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 Aryan39

    A survey conducted by Knight Frank, areal estate consultancy firm, in June last year had revealed that Mumbai real estate market had an unsold inventory of 80,000 units worth approximately Rs 1,050 billion.

    The report had also stated that the global economic crisis of 2008 affected the market adversely as prices dipped in some micro-markets at the premium end of the market and rebounded, scaling to their 2007 highs in the subsequent two years.


    Inventory of 80,000 in a city with a population of 20,000,000. No wonder there are so many slums.

    Also the average prices seems to be 1.35 crores for a flat in Mumbai which is that costly as compared to Pune so really are prices falling or are these just small discounts given to attract buyers at prices which are already very high? I would not call it a correction. When buying a 2 crores house if the builder gives a discount of 10 lakhs then its alright.

    Inventory of 80,000 in a city with a population of 20,000,000. No wonder there are so many slums.

    Also the average prices seems to be 1.35 crores for a flat in Mumbai which is that costly as compared to Pune so really are prices falling or are these just small discounts given to attract buyers at prices which are already very high? I would not call it a correction. When buying a 2 crores house if the builder gives a discount of 10 lakhs then its alright.

    Inventory of 80,000 in a city with a population of 20,000,000. No wonder there are so many slums.

    Also the average prices seems to be 1.35 crores for a flat in Mumbai which is that costly as compared to Pune so really are prices falling or are these just small discounts given to attract buyers at prices which are already very high? I would not call it a correction. When buying a 2 crores house if the builder gives a discount of 10 lakhs then its alright.

    Inventory of 80,000 in a city with a population of 20,000,000. No wonder there are so many slums.

    Also the average prices seems to be 1.35 crores for a flat in Mumbai which is that costly as compared to Pune so really are prices falling or are these just small discounts given to attract buyers at prices which are already very high? I would not call it a correction. When buying a 2 crores house if the builder gives a discount of 10 lakhs then its alright.
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  • Cyprus highlights that savings no more safe: Coopercity - CNBC-TV18

    and people thought FDs are safe

    truth is anything within reach of corrupt government systems is unsafe
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  • Originally Posted by Baruch
    Cyprus highlights that savings no more safe: Coopercity - CNBC-TV18

    and people thought FDs are safe

    truth is anything within reach of corrupt government systems is unsafe

    As Mark twain once famously said " No man's life, liberty or property are safe while legislature is in session".
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  • Originally Posted by Baruch
    Cyprus highlights that savings no more safe: Coopercity - CNBC-TV18

    and people thought FDs are safe

    truth is anything within reach of corrupt government systems is unsafe


    Correct!

    So, buy gold in cash gradually and keep it out of Govt's prying eyes! :D

    cheers
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  • HDIL shares fall 20% after Care cut debt ratings

    Mumbai: Shares in Housing Development and Infrastructure Ltd (HDIL) fell close to 20 percent after local credit agency Credit Analysis and Research Ltd (CARE) downgraded the real estate developer’s debt, citing “delays in servicing” obligations.
    CARE downgraded HDIL’s non-convertible debentures (NCDs) and short-term non-convertible debentures, worth a combined 20.95 billion rupees, to “CARE D”, according to a report dated Wednesday.
    HDIL shares are down nearly 13.8 percent as of 12 noon.Reuters

    An HDIL spokeswoman had no immediate comment about the status of the company’s debt payments but said a statement would be issued later in the day.
    HDIL has lost nearly half its value since the beginning of the year to $471 million as of Tuesday’s close, with shares down 46 percent year-to-date due to concerns about its financial standing.
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  • Capt_rajesh,

    Thanks for the link. About a month ago I had told how a cheque of amount less than 20k bounced. HDIL has defaulted on loans of INR 2,100 Cr !!
    Raheja's cheque too had bounced.

    Apart from this, this year the cricket tournament of IPL is not being sponsored by DLF !! Liquidity probs or Vadra effect. :D

    In Pune, some builders are sending letters for recovery of VAT with interest rates as high as about 25%. This is just another ploy to garner as much money as possible & show this money as revenue in the books before 31st March. There is though absolutely no need to pay VAT to builder.
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  • Originally Posted by Aryan39
    After stubbornly holding on to high prices for four years in the face of sluggish sales, a crippling liquidity crunch and rising cost of capital, Mumbai’s real estate industry has just blinked.

