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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  • HDFC hikes home loan rates

    Housing Development Finance Corporation (HDFC), the country’s largest mortgage lender, has quietly raised home loan rates by 10 basis points or bps with effect from Sunday.

    The non-banking finance company or NBFC has hiked its retail prime lending rate or RPLR to 16.75% from 16.65%.

    The company did not announce the rate hike formally. Instead, it simply updated its website with the new rate, as has been the practice of late.

    Without fanfare, HDFC hikes home loan rates by 10bps - Mumbai - DNA
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  • More builders default

    Here are another news about builders defaulting, that too major ones. RE bulls showing how builders made money in boom times & have lot of holding power should explain why defaults are taking place if builders indeed have money in their pocket. These news are good for end users though. :)

    LIC is likely to declare realty major Unitech as a defaulter

    Life Insurance Corporation is likely to declare debt-ridden real estate company Unitech as a defaulter after two previous rounds of restructuring. Unitech had taken a loan of Rs 200 crore from LIC Housing Finance in 2007 but the latter shifted the portfolio to LIC. However, the realty major has not been able to repay the loan even after two recasts. LIC has already filed two cases against Unitech with respect to bouncing of post-dated cheques.

    Get this: LIC is likely to declare realty major Unitech as a defaulter | Firstpost


    And here is second one (not to forget Hiranandani who defaulted about month back) :-


    Rs 96 crore loan due, realty major loses 3 properties

    Three properties owned by Orbit Corporation, a developer listed on the Bombay Stock Exchange, were attached by Life Insurance Corporation Housing Finance Ltd for non-repayment of Rs 96- crore loan under the Securitisation Act.

    Through a public notice on Wednesday, LIC Housing Finance said that it took physical possession of one of the three properties, Orbit Residency Park, which is spread over 1.7 lakh sq ft in Andheri. Orbit's liabilities of Rs 96 crore include repayment of loan availed and the interest on the amount. The orders to attach and take physical possession of the three properties measuring roughly 2.5 lakh sq ft-26,000 sq ft at Orbit Corporation's Lower Parel project Orbit Grand, 1.7 lakh sq ft at Orbit Residency Park in Andheri and 45,600 sq ft space at Orbit Midtown at Lalbaug-were recently passed by chief metropolitan magistrate M B Bage following an application filed by LIC Housing Finance. The attachment order may create problems for the 171 people flat buyers at the three properties.

    Rs 96 crore loan due, realty major loses 3 properties - The Times of India

    ^^ If you read last sentence above, it states default will create problems for flat buyers in the project. This again should be warning to end users to buy ready possession flats only in current times.
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  • """This again should be warning to end users to buy ready possession flats only in current times.""
    +1000
    This advice is really a need of the hour.Ready made flats with cc are the best RE buy.
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  • and still Credai wont reduce prices saying input cost has increased i doubt cement steel rates increased 30% for 3 years
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  • Addition

    Originally Posted by vaibav123
    """This again should be warning to end users to buy ready possession flats only in current times.""
    +1000
    This advice is really a need of the hour.Ready made flats with cc are the best RE buy.


    NOT ONLY CC(COMMENCEMENT CERTIFICATE) BUT ALSO OC (OCCUPATION CERTIFICATE)
    I might add.

    Let us not absolve the municipal corporation of its duty of verifying completion of building by taking possession without OC.

    Insist on OC b4 possession.
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  • When I took possession of my house in Mumbai, I insisted for OC and got possession only after OC. When I started the interior work, i noticed that people had already paid out full amount 6 months back and taken possession, so their interior work was done and they were already living. I lost 3-4 months rent because of my dependence on OC :(
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  • Originally Posted by TheTruth
    When I took possession of my house in Mumbai, I insisted for OC and got possession only after OC. When I started the interior work, i noticed that people had already paid out full amount 6 months back and taken possession, so their interior work was done and they were already living. I lost 3-4 months rent because of my dependence on OC :(


    There can be complications. I know of a "luxury" flats complex in Bangalore - which is also located next to Defense land, which created its own complications as Defense guys laid claim to this land - where, more than 5 years after people have occupied flats after buying them, due to lack of clearance re Fire Safety, OC has not been given.

    Suddenly everyone is running around trying to figure out how to obtain it. If there is a disaster its believed that Insurance won't pay due to lack of OC.

    So, risk persists if OC is not obtained first before moving in.

    cheers
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  • ""NOT ONLY CC(COMMENCEMENT CERTIFICATE) BUT ALSO OC (OCCUPATION CERTIFICATE)
    I might add"""
    By CC I meant completion certificate.
    CommentQuote
  • Benefit of waiting for OC??

