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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Agree with most of the above article. The fact is RE prices are defying this logic a little too long that it's almost has become a belief that rates will not correct, May remain stagnant at most. This belief will take longer time for prices to correct. The brokers would tell you Pune RE market is literally at a standstill, but yet prices aren't correcting since seller believes if he holds on longer he will still get better price. Eventually, there will be long period without any appreciation and that's when the prices may correct.

    But when that time will come is a big question. The market has been artificially propped up for long time, but with success. Many buyers have already got priced out with ever increasing costs of survival leaving little disposable income.
    CommentQuote
  • Originally Posted by vaibav123
    Our politicians cutting across political lines are involved in business.
    How they can make laws and run the country in an unbiased manner is indeed a matter of concern?
    Involvement in the crucial industry of RE by political entities is deep rooted.
    Every election brings about problems in the industry.
    No wonder the industry remains unregulated law of the jungle.
    If you take legal action against any builder,be ready to face delays in proceedings and delayed justice at any rate.
    The point of justice becomes only ego satisfaction but effect on ground may be next to nothing.
    for e.g delayed possession may get you some compensation,but will it counteract the amount of rent you may have paid,interest on loans etc.
    Nation cannot progress,unless we bring in committed MPs working for good of the nation in neutral and unbiased manner.


    A strong real estate regulator is need of the time.Politicians are not in favour of a strong regulator because of their vested interests in RE business.This is the reason that RE regulatory bill is not being passed and is lingering on for so many years.The judicial process is too long,time,money, and effort consuming.With the effect people do not file court cases against the builders and suffer silently.
    CommentQuote
  • Watered down RE bill with toothless regulator will be of no use to ultimate comsumer.
    Politicinas need to put their busines interests for once on the back burner and do something good for RE sector which will benefit the majority of Indians who eagerly look for a flat of their own,in trouble free and easy manner.
    CommentQuote
  • Originally Posted by realpune
    Agree with most of the above article. The fact is RE prices are defying this logic a little too long that it's almost has become a belief that rates will not correct, May remain stagnant at most. This belief will take longer time for prices to correct. The brokers would tell you Pune RE market is literally at a standstill, but yet prices aren't correcting since seller believes if he holds on longer he will still get better price. Eventually, there will be long period without any appreciation and that's when the prices may correct.

    But when that time will come is a big question. The market has been artificially propped up for long time, but with success. Many buyers have already got priced out with ever increasing costs of survival leaving little disposable income.


    Came across this video of CNBC TV18 property show. Succinct analysis of current situation -

    https://www.youtube.com/watch?feature=player_embedded&v=KPrZMGOJ5NY
    CommentQuote
  • Originally Posted by Krazy Yuppie
    A strong real estate regulator is need of the time.Politicians are not n favour of a strong regulator because of their vested interests in RE business.This is the reason that RE regulatory bill is not being passed and is lingering on for so many years.Te judicial process is too long,time,money, and effort consuming.With the effect people do not file court cases against the builders and suffer silently.

    +1.
    Man, we have TRAI for telecom & DTH where the matter is of few hundreds to few thousand bucks, but no regulator for RE where in many cases the investment is almost the entire life of the home buyer.

    Don't know why Govt bothers if mobile cos hike call charges by 0.2p/sec but not bothered when builders don't deliver which runs into lacs to crores.
    CommentQuote
  • Delhi, Mumbai realty downswing shows nexus between builders and poll funding

    The ongoing polls have not only caused project delays but also pulled down sales of residential units in big cities as election financing is bleeding already cash-strapped real estate developers dry.

    Data by property research firm PropEquity shows Gurgaon, Noida and Mumbai have seen the steepest fall in not only new project launches but also in absorption (the rate at which available homes are sold in a specific real estate market) in the last one year.

    The volume of residential units sold is down 74 percent in Gurgaon, 73 percent in Noida, 44 percent in Mumbai and 45 percent in Navi Mumbai in the fourth quarter of 2013 from the year-ago figure.

    Price escalation seems to be one of the primary reasons for the sales downtrend.

    Meanwhile, new projects have been put on hold too. Gurgaon has seen the largest 70 percent drop in project launches in the last one year. From 4,967 units, the launches are now down to just 1,474 units. Even in Noida, which is largely seen as an investor-driven market, launches are down by half. Ironically, mutual dependence between builders and politicians is most acute in areas where land is in high demand, such as these fast-growing regions near New Delhi.

    Mumbai is comparatively better with a 27 percent drop, while Bangalore too has seen a 32 percent drop in launches.

