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 vhaldavnekar
    With Ode to Hiralal Bhai. Sirji can you tell me where the rates will go from here in next 2yrs? Tell some approximation in terms of rate. Don't give 1000 reasons as to why the chicken crossed the road. It like going to an astrologer and he continues his gibberish shani tikh nahi hai, mangal accha hota to etc without telling the timings and solution to the problem. I am really interested in what your predictions are. What will the cost of a 2BHK which is pegged at 1 cr as today in next 2 yrs. 2cr?


    I will give you precise figures ...

    It will be between 80L and 1.2 Crs in 2 years time.

    Otherwise it will be more than 1.2 Crs! :D

    cheers
    CommentQuote
  • Originally Posted by vhaldavnekar
    With Ode to Hiralal Bhai. Sirji can you tell me where the rates will go from here in next 2yrs? Tell some approximation in terms of rate. Don't give 1000 reasons as to why the chicken crossed the road. It like going to an astrologer and he continues his gibberish shani tikh nahi hai, mangal accha hota to etc without telling the timings and solution to the problem. I am really interested in what your predictions are. What will the cost of a 2BHK which is pegged at 1 cr as today in next 2 yrs. 2cr?


    Wiseman gave u free advice which broke an unwritten rule amongst us fortune tellers - never give free advice even if its vague :)

    Competition is killing me!!!! I am being forced to provide precise advice for free!!! Ache din agaye hai consumer ke..

    So here is my 'prediction' for completed flats (i.e. not under construction projects)

    2BHK in Pune which today costs (not quoted price but actual transaction value - black + white) 1 Cr today will cost 1.3 (again not quote but actual) crores after 2 years.

    No ifs no buts only RE bubbles!!!
    CommentQuote
  • Of course, now we have to go fortune tellers as all the theories are conundrums.
    CommentQuote
  • some people went to the oracle and asked whether anyone was wiser than socrates.
    The oracle replied that no one was wiser.
    The answer is a kind of conundrum.
    CommentQuote
  • Recently went to a lawyer to prepare an affidavit. The lawyer was cribbing about the RE transactions which have absolutely dried in last 5 months. This is somehow not translating into discounts so far barring few exceptions.The tug of war between buyers and sellers is still on
    CommentQuote
  • realpune,
    Situation for distress sale has not come up so far.
    People who want to sell will wait for better offer,even if it takes time.
    Builders offering discount is a different thing.
    They may have already made their profit and now want to liquidate holdings.
    CommentQuote
  • Originally Posted by punerebuyer
    I remember an advertisement i used to read in a monthly magazine from a bus company for tours in Goa... every month they would put an ad which basically said...

    "This is the best time to visit Goa"

    +1. Here are the logic of RE bulls :-

    > BJP wins so business friendly Govt which would mean more money in the pockets of people & RE prices go up,

    > Congress wins so more black money will come back in RE thus enabling builders to hold on,

    > Third front Govt wins so economy may be shaky, & people will try to keep their money in 'secured' place, which is RE.

    So, no matter which Govt is formed, RE bulls have an excuse ready. Heads I win, tails you loose. :D
    CommentQuote
  • Originally Posted by ThodiSiZamin
    Kolte-Patil Developers Q4 profit falls 71% to Rs 13 cr

    Pune-based real estate company Kolte-Patil Developers' consolidated net profit fell 71 percent to Rs 13 crore in the quarter ended March 2014 from Rs 45.1 crore in same quarter last fiscal due to lower revenue and higher finance cost.

    Read more at: Kolte-Patil Developers Q4 profit falls 71% to Rs 13 cr - Moneycontrol.com

    Thanks for the news.
    But Oh, how is this possible man ?? Didn't they got over-whelming response for Life Republic & 24k projects ? Hundreds of flats sold out in couple of days. Ivy Estate & all had people lined in queue to buy flat !!

    Yet if profits are down, it means 2 things :-

    Either flats have not been sold or flat buyers/investors have defaulted on payment to builders. :D
    First reason is what we should believe.
    CommentQuote
  • Originally Posted by realpune
    Recently went to a lawyer to prepare an affidavit. The lawyer was cribbing about the RE transactions which have absolutely dried in last 5 months. This is somehow not translating into discounts so far barring few exceptions.The tug of war between buyers and sellers is still on


    Originally Posted by vaibav123
    realpune,
    Situation for distress sale has not come up so far.
    People who want to sell will wait for better offer,even if it takes time.
    Builders offering discount is a different thing.
    They may have already made their profit and now want to liquidate holdings.


    Man, the situation in RE today is so bad that forget about prices, there are no enquiries taking place at first place. An RE agent informed me that to cut RE agents, an owner directly gave ads in classifieds for almost 2 months (every Sat & Sun) & he got only 5 calls of which only 1 guy turned up to see the flat. Now he has asked agents to look for buyers but then adjoining owners have already cut the price & agents are now more desperate to get some deal done than waiting for long period for higher commission. What most RE agents are making money is from rental commissions.
    CommentQuote
  • Maruti Q4 net profit tumbles 35%, outlook remains grim

    India's largest carmaker today reported net profit of Rs 800 crore for the January-March quarter, a drop of 35 percent from a year ago, disappointing St as investors had expected the company to report a profit of Rs 950 crore.

