt of india has implemented for decades can be the rupee but even the rupee has been kept high due to FDI, FII and remittance.

    So the banks will continue to lend as before cause the show must go on :) Dont expect RE prices to fall based on the support the govt is willing to provide bad business decisions and the skin it has in the game.


    Infusion of Rs 15,000 cr is paltry compared to NPA of 1 Lakh cr. This infused capital will just make up the bad loans for KFA (7k cr) and DCHL(4k cr)!

    Above all. RE is not the only sector in trouble but many other sectors including telecom. So, there is too little amount and too many beggers!

    Govt has it's own limitations to infuse captial. Injecting more capital would mean borrowing more money for debt laden govt which would mean more inflation. More inflation would mean tough time in coming general elections. More inflation would also mean Subbarao won't cut rates!

    Things are just not too simple :)
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  • Originally Posted by realpune
    Infusion of Rs 15,000 cr is paltry compared to NPA of 1 Lakh cr. This infused capital will just make up the bad loans for KFA (7k cr) and DCHL(4k cr)!

    Above all. RE is not the only sector in trouble but many other sectors including telecom. So, there is too little amount and too many beggers!

    Govt has it's own limitations to infuse captial. Injecting more capital would mean borrowing more money for debt laden govt which would mean more inflation. More inflation would mean tough time in coming general elections. More inflation would also mean Subbarao won't cut rates!

    Things are just not too simple :)


    This is equity infusion so multiple this by 10 to get the actual amount of new loans that can be made and then the NPA figure as % of assets comes down. The gross NPA may stay same or even increase but the % of NPA comes down. KFA loans will be converted in equity and banks will take hit of 2-3K on the loans.

    This equity injection is just for banks other than SBI which got its own equity infusion some time back.

    RBI rate cuts don't matter cause companies are already restructuring loans to lower rates. The game can go on for some more time as with it RE price rise.

    This is an example of what the govt can and will do to support banks and industries to keep the game going.
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  • Originally Posted by herohiralal
    This is equity infusion so multiple this by 10 to get the actual amount of new loans that can be made and then the NPA figure as % of assets comes down. The gross NPA may stay same or even increase but the % of NPA comes down. KFA loans will be converted in equity and banks will take hit of 2-3K on the loans.

    This equity injection is just for banks other than SBI which got its own equity infusion some time back.

    RBI rate cuts don't matter cause companies are already restructuring loans to lower rates. The game can go on for some more time as with it RE price rise.

    This is an example of what the govt can and will do to support banks and industries to keep the game going.



    When the loans go bad, they have to be reduced directly from equity, not from the combination of debt and equity. Secondly, last year SBI was almost begging for equity infusion of 20000 crs and given its precarious situation, Govt gave it a relatively small equity infusion of 7900 crs just to prevent downgrade and support its growth for a short period. Actual need for equity infusion in all banks is huge and is going to create huge stress for an already stressed govt balance sheet.
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  • Originally Posted by realpune


    Above all. RE is not the only sector in trouble but many other sectors including telecom. So, there is too little amount and too many beggers!



    Banks will be encouraged to lend to telecom sector: FM - PTI

    Ok telecom done. Any other sector that you want PC to deal with? :) Dont underestimate the power of crony capitalism. Its all a big joke. FM deciding which sector will get funding but thats the way India works. It will all fail eventually but still some steam left in this centrally planned democracy.

    Govts have pumped thousands of crores in Air India over the years just to save what 27,000 jobs? Out political leaders can go to any length to save industries they think are imp. BSNL and MTNL are just another Air India waiting to happen.
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  • Originally Posted by piy12b
    When the loans go bad, they have to be reduced directly from equity, not from the combination of debt and equity. Secondly, last year SBI was almost begging for equity infusion of 20000 crs and given its precarious situation, Govt gave it a relatively small equity infusion of 7900 crs just to prevent downgrade and support its growth for a short period. Actual need for equity infusion in all banks is huge and is going to create huge stress for an already stressed govt balance sheet.


    When loans go back the profit takes a hit and then to save cash the dividend is reduced and even if that is not enough the fresh equity is raised and lending standards are made stringent.

    Thats how normal banks work but in India to keep the ball rolling the govt will tinker with rules, forgive agri loans, inject equity, provide tax benefit, create monopolies etc.
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  • Home truths


    The Indian Express Posted online: Fri Nov 16 2012, 02:58 hrs
    India’s real estate sector faces a downturn. Expanding low-cost housing can show a way out

    The sluggishness in the demand for residential housing in leading markets like Mumbai and Delhi has become visible, with several listed real estate companies reporting higher levels of inventory. The commensurate drop in the value of the housing portfolio of the leading financiers for the sector indicates that the pace of buying houses is not expected to build up for the next two quarters. For the first time, possibly, despite a rising population, India’s real estate sector is facing a full-fledged downturn. Against this backdrop, the ministry of housing and poverty alleviation’s move to push up the ceiling for low-cost housing might be a useful measure to get some demand built into the market. Access to housing means a rise in the net worth of a family. The security provided by it leads to a rise in demand for other goods and services too. From the banking sector’s perspective, the exposure to the housing sector accounts for 10 per cent of non-food credit, so any slowdown here has a cascading effect.



    As a recent report by real estate analyst firm CB Richard Ellis points out, the bulk of the expected demand for fresh housing stock will remain concentrated in the middle segment and low-cost housing this year. Some buoyancy had come in from the one per cent interest rate subvention offered by the Union budget this year. But for this segment to take off, home prices have to come down drastically. While the ministry, by raising the threshold for the definition of low-cost housing to include families with an annual income of Rs 1 lakh, up from the current Rs 60,000, has taken the right step; a house can be made affordable for this income group only if it is priced around Rs 5,00,000, that is, 60 times their monthly income. That sort of housing stock is scarcely present with any of the real estate companies. It is unlikely to materialise in the near future unless the government takes measures to cut the value of land from the pricing for this housing segment.



