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 :
  • Originally Posted by suryawork
    What will happen to people staying in high rises , especially on higher floors if such a situation arises :

    https://in.news.yahoo.com/visakhapatnam-remains-without-power-essential-commodities-050214321.html

    3 days - no power , no water in visakhapatnam - this is a city of 18 lakh , not a village - govt falling short in helping people and here we are blaming builders .



    In this type of catastrophe, walking 15 floors is not one of the bigger concerns.

    People are losing lives.
    CommentQuote
  • Originally Posted by RP Pune
    In this type of catastrophe, walking 15 floors is not one of the bigger concerns.

    People are losing lives.


    India does not have a good disaster management or recovery systems. The value of human life is quite cheap in India and a lot of times people themselves discount their own life by indulging in activities like crossing the railway tracks...

    It was really disheartening to see the video of a tiger mauling a 20 year old boy who had fallen in the tiger pit. The authorities had a substantial amount of time on their hand, but nobody had planned for such an event.

    I think for all essential service providers, drills should be made compulsory and their performance in the drill should be measured and improved. If people are let to think on their own in times of calamity, the toll of the calamity is much more.

    Same goes for real estate. In an Kalpataru project in Pune, a little boy was electrocuted to his death after touching a live wire. I am not sure for what exactly these builders charge so much money for, if they dont even have basic quality control processes.
    CommentQuote
  • Collateral damage: Banks will bear brunt if DLF fails to raise funds via asset sales

    The action of capital market regulator, Securities and Exchange Board of India (Sebi) on DLF, banning the company and its top executives for three years from accessing the capital market, will not have any immediate impact on banks, but will eventually hit the lenders if the cash flows of DLF worsens.

    “Going ahead, raising money will be an issue for DLF, therefore growth of the firm may get impacted. Its rating may also take a hit. But for now, there is no immediate problem for banks,” said Abhishek Kothari, research analyst at Quant Capital.


    The Sebi order has also shut the doors for DLF to list a Real Estate Investment Trust to raise low cost funds for the next three years.


    The only way out for the real estate major to avoid a crisis is to push its asset sales and generate as much as money to ensure that debt servicing is not impacted. That depends on demand in the real estate market.


    If DLF fails to service its debt, bankers, already under pressure to recover money from defaulters, in all likelihood will pounce upon the firm.


    A defaulter tag can only make things worse for the Singh family.


    Collateral damage: Banks will bear brunt if DLF fails to raise funds via asset sales - Firstbiz


    Originally Posted by Blitz
    Sebi bars DLF and its top executives from markets for 3 years


    The builder is cash strapped and has debt of over 19,000 Cr. The M-Cap has been wiped out by over 7,000 Cr. Now neither stock market is helping DLF, nor are the banks.
    And with Dhongress out of power, Rabbit is also of no help. Actually, SEBI could have taken action earlier as it has been about 7 years when this scam was done, but thanks to Dhongress, no action was taken against DLF. However, the investors & buyers now have become bakras in under-constro projects. Other major bakra are the banks (which is one way is good).
    CommentQuote
  • Originally Posted by ThodiSiZamin
    India does not have a good disaster management or recovery systems. The value of human life is quite cheap in India and a lot of times people themselves discount their own life by indulging in activities like crossing the railway tracks...

    It was really disheartening to see the video of a tiger mauling a 20 year old boy who had fallen in the tiger pit. The authorities had a substantial amount of time on their hand, but nobody had planned for such an event.

    +1.
    You must have heard of the old msg, that in India pizza comes faster than ambulance.
    The value for life is almost zero here.

    I think for all essential service providers, drills should be made compulsory and their performance in the drill should be measured and improved. If people are let to think on their own in times of calamity, the toll of the calamity is much more.

    True. But common man will prefer to watch junk game like cricket or see some movie but won't have time for these things. The Fire Brigade guys offer free drill to residential societies but they say that no one approaches them & even if the speak with the citizens, they don't get positive response. Now who is responsible ??

    Same goes for real estate. In an Kalpataru project in Pune, a little boy was electrocuted to his death after touching a live wire. I am not sure for what exactly these builders charge so much money for, if they dont even have basic quality control processes.

    +1. This is because for concerned officials, the bribe is more important that the value of the life of that boy who died. :bab (45