    •All the data points discussed in the above table refer to primary market only
    • Above residential data set comprises residential apartments only
    • Above residential data is representative of organised real estate developers only


    Another study by showed housing prices declined by an average 8 percent in Delhi-NCR (one of the most sought-after property destinations) in 2013 compared with the year-ago period due to slowdown in property market amid economic and political uncertainties.

    According to data collected by the Association for Democratic Reforms (ADR), a whopping 87 percent of political donations between financial years 2004-05 and 2011-12 came from corporates, mainly from trusts and groups of companies, manufacturing and the real estate sector. In fact, while the maximum number of donations was made by the manufacturing sector (595 donations, Rs 99.71 crore), the real estate sector came in at second spot with 340 donations (Rs 24.10 crore). This, however, is only the tip of the iceberg, since real estate generates black money - and politicians will not report the amount of black money to receive.

    The rationale behind this election financing is simple. Builders must fund political candidates to facilitate future opportunities because they have to maintain a relationship with whoever comes to power. Secondly, the amount that most candidates end up spending during campaigning is way more than the legal limit and much of this cash comes from thriving black money market. ( In India, real estate is synonymous with black money.) So during elections, a huge among of this black money is pumped by developers into the election campaigns of various parties.



    In essence, many of India's real estate companies are now diverting funds from housing and other projects to election campaign contributions, which is why existing projects are being stalled while new ones are being halted completely. To add to this slowdown the Reserve Bank of India (RBI) has refused to lower interest rates which has acted as a deterrent for potential home buyers. The central bank has also made conditions for restructuring loans of real estate developers very tough. In such a situation, when the demand for money has been made by politicians, many developers are selling off some part of their inventory at below market rates.

    "Many developers who are funding possible candidates are delaying projects due to the lack of liquidity.The timing is certainly bad. Reduced housing absorption has already adversely impacted developers’ liquidity and, in turn, developers’ funding ability. Political commentators also note that certain properties are sold below market rates in order to generate cash for election campaigns. Given this situation, many developers cut down on new launches and focus solely on selling the existing inventory," said Ramesh Nair, COO – Business, Jones Lang Lasalle India.

    Data by JLL shows that Mumbai has an inventory pile-up of close to 48 months, Delhi of 23 months and Bangalore of 25 months.

    Also, given that's India's economy continues to remain in free fall, people will think twice before lining up to buy property. For working professionals, high inflation will eat into what they can spare for their home EMIs.

    - By Sunainaa Chadha
    FP
    CommentQuote
  • For all those who expect things to change after 16th May once the results are announced

    Raghuram Rajan a Good Economist, Should Continue as RBI Chief: Yashwant Sinha - NDTVProfit.com

    No change at the RBI. Money printing will continue and so will the fake fight against inflation. Once the summer + monsoon season starts the food prices will start fluctuation and Mr Governor will start throwing his usual crap about fighting inflation using interest rate gyan on anyone who cares to listen.
    CommentQuote
  • Originally Posted by vaibav123

    Nation cannot progress,unless we bring in committed MPs working for good of the nation in neutral and unbiased manner.


    A persons self interest comes first. No where in this world do u have MPs or politicians working for the good of the nation in a neutral and unbiased manner.

    Where ever there is power concentrated in a single post - MP or CEO - you will have self-serving, hyper competitive folks fighting each other and lying/bribing to people who decide the winner to get that post.

    Look at the recent stock option scheme launched by Coca Cola. Billions of $$ given to management in stock at the cost of the shareholder.

    Why would a MP work for u when he/she can twist the law and earn crores when there is no risk of ever getting caught or facing jail?

    Who in their right mind would get elected as an MP and work for ur good when u yourself are not ready to work for ur own good and want to delegate ur responsibility to this MP? :) :)


    Its like saying that I wont check the quality of construction of a house that I am paying 1 crore to buy cause I expect the regulator to do that job for me. I will just throw my hard earned money at the builder and expect the regulator to verify that the builder only constructs good quality houses.

    Wont the builder just bribe the regulator and sell u crap at a high price?
    CommentQuote
  • Originally Posted by herohiralal
    For all those who expect things to change after 16th May once the results are announced

    Raghuram Rajan a Good Economist, Should Continue as RBI Chief: Yashwant Sinha - NDTVProfit.com

    No change at the RBI. Money printing will continue and so will the fake fight against inflation. Once the summer + monsoon season starts the food prices will start fluctuation and Mr Governor will start throwing his usual crap about fighting inflation using interest rate gyan on anyone who cares to listen.


