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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  • Builders Changing Project.

    Cases where builders fooled people:-

    1.) Rohan Mithila at Vimannagar was supposed to be so called premium project with 2/3 BR flats. Now the original plan is cancelled & even 1BR flats are introduced.

    2.) Similar situation is with Queenstown, Pimpri near Lokmanya Hospital. It was a 2/3/3.5 BR flats project with all modern specs & features. Now they have introduced ph2 where smaller flats of 1/2/3BR measuring between 500sq ft to around 1240+sq ft for 3BR! Guess what would the buyers who bought 1500+ sq ft flats be feeling?

    I am not against smaller flats or low end specs. However, the fact is that the entire ambiance of the project gets affected when multiple types of society stay together. The strata has to be maintained. In case of 1BR, many flats are given on rent to bachelors/students which may spoil the atmosphere.

    Hence, go for ready possession. No builder, big or small can be taken for granted. I have seen such cases in Delhi-NCR the classic case being Unitech Grande where each flat was costing INR 4.5Cr but now has been converted to affordable housing scheme & buyers paying INR 4.5L/month as EMIs are being asked to buy multiple floors in same price!:p
    This is what happens when you trust builders blindly.

    * Shapoorji Pallonji (Part of Tata Sons), Godrej Properties, Tata Housing are good ones. Unfortunately none of these are present in Pune.
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  • Greedy Builders do not care

    Builders are known to be uneasy with cash management strategies and waste their fortune on reckless, greedy future projects that don't excite investors. The level of their ignorance and greed peaks when they try to flog their unwanted, low quality investments on unwary customers through discounts and offers that match impossibility. A buyer needs to know that, a discount indicates that the asset is something that is unwanted by the majority. The further discounts they offer, the lesser they are able to complete the project as said.

    Staying away from the market for a few years will kill the greedy one's and leave companies that have solid operational and cash management capabilities. India Inc. needs them and not every rotten, small time builder who wants to make a quick buck from the boom in Bangalore, Pune, NCR or Mumbai.
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  • Good bldrs

    Hi Godrej have announced affordable projects in Ahmedabad,mumbai & Hyderabad.
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  • Originally Posted by realacres
    Cases where builders fooled people:-

    1.) Rohan Mithila at Vimannagar was supposed to be so called premium project with 2/3 BR flats. Now the original plan is cancelled & even 1BR flats are introduced.

    2.) Similar situation is with Queenstown, Pimpri near Lokmanya Hospital. It was a 2/3/3.5 BR flats project with all modern specs & features. Now they have introduced ph2 where smaller flats of 1/2/3BR measuring between 500sq ft to around 1240+sq ft for 3BR! Guess what would the buyers who bought 1500+ sq ft flats be feeling?


    Even Kalpataru Serenity in Manjari budruk, near hadapsar have cancelled 3BHK units and now they'll go with 1/2 BHK instead....:)
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  • Timely advice

    Hi Real,

    Even if the RE price appreciates, its not going to give u returns as before. The short firming of prices may be the effect of pumping of liquidity + foolhardiness of bldrs.

    As soon as the effect of excess liquidity dies done either we may go further in recession or the Int rates may start going up along with the inflation.

    People should think twice before investing. Fundamentals have to be looked into before u commit ur money any where, be it Stocks or flats. Also, look at the period of ur investment.

    BAD MONSOON + Swine flu in these testing times is looking bad for the Indian economy.
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  • Calls for regulatory body for real estate industry in India

    http://www.propertywire.com/news/asia/real-estate-india-200908073401.html
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  • Home seekers

    Pl chk out this thread

    ]http://dreamhomeinpune.blogspot.com/2009/08/you-can-build-your-own-dream-home.html?showComment=1250056971039#c2852733956544403128
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  • Projects getting abandoned.

    Kumar Papillion at Pashan has been abandoned. Even no work is seen at Kapil Aasmant. Expect more such cases in coming days.
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  • With no Tax benefit, the investor should start dumping and look for greener pastures may be commodities. Genuine home buyers can have respite with fair prices now.
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  • The govt will be taking away the tax benefit with the new tax code on interest repayment of housing loans...

    Sure the govt. is doing the right thing, by making people buy with real money. Unlike in the USA where loans were available at even 3% and upto 100% of the assessed property value!

    Just waiting for the Regulatory body for real estate to be formed in India...
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  • Originally Posted by amit_2009
    The govt will be taking away the tax benefit with the new tax code on interest repayment of housing loans...