    Originally Posted by TheTruth
    When I took possession of my house in Mumbai, I insisted for OC and got possession only after OC. When I started the interior work, i noticed that people had already paid out full amount 6 months back and taken possession, so their interior work was done and they were already living. I lost 3-4 months rent because of my dependence on OC :(


    Once you have registered the agreement for an under construction flat purchase in my opinion the only care to be taken during possession is that there is no major work pending in ur flat and any minor replacements/repairs (like broken tiles, wall finish etc) are done. What is the use of waiting for OC when you have made full or 95% of the payment already? In all cases OC is received from corporation a minimum of 3-6 months after the building is complete. I have seen this period increase recently so it could be longer now.
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  • And despite our intelligence we offload the blame on someone else..

    Originally Posted by vaibav123
    ""NOT ONLY CC(COMMENCEMENT CERTIFICATE) BUT ALSO OC (OCCUPATION CERTIFICATE)
    I might add"""
    By CC I meant completion certificate.


    Not just you sir, most people are misled exactly in the same manner by builders and brokers by saying the building has a CC implying Completion certificate but actually it is only commencement certificate (starting of construction).

    Completion certificate is actually BCC (Building completion certificate).

    Wait a sec, I am aware that you know all this and you are'nt misled. This info is for the novices.

    So we have educated and arguably intelligent members advocating to save couple of months rent and excusing corporation for their lazy job by taking early possession.And then we blame falana and dhimka while our basic intelligence goes to graze hay. Crude translation of "akkal ghaas charne gai"

    No wonder with such educated countrymen my country is in f**kd up state.

    I wonder if they get their babies delivered in the 1st trimester itself? I mean it takes 8-9 months to take the possession of the baby. And bcoz we have failed to corrupt nature it wont crossover to 11th month...:D Otherwise we might just get such recommendations
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  • Originally Posted by herohiralal
    Exit polls are predicting a BJP win across 4 states - Delhi, Raj, MP and Chhattisgarh

    Let the bailout games begin. Keep and eye on those regional parties like NCP, SP, BSP and RJD. Their value has gone up even more after this result.


    " An informal group of ministers, headed by Agriculture Minister Sharad Pawar, today recommended
    a slew of incentives to the sugar industry, including 12 per cent interest subsidy on Rs. 7,200 crore loan that mills can avail of from banks for paying cane farmers."

    Sugar mills to get Rs 7200 crore interest-free loan - NDTVProfit.com


    Who's next? Power companies? RE companies?
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  • """Let us not absolve the municipal corporation of its duty of verifying completion of building by taking possession without OC.""
    PMC does not bother whether we absolve them of their responsibility to verify completion as per approved plans or not. They take their sweet time to issue C C.
    Buyers sometimes have to take a risk by trusting builder to have built as per plan and not violated any thing seriously enough to attract penalty.
    The bureaucratic inertia of PMC or any other Municipality is so high that special efforts are to be made to break through.
    Choice is between loosing out on rent or violating municipal rules.
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  • Sugar cane is a water intensive crop and unfortunately Maharastra is not a rainfall surplus state.
    As a matter of fact sugarcane cultivation leads to habitat loss,pollution of water supply by flow of fertilizers to foul water sources.Industrial waste from sugarcane mills have significant impact on environment.
    But with almost all top leaders of our state having interest in sugarcane,the decisions are going to be in favor of sugarcane industry always.
    Sugar is always in demand, products like ethanol,bagasse are in demand.
    Therefore sugarcane industry is a mixed blessing.
    Link to interesting article:http://www.firstpost.com/india/maharashtras-water-crisis-lies-damned-lies-and-statistics-706398.html
    CommentQuote
  • The All India Bank Employees Association has released a list of top defaulters to public sector banks

    Bank union puts out NPA list, Kingfisher top defaulter | Firstpost

    Everyone knows about Kingfishers. Now this case of Zoom developers is quite interesting.

    Banks fail to recover Rs 2,700 crore from Zoom Developers - Indian Express

    And we have to pay for these bailouts when govt prints money to inject equity into public sector banks. These are airline, pharma, steel, agri, print and textile companies.

    When RE bubble does burst then we will not have such a list cause DLF and Unitech wont exist and the banks wont exist either cause they would be bankrupt by then or the INR will be worthless cause the Indian govt would have printed so much money to keep the banks alive that we would need to pay crazy amounts for 1 USD or 1 gm of gold.
    CommentQuote
  • Originally Posted by herohiralal
    The All India Bank Employees Association has released a list of top defaulters to public sector banks

    Bank union puts out NPA list, Kingfisher top defaulter | Firstpost

    Everyone knows about Kingfishers. Now this case of Zoom developers is quite interesting.

    Banks fail to recover Rs 2,700 crore from Zoom Developers - Indian Express

    And we have to pay for these bailouts when govt prints money to inject equity into public sector banks. These are airline, pharma, steel, agri, print and textile companies.

    When RE bubble does burst then we will not have such a list cause DLF and Unitech wont exist and the banks wont exist either cause they would be bankrupt by then or the INR will be worthless cause the Indian govt would have printed so much money to keep the banks alive that we would need to pay crazy amounts for 1 USD or 1 gm of gold.


    But this zoom is very old news? 2 years ago?
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