    Raghuram Rajan is making right noises.

    One hope he puts to end to mindless printing.

    Also note that US is recovering. They are not going to continue printing.

    If we get El Nino, then it would be great combination...brokers will die....
    CommentQuote
  • Herohiralal,
    ,Cost of leadership is self interest.
    You cannot become a leader without sacrificing self interest to varying degree.
    Having said this what you say makes sense.
    But remember even if top brass of Coca Cola gave taken huge bonuses etc,they have brought their company to top position.
    But our leaders show 1000% increase in assets while we the people overall , show negative growth in assets.This kind of disparity does not exist in the developed nations.
    Accepting that our MP/MLA will keep self interest before the nation all the time is not an acceptable way for nation to grow.
    Civil society had got its energy from people who were tired of corrupt decision making,benefitting few but harming public finance.
    So it cannot be really said that people of the nation are doing nothing to combat personalised decision making.
    Lokpal in watered form has been passed.Hopefully the cost of being corrupt will increase and few decision makers will drop out of such acts.
    CommentQuote
  • Originally Posted by vaibav123

    But remember even if top brass of Coca Cola gave taken huge bonuses etc,they have brought their company to top position.

    Well ateast the coca cola bosses will deliver some value to the shareholders in return for the absurd amount of money they plan to give themselves.

    But our leaders show 1000% increase in assets while we the people overall , show negative growth in assets.This kind of disparity does not exist in the developed nations.
    Check out the housing bubble in India. Leader have not only lined their own pockets but have delivered awesome paper returns for many investors.


    Accepting that our MP/MLA will keep self interest before the nation all the time is not an acceptable way for nation to grow.
    Civil society had got its energy from people who were tired of corrupt decision making,benefitting few but harming public finance.
    So it cannot be really said that people of the nation are doing nothing to combat personalised decision making.
    Lokpal in watered form has been passed.Hopefully the cost of being corrupt will increase and few decision makers will drop out of such acts.


    Lokpal is the a prime e.g. of the kind of laws that one should not support. Instead of putting in place laws to capture the corrupt why not get rid of laws that lead people to engage in corrupt practices.

    E.g. environmental laws. How many projects are delayed due to absurd environmental clearance? Is Lokpal going to put in jail a politician who delays a project due to lack of environmental clearance or a minister who asks for 1000s of document from a company and delays clearance? To get compensated for their "service" the elected class will resort to sophisticated corruption - stake in projects, money sent to offshore tax havens, plumb jobs for relatives, consulting work for kids etc etc.

    Trading in spectrum not allowed law - who benefits most by not allowing trading in spectrum? established business and politicians

    Ban on FDI in e-commerce - check out the price of Kindle on amazon.com and amazon.in. and also look at who sells the kindle in India. This ban is costing consumer heavily. Same product cost 30-40% more due to middleman.

    Does lokpal stop govt from passing absurd laws? No. So even with Lokpal people in power will continue to engage in corrupt practices cause democracy backed by a socialist constitution provides so much power to the elected class that laws that result in high cost to consumers but still provide guaranteed assured profits for big or politically connected businesses are regularly passed by the govt in name of nationalism, protection of weaker section or protecting local businesses.
    CommentQuote
  • Originally Posted by mangoman2012
    Raghuram Rajan is making right noises.

    One hope he puts to end to mindless printing.

    Also note that US is recovering. They are not going to continue printing.

    If we get El Nino, then it would be great combination...brokers will die....


    These right noises have been going on for the last few yrs with no success in the fight against inflation. Some hail storms in Maharashtra as onion prices went thru the roof. Only a ignorant governor will deny that controlling inflation is beyond his/her capacity.

    Food prices push inflation up, limit RBIs room to act - NDTVProfit.com

    "A sharper-than-expected cooling in vegetable prices in the past three months had raised hopes of breaking out of that spell. But recent unseasonal hail and heavy rains in parts of the country have damaged crops and driven up food prices again.

    Food prices for consumers last month rose 9.10 per cent from a year earlier, faster than February's provisional 8.57 per cent rise. Wholesale prices for food items, meanwhile, jumped 9.90 per cent on year in March compared with an 8.12 per cent rise a month ago."