    Sure the govt. is doing the right thing, by making people buy with real money. Unlike in the USA where loans were available at even 3% and upto 100% of the assessed property value!

    Just waiting for the Regulatory body for real estate to be formed in India...


    In USA loan are available at 3% then deposit rate also is not more the 2-2.5% or even lower than that so, loan rate linked to what your deposit yield for you if you keep your money in Bank & loan rate not be less than this rate...

    So, you can not compare loan rates in US with loan rate in India or say to any country...
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  • Demand for affordable housing pegged at 2 million by 2011

    http://www.livemint.com/2009/08/12220321/Demand-for-affordable-housing.html?h=B
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  • Attractive numbers ... but

    Originally Posted by realacres
    ]http://www.livemint.com/2009/08/12220321/Demand-for-affordable-housing.html?h=B


    Realacres,

    The number is attractive and there are many hurdles from here to there ...

    This is a nw trick of the modern analysts who use these tantalising numbers to drum up some TRPs for themelves. Then there are the marketing chapswho come next and use these numbers to suit their pwn purpose. Let us see ...

    First of all, India's unmet housing demand has always been in the millions for decades. Did that automatically mean all these millions of houses got built?

    Second, get into the numbers in detail. There are 2 relevant facts buried in there. The maximum demand, as per the analyst, is in the 3-6 lakh income earning population. I'm assuming here that a good part of this segment would be just getting into a family segment or would have got into it recently.

    If you notice, I had used a 5L income level and figured that the new tax proposals would leave little extra for this segment to be motivated extra to go into housing, any more than they already are!

    Second, the homes looked at is 15L in cost. Given the price of land today, the analyst doubts to what level private builders can cater to this price levels with any level of profit.

    We must all realise that much of housing in India is done by private builders. To be able to get onto the "affordable" cost housing, they first have to get rid of all the inventory on their hands which is bleeding them with high debt and interest costs.

    So, they first have to sell all the 40 - 80 lakh housing before they can dream of making it big in the affordables segment! How?

    Then they have to take all their costly land banks and build low-price housing on it and end up with a cost structure that will leave little profit if they have to sell at the 15-20L levels.

    Additionally, they have to get very low-cost debt to be able to control costs to keep prices to 15-20L levels.

    If this Industry becomes so unattractive (reasons above) with little profits and difficulty in raising capital at low cost, funds will stop flowing into this sector, thereby making all that 2 million homes only a dream. This is why, even after 62 years of independence we still have a large , unmet demand for low-cost housing. Its simply unviable for most builders.

    The only reason they are all talking about it is their desperation to clutch at any straw to get them out of this killing debt load!!!

    Which explains why, in the boom period of 2004-08 not a single one of these stalwarts said the word "affordable" even once!!! They were too busy shafting all the buyers of fancy housing with all kinds of crazy facilities while laughing all the way to the bank.

    LEt us revisit this housing demand in 2011. We will still have an unmet demand of 3 million affordable homes!!! :D And we will still be talking about it!

    cheers" even once!!! They were too busy shafting all the buyers of fancy housing with all kinds of crazy facilities while laughing all the way to the bank.

    LEt us revisit this housing demand in 2011. We will still have an unmet demand of 3 million affordable homes!!! :D And we will still be talking about it!

    cheers" even once!!! They were too busy shafting all the buyers of fancy housing with all kinds of crazy facilities while laughing all the way to the bank.

    LEt us revisit this housing demand in 2011. We will still have an unmet demand of 3 million affordable homes!!! :D And we will still be talking about it!

    cheers" even once!!! They were too busy shafting all the buyers of fancy housing with all kinds of crazy facilities while laughing all the way to the bank.

    LEt us revisit this housing demand in 2011. We will still have an unmet demand of 3 million affordable homes!!! :D And we will still be talking about it!

    cheers
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  • Tactic

    The new Govt draft Tax code takes away all incentives for house building.

    In that it shooe's away speculators.

    It provides for more money in hands of all people rather than home owners

    If u c the tax structure, all the sub 10 lk category are paying just 10% so now the affordable house becomes more affordable. It gives abt 8-10 k additional income for 10 lk income in hands of a person.

    So bldrs have to now structure their house for this category. Even the priority loans for banks are falling onto this bracket. so Govt is indirectly pushing for this sector.
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