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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  • Bombay HC finds Hirco arm prima facie loan defaulter

    Nov 01, 2013
    ET

    MUMBAI: The Bombay High Court has asked a subsidiary of real estate firm Hirco Plc to disclose all its assets in an interim order that observed that prima facie Hiranandani Palace Gardens has defaulted on loan repayment to Tata Capital Financial Services.

    Tata Capital Financial Services had filed a winding-up petition against Hiranandani Palace Gardens, which has undertaken township projects in Chennai and at Panvel near Mumbai, over alleged default of term loan worth Rs 76 crore. The lender has demanded liquidating the firm.

    The court has now passed an interim order with prima facie view that the firm has defaulted on its loan repayment to Tata Capital.

    Hiranandani Palace Gardens has accepted to file an undertaking in the court that the developer will not create any third-party rights in respect of mortgaged properties and it will also not further encumber other properties without the court's permission. The matter will now be heard on December 4. Vikram Trivedi, managing partner at law firm Manilal Kher Ambalal & Co that represents Tata Capital Financial Services, confirmed the development. He, however, declined to comment, saying the matter is sub judice. According to the lender's petition, it had sanctioned Hiranandani Palace Gardens' applications for a Rs 100-crore term loan in July 2011. And it had disbursedRs 76 crore.

    The developer defaulted on loan obligations from December 2012 and is now liable to pay Rs 82.6 crore, including an annual interest of 18.5%.

    Tata Capital in its petition said Hiranandani Palace Gardens is under financial stress and is unable to meet creditor's liabilities. It also alleged that the company has misrepresented facts while availing the term loan.

    Diwali is over & now builders are getting busted with high debts & poor sales crackers. :D

    And yes, in Pune, I saw very less fire-crackers (some shop keepers closed their shops within 3 days due to poor sales) & sale of gold fell by over 55% this year.
    CommentQuote
  • Properties not so hot this festive season

    Originally Posted by chmpkbhumiya
    BTW does anyone have any idea how good the festival season was for the builders. Did they do any "brisk" selling.



    Properties not so hot this festive season, News - City - Pune Mirror,Pune Mirror


    Here is the relevant news which talks about as much as 20% "hidden" discounts.

    Properties not so hot this festive season

    Although realtors are showing a stable market on paper, analysts reveal strong negotiations are resulting in heavy discounts of upto 20%


    While realtors in Pune have been putting up a brave front that they have managed to buck the downturn and hold the price-line in the city, analysts give a completely different picture, where property buyers have not only gone cold on the market but are also vigourously negotiating to beat down the price.

    The festive season has brought no cheer and finally the realtors are also coming to terms with the ground reality.


    File Photo
    “The sales velocity has gone down by 30 per cent in the city. Though realtors are striving to keep up a show of stable market on paper, but behind the scene negotiations are crafting discounts to the tune of 20 per cent,” Alok Jha, Manager, Research at MNC realty consultancy firm, Jones Lang La Salle India.

    “The buyer is currently spoilt for choice with supply doubling last year,” accepted Rohit Gera, managing director of Gera Development and one of the vice presidents of Confederation of Real Estate Developers’ Associations of India (CREDAI), Pune. He, however, insists he does not find the situation alarming.

    Another major realtor in the city, Srikant Pranjape, Chairman Pranjape Schemes said, “In the last 15 days, t bookings have not been encouraging. However, I like to believe that the festive season is only for soft goods. I am hoping for a good November wherein people would start buying.”

    After being singed by the icy response of the market he now hopes for a retraction, to counter the crazy climb seen last year.

    “Areas such as Wakad, Nagar Road and Balewadi witnessed a price rise of 30 per cent, this year the shelf price inched forward by another 7 per cent.

    However, the clients are seeking fairly high discounts,” informed Deepak Kumar Garodia of a prominent Delhi-based realty research company. “The bookings this festive season are negligible as compared to last year,” he added.

    A property agent who operates in the Wakad market, Srikant Waggu, director Mistgain Properties, elaborated, “The demand this season has been almost nil in the northern and southern parts of the city.

    Even the eastern and western parts, which are prime developing localities we are seeing indications of imminent price correction to the tune of 15 per cent.”

    Echoing this reading of the market another realty agent, Vishal Gokhale, CMD Gokhle Constructions, who deals in properties in Model Colony, Kothrud and Shivajinagar, said, “There has been no purchases here. Buyers have been turned off by the insanity of the price rise witnessed last year.”
    CommentQuote
  • “Areas such as Wakad, Nagar Road and Balewadi witnessed a price rise of 30 per cent, this year the shelf price inched forward by another 7 per cent." 30% is really really insane. people should think before buying.
    CommentQuote
  • """people should think before buying"""
    People have been thinking but prices have been increasing in many areas-re4cession or no recession.Pune RE seems to be an exception.
    Strange indeed.
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  • many people jumping in glee at the prospects of discounts are nothing but dumb traps....how can a 10% discount on 20-30% price hike can be called potential slump

    For them - "it is not important how much an item costs, it's more important how much you can save when you buy it."
    CommentQuote
  • >>> Echoing this reading of the market another realty agent, Vishal Gokhale, CMD Gokhle Constructions, who deals in properties in Model Colony, Kothrud and Shivajinagar, said, “There has been no purchases here. Buyers have been turned off by the insanity of the price rise witnessed last year.”


    That is something. Builder himself saying this !!
    CommentQuote
  • Slowdown hits real estate, homes sale on decline

    A good video showing drastic fall in sales & rising inventory amongst builders across the country. It says that Pune & Bangalore are worst performing market.