    This would, however, need a full-fledged regulator to be up and running in the sector to monitor the efficient use of the land. Till that happens, the demand is likely to remain muted, all the more so as the impact of the cut back in growth rates of the economy plays out here too.
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  • Originally Posted by herohiralal
    While all that you have mentioned is happening some people still manage to climb higher in their profession / business and increase their earning capacity and go on to buy more assets (RE, stocks, gold, silver and what not) and earn decent returns. They also manage to teach the value of money to their kids and the tricks that they have learnt on how to ensure one can build wealth. Some people also manage to pursue their hobbies while others invest that time in more work (whatever makes one happy) Their kids go on to do even bigger things that their parents.

    So its all not all doom and gloom cause if it was then we all would still be monkey living on trees :) Human adaptability and intelligence is tremendous so enjoy this ride. It will be fun. guaranteed!!


    I think the story has much more to say than just about the way Builders are fooling the Poor buyer or the EMI eating away salary.
    It’s also not just about people getting promotions and salary hike and able to stock more RE and gold.

    I think we all have heard the phrase “ In pursuit of happiness”
    Why pursue happiness and not getting it. Well because happiness is something which can only be pursued if we don’t know the way to be happy.

    What makes a person happy is subjective to each individual but don’t forget to appreciate what you have today.
    If making your own home…..decorating it with your own colors, providing financial security for your children was your goal then that grey hair won’t mind you as you set out on the target to get it and have achieved it proudly.

    But if you were in a delusion of the pic that showed a happy couple walking amidst the green color and mountains in the middle of Mumbai then you were obviously chasing the wrong dream.
    It’s time to retrospect.
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  • The RE adds on my way to Hinjewadi really make me laugh ... they protray us as kings ,prince and driving Rolls Royce and living in Luxury .... it seems to be a joke on the ITG working in Hinjewadi (ITG would know what i mean here).... i see a new trend i see there are threatening adds there is one near wipro circle displaying before and after rates for diwali... add saying that everyday we miss booking the price is going to increase (this is for Water edge i cant believe it is still unbsold after 2007 launch) ... then the Myworld add telling us that before it grows into mighty fortune it is always affordable now :D...... 24k gliterati saying you should buy it because it has 24k in its name :bab (59):

    This is my first post but i have been following the forum for long

    Note:- I was a bull supporter when i bought house in PS i was worried each month if the price didnt go up now i support bears because i want to buy a 3bhk:o funny isnt it??
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  • Originally Posted by Tangent
    The RE adds on my way to Hinjewadi really make me laugh ... they protray us as kings ,prince and driving Rolls Royce and living in Luxury .... it seems to be a joke on the ITG working in Hinjewadi (ITG would know what i mean here).... i see a new trend i see there are threatening adds there is one near wipro circle displaying before and after rates for diwali... add saying that everyday we miss booking the price is going to increase (this is for Water edge i cant believe it is still unbsold after 2007 launch) ... then the Myworld add telling us that before it grows into mighty fortune it is always affordable now :D...... 24k gliterati saying you should buy it because it has 24k in its name :bab (59):

    This is my first post but i have been following the forum for long

    Note:- I was a bull supporter when i bought house in PS i was worried each month if the price didnt go up now i support bears because i want to buy a 3bhk:o funny isnt it??


    If they are really confident of selling flats later at higher prices post Diwali, I wonder why they are willing to lose money twice, once by selling just a few days early at a lower price and then by announcing the same through ads.. Maybe it is the goodness in their hearts that makes them do so. Charity probably..
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  • Originally Posted by kingmanish
    I think the story has much more to say than just about the way Builders are fooling the Poor buyer or the EMI eating away salary.
    It’s also not just about people getting promotions and salary hike and able to stock more RE and gold.

    I think we all have heard the phrase “ In pursuit of happiness”
    Why pursue happiness and not getting it. Well because happiness is something which can only be pursued if we don’t know the way to be happy.

    What makes a person happy is subjective to each individual but don’t forget to appreciate what you have today.
    If making your own home…..decorating it with your own colors, providing financial security for your children was your goal then that grey hair won’t mind you as you set out on the target to get it and have achieved it proudly.

    But if you were in a delusion of the pic that showed a happy couple walking amidst the green color and mountains in the middle of Mumbai then you were obviously chasing the wrong dream.
    It’s time to retrospect.


    Buying RE based on ads is like marrying based on a photo of the girl or boy :) And this applies to not only RE but any product.

    I have seen people buy flats based on what has been said in the story and such people deserve the tension, unhappiness and stress that comes by taking such a decision.
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  • Originally Posted by herohiralal
    Buying RE based on ads is like marrying based on a photo of the girl or boy :) And this applies to not only RE but any product.

    I have seen people buy flats based on what has been said in the story and such people deserve the tension, unhappiness and stress that comes by taking such a decision.


    Then what do you say to people who are waiting for a price correction in real estate for so many years and still reading and writing in the forum. Should they have taken a decision to buy a flat, they would have happily living in their own house now. They are the most tense right now, as they can't even afford to have a flat as price is more than double in 2/3 years.

    Fact is, there is no shortage of investors in Mumbai (who invest in pune) and corrupt politicians, public servants etc etc with loads of black money. So whether you buy the concept or not, all flats will be booked/sold in good/standard projects...It is upto you to take risk or pay double the price by waiting to buy a ready possession flat/house.
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