    Onion prices shoot up in Nashik due to unseasonal rains

    Have suggested before that we should replace the RBI governor with a person who can predict the weather accurately in India :) RBI gov should go back to

    Check US GDP data - would have been -ve 1% last quarter if it wasn't for increase in healthcare spending due to obamacare. Weather played a big part but unless u have a pro-growth leader + congress US will continue to struggle. IT and Energy are booming but brick and mortar retail + banks and struggling.
    CommentQuote
  • Originally Posted by herohiralal
    These right noises have been going on for the last few yrs with no success in the fight against inflation. Some hail storms in Maharashtra as onion prices went thru the roof. Only a ignorant governor will deny that controlling inflation is beyond his/her capacity.

    Food prices push inflation up, limit RBIs room to act - NDTVProfit.com

    "A sharper-than-expected cooling in vegetable prices in the past three months had raised hopes of breaking out of that spell. But recent unseasonal hail and heavy rains in parts of the country have damaged crops and driven up food prices again.

    Food prices for consumers last month rose 9.10 per cent from a year earlier, faster than February's provisional 8.57 per cent rise. Wholesale prices for food items, meanwhile, jumped 9.90 per cent on year in March compared with an 8.12 per cent rise a month ago."

    Onion prices shoot up in Nashik due to unseasonal rains

    Have suggested before that we should replace the RBI governor with a person who can predict the weather accurately in India :) RBI gov should go back to

    Check US GDP data - would have been -ve 1% last quarter if it wasn't for increase in healthcare spending due to obamacare. Weather played a big part but unless u have a pro-growth leader + congress US will continue to struggle. IT and Energy are booming but brick and mortar retail + banks and struggling.


    I think successive governors talk about food inflation due to govt pressure and corporate cheats pressure....

    Raghuram Rajan certainly has backbone and his tune is slightly different from Subbu's//
    CommentQuote
  • "Check out the housing bubble in India. Leader have not only lined their own pockets but have delivered awesome paper returns for many investors.""
    True.Many have made profits,but in the process put the entire RE in a state of high prices putting it beyond reach of many manny more people.
    " why not get rid of laws that lead people to engage in corrupt practices.""
    Tell me which law can be eliminated.
    Laws,rules were made to govern equitably.but we have made it a profession to squeeze money,do favours and so on.It is not the law which is bad,it is our greed which is showing.
    Environmental laws are necessary to save the remaining few forests.Otherwise the forests will be dug up for exporting coal,iron ore and import finished goods.
    We export coal,iron ore because it is easy to hide the actual exports figures in connivance with dealing departments.
    Indians need to change mental attitudes- pay taxes properly,do business with some basic sense of ethics.
    No law can compel you to behave ethically.
    CommentQuote
  • Originally Posted by vaibav123
    Tell me which law can be eliminated.


    Man u r making me work on Sunday night :) but this one is a good link to understand the problems with the Indian system.

    Here is a world bank link that ranks countries based on ease of doing business. Guess India's rank. 134 out of 189.

    Ranking of economies - Doing Business - World Bank Group

    Now lets dig deeper to find out which laws we can get rid of.

    Let look at time it takes to acquire construction permits. This step is common for builders, new businesses and new factories. People wonder why builders complain about delays.

    Doing Business in India - World Bank Group

    Just look at the steps. I am sure those laws were written to help people. Obtaining NOC seems to be fav step here. How do people get all of this done? Pay some extra money or get an agent who has contacts. Now which steps do u think we should get rid off?




    Apply for no-objection certificate (NOC) from Tree Authority
    Obtain NOC from Tree Authority
    Request and obtain NOC from Sewerage Department
    Request and obtain NOC from Electric Department
    Request and obtain NOC from Environmental Department
    Request and obtain NOC from Traffic & Coordination Department
    Request and obtain NOC from Chief Fire Office
    Obtain Commencement Certificate and pay development charges
    Request and receive inspection of plinth
    Submit letter stating completion of building works to obtain an occupancy certificate and certificate of completion
    Request and obtain completion NOC from Tree Authority
    Request and obtain completion NOC from Storm Water and Drain Department
    Request and obtain completion NOC from Sewerage Department
    Request and obtain completion NOC from Electric Department
    Request and obtain completion NOC from Environmental Department
    Request and obtain completion NOC from Traffic & Coordination Department
    Request and obtain completion NOC from Chief Fire Office
    Request and receive competition inspection from Building Proposal Office

    Similarly check out other sections and after than check out processes in the top 5 countries.

    Is lokpal going to really help reduce corruption?

    Maybe when I feel that I have put on some extra weight I will book a flight to delhi and sit on a dharna to remove some of these laws.

    Where can I get some caps printed? Dont want to print them in India. Dont know how many laws I will have to follow to get some laws removed :) :)
    CommentQuote