    In slow motion: Maruti Q4 net profit tumbles 35% to Rs 800 crore, outlook remains grim - Firstbiz



    Mahindra & Mahindra to Stop Production for 3 Days During This Month :-

    Homegrown auto major Mahindra & Mahindra Ltd today announced stoppage of production for up to three days during the rest of the ongoing month in view of the slump in demand.

    It further said that one of its wholly-owned subsidiary Mahindra Vehicle Manufacturers Ltd's plant at Chakan would also be observing no production days for up to three days during the remaining period of May 2014.

    Mahindra & Mahindra to Stop Production for 3 Days During This Month - NDTVProfit.com
    CommentQuote
  • Originally Posted by wiseman
    I will give you precise figures ...

    It will be between 80L and 1.2 Crs in 2 years time.

    Otherwise it will be more than 1.2 Crs! :D

    cheers


    You could be a little more precise with some technical analysis....

    If it rises to 1.1 cr in 6 months, you could see a major breakthrough and prices will reach 1.25 cr in next 2-5 yrs
    If it falls below 90 L, which is its short term support level, you can see further downside and prices may fall to 70L

    We recommend that if you have lakhs of rupees lying around your house or stuffed in your bed, you may go ahead and buy.

    If you are a salaried mango person worried about EMI and economic uncertainty - stay away.
    CommentQuote
  • Originally Posted by realacres
    Thanks for the news.
    But Oh, how is this possible man ?? Didn't they got over-whelming response for Life Republic & 24k projects ? Hundreds of flats sold out in couple of days. Ivy Estate & all had people lined in queue to buy flat !!

    Yet if profits are down, it means 2 things :-

    Either flats have not been sold or flat buyers/investors have defaulted on payment to builders. :D
    First reason is what we should believe.


    Profits are less because KP believes in delivering maximum value to their customers.

    They believe in providing "quality" homes at "affordable" prices, and not in making stupendous profits!

    If builders make huge profits, you guys say they are looting people. How come you always get it wrong!
    CommentQuote
  • Originally Posted by realacres
    Thanks for the news.
    But Oh, how is this possible man ?? Didn't they got over-whelming response for Life Republic & 24k projects ? Hundreds of flats sold out in couple of days. Ivy Estate & all had people lined in queue to buy flat !!

    Yet if profits are down, it means 2 things :-

    Either flats have not been sold or flat buyers/investors have defaulted on payment to builders. :D
    First reason is what we should believe.


    There is a difference between sales and revenue. A builder could launch a new project today and sell of all it but that will add nothing to the revenue column. Only when a certain % of the project is completed can the revenue be recognized. This practice is followed in all industries. In IT you hear about IBM signing some billion dollar contract with Airtel but the revenue recognized by IBM in a particular quarter will be based on the actual revenue.

    DLF changed the way it recognizes the revenue - Refer to slide 11 in the Q1 Analyst Presentation of FY 1013-14 (DLF Building India | Investors | Financial Results

    "New accounting policy will result in lag of recognition of revenue and profits by 12-
    18 months. “ Cash shall precede earnings ”

    Now just because a company has recognized the revenue does not mean it has received the cash from the customer.

    So you have 3 main terms - contract, revenue and cash flow. most imp of the lost of cash flow. The other 2 can be manipulated.

    Here it the interview with Kolte Patil. Results are not available on Kolte Patil website so lets wait for the details.

    Expected weak Q4; FY15 realisations to improve: Kolte Patil - Moneycontrol.com
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  • "DLF changed the way it recognizes the revenue - Refer to slide 11 in the Q1 Analyst Presentation of FY 1013-14 (DLF Building India | Investors | Financial Results

    "New accounting policy will result in lag of recognition of revenue and profits by 12-
    18 months. “ Cash shall precede earnings ""
    Change in method of recognising revenue is always to be examined with care.
    While it may be legal to change method of revenue recognition,it may also be done with to show profit which has actually not come to hand.
    Here it may well be a case of aggressive revenue recognition.
    When should revenue be recognised-It should be recognised where services are rendered or here delivery has been completed and collectibility of revenue is certain.

    Any amount of window dressing will not help over a period of time,the financial performance or truth will emerge.This is a generic statement relevant to all financial reporting.
    CommentQuote
  • Originally Posted by herohiralal
    Wiseman gave u free advice which broke an unwritten rule amongst us fortune tellers - never give free advice even if its vague :)

    Competition is killing me!!!! I am being forced to provide precise advice for free!!! Ache din agaye hai consumer ke..

    So here is my 'prediction' for completed flats (i.e. not under construction projects)

    2BHK in Pune which today costs (not quoted price but actual transaction value - black + white) 1 Cr today will cost 1.3 (again not quote but actual) crores after 2 years.

    No ifs no buts only RE bubbles!!!


    I don't like your prediction, you have ditched us bears :( Bring on matrix or mangoman - i want these flats at 50 lacs after 3 years.
    CommentQuote