    At least three of Mumbai top builders have either cut prices by as much as Rs 2250 to Rs 5,000 or introduced flexible pricing within a single project, or launched innovative schemes where buyers stump up large sums to book properties even before the project enters construction stage.

    All this means only one thing - the longdue correction in real estate prices is here. And while many builders may not be announcing price cuts up front yet, it is no secret that they all are now willing to negotiate with buyers.


    --
    A survey conducted by Knight Frank, areal estate consultancy firm, in June last year had revealed that Mumbai real estate market had an unsold inventory of 80,000 units worth approximately Rs 1,050 billion.

    The report had also stated that the global economic crisis of 2008 affected the market adversely as prices dipped in some micro-markets at the premium end of the market and rebounded, scaling to their 2007 highs in the subsequent two years.

    But in 2012, the Mumbai market stagnated as buyers largely kept away expecting a drop in prices in the near future. The buyers’ patience has paid. The Mumbai market is now opening for good bargains.

    Lalit Kumar Jain, president of Confederation of Real Estate Developers Association of India, said the liquidity crunch is forcing builders to reduce prices and clear inventory. He expects more builders to follow Naman, RNA and Lodha’s example.

    43 Nirvana hills, near paud road flyover is offering discounts. They say come to office to get good deal !! The sales at KUL Ecoloch too aren't picking up well. Kumar Millenium near shivtirthnagar is a dud project.

    And the KUL new township based on DP road, KUL Nation is more like a Ponzi scheme.
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  • Originally Posted by realacres
    Capt_rajesh,

    Thanks for the link. About a month ago I had told how a cheque of amount less than 20k bounced. HDIL has defaulted on loans of INR 2,100 Cr !!
    Raheja's cheque too had bounced.

    Apart from this, this year the cricket tournament of IPL is not being sponsored by DLF !! Liquidity probs or Vadra effect. :D

    In Pune, some builders are sending letters for recovery of VAT with interest rates as high as about 25%. This is just another ploy to garner as much money as possible & show this money as revenue in the books before 31st March. There is though absolutely no need to pay VAT to builder.


    HDIL had launched projects very aggressively in Andheri west at a starting price of Rs 6000 / sq. feet during 2008 downturn and received good response overall, but Looks like they have gone horribly wrong with their market strategies and are paying the price for that.
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  • Originally Posted by realacres


    Apart from this, this year the cricket tournament of IPL is not being sponsored by DLF !! Liquidity probs or Vadra effect. :D



    KFA workers threaten to disrupt IPL, demand Mallya's trial - PTI
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  • Wow, now people are using US housing price rises to justify prices in India. This is hilarious. If US and Indian housing prices were so deeply correlated, where was India during the US housing crash in 2008?
    And when we say that all reasons of bubble are same in India today as they were in US 4 years ago, or in Canada today, then people dismiss this as theory.
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  • Originally Posted by abeerbagul
    Wow, now people are using US housing price rises to justify prices in India. This is hilarious. If US and Indian housing prices were so deeply correlated, where was India during the US housing crash in 2008?
    And when we say that all reasons of bubble are same in India today as they were in US 4 years ago, or in Canada today, then people dismiss this as theory.


    we started with 2009 like "If price can fall in Boston why not in Pune man" ... "or US housing shows exacly the path Indian housing market gonna take" .., there were not much objections to the same at that time (mean man the post used to come from biGGies) . People use to take name like Washington, San Francisco, Baner, Fursoongi all in same breath.

    Scenario remains same. People tryingto connect US housing conditions to Indian conditions.

    This can be argued two ways. When US houses were falling and even then India housing frew by 15-20% per year. Now if US itself going up how much big rise Indian prop will have.

    Other way is that some people may say "I think both market are inveresely correlated (throw in some chart from dust some US dolalr vs ... err .. anythign would do ... it just make thing look authentic ) and now we will see drop in Indian market".

    One more interesting group can say that now peopel will sell of prop in India and buy in say Houston (ust say 5 of my NRI friends are doing that ... who gonna verify man ... you can be bold enough to say you are yourself settling in Nevada and plan to sell paav and vada there to desi and red inidians as they are bored of burger king anyway) as its has more up potential than India. Now then say surely this is tell tale sign of fall as NRI money moved abroad and cooling of local prices.

    Let the imaginations flow in.
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