    Slowdown hits real estate, homes sale on decline | The Economic Times Video | ET Now
    CommentQuote
  • Harsh realty for builders as banks tighten lending rules

    The real estate sector, accounting for the maximum number of new projects — 53 of 173, each above Rs 250 crore, in April-September this fiscal — is facing difficulties in achieving financial closure for these projects.

    This is because banks are asking builders to bring in more equity before loans can be disbursed.

    Subdued demand and lesser cash flow are the main problems affecting the sector, he said. "We have asked them to either bring in more equity upfront or reduce the prices of units," he added.
    "Bankers are seeking greater control in the way the sale happens. They also want money to be put in an escrow account and expect the completion of the projects without delay," a private sector banker said.

    "Besides, in many cases, banks themselves are also facing liquidity crunch because of which they have put a lot of sanctions on the back burner. Banks have also started checking the stress on a particular company, which means they are going slow on disbursals to promoters who have many projects in the pipeline and are facing troubles in servicing debt or delaying construction."

    Anuj Puri, chairman and country head, Jones Lang LaSalle India, said, "Banks are reluctant to disburse loans to the retail real estate sector given the poor future projections of the sector. The imbalance of demand and supply in the retail real estate sector is making them (banks) think twice on their debt sanctions."

    There is also an enormous pressure on the developers to reduce prices/ offer discounts even as they are holding on to unsold units at a huge cost hoping against hope to sell it to elite buyers.

    Harsh realty for builders as banks tighten lending rules - Financial Express
    CommentQuote
  • For slowdown news of realty. Inspite of such news being repeted in once a month, prices are increasing.

    Not all builders are in cash crunch. They have been earning enormous money since 2009, can hold on long.

    The sales are not good but wont result in 20-30% drop in price, Unless economy is seriously down (like 2009).

    There are many buyers in market having lots of money.

    Logically, due to non affordable rates, prices shoud be down.
    But logic doesnt work always. Builders Power (politicaly assisted) works.

    This is what I feel.
    CommentQuote
  • Originally Posted by manojsti
    For slowdown news of realty. Inspite of such news being repeted in once a month, prices are increasing.

    Not all builders are in cash crunch. They have been earning enormous money since 2009, can hold on long.

    The sales are not good but wont result in 20-30% drop in price, Unless economy is seriously down (like 2009).

    There are many buyers in market having lots of money.

    Logically, due to non affordable rates, prices shoud be down.
    But logic doesnt work always. Builders Power (politicaly assisted) works.

    This is what I feel.

    Agree all of them are not in a financial crunch, but most of them are and how long they can hold on unsold inventory will be deciding factor for start of the show.
    Just wait and watch Circus will start soon.
    CommentQuote
  • Nashik CREDAI spilling the beans !!!

    The recession in the real estate sector has badly affected the revenue of the Nashik Municipal Corporation (NMC) - a decline of 28.01% in the revenue in the first half (April 1 to Sept 30) of the current financial year as compared to the corresponding period in 2012-13, due to poor tax collections by the town planning department.

    Speaking to TOI, president of the Confederation of Real Estate Developers' Association (CREDAI), Nashik, Kiran Chavan said, "The real estate market is still facing a slowdown, thereby affecting sale of flats and other properties to a large extent.

    http://articles.timesofindia.indiatimes.com/2013-11-03/nashik/43627880_1_corresponding-period-nashik-municipal-corporation-real-estate-sector.

    NOTE: Many of Pune builders are running big projects in Nashik.
    CommentQuote
  • Buyers boycott property

    Property developers have been trying to woo customers by offering freebies and discounts in the past few months. From gold coins, flat discounts, free parking, and waivers of stamp duty and registration charges, home buyers were being flooded with incentives by developers. What they didn’t get was lower base prices. Buyers, it seems, have seen through this effort by a cartel of builders to hold prices even when there are few buyers. According to a research report by real estate consultancy firm Liases Foras, property sales in the Mumbai Metropolitan Region have hit a record low in 23 months and builders are sitting on unsold inventory equal to 58 months.

    As many as 1.40 lakh housing units measuring 1,000 square feet remained unsold in Mumbai and the Mumbai Metropolitan Region (MMR) in the second quarter of the current fiscal.

    However, new launches are already being launched at prices lower than existing stocks, so a time correction is bound to happen sooner or later. And since buyers will not buy at current levels, sales are down to a two-year low, he added.



    Not just Mumbai, but other cities like Chennai, Bangalore, NCR, Hyderabad and Pune have also witnessed a fall in sales sequentially. The wt avg all India price for new supplies is 14% lower than existing rates, which already shows fall in RE prices, which shall continue further.

    Pune is worst affected with a 24 percent drop in property sales this quarter, down 52 percent year on year.



    http://www.firstpost.com/economy/buyers-boycott-property-sales-in-mumbai-hit-record-2-yr-low-1222199.html

    >> If you see above in table, the inventory levels (unsold stock) in Pune is whopping atleast 10 times the sales, very, very huge bubble.
    CommentQuote
  • All these charts
    .Recently I read somewhere else that Luxury projects are on strong wicket,but here the chart shows for Pune something else.
    CommentQuote
  • Originally Posted by vaibav123
    All these charts
    .Recently I read somewhere else that Luxury projects are on strong wicket,but here the chart shows for Pune something else.


    Good point. But then why are so many luxury projects being launched?
    CommentQuote
  • Does it mean ready possession or under construction also?
    If this includes under construction also, that means, in 10 quarters with current rate of sales - all inventory will be sold. 2.5 years - not a very bad timeline - I would say.

    Originally Posted by realacres

    >> If you see above in table, the inventory levels (unsold stock) in Pune is whopping atleast 10 times the sales, very, very huge bubble.
    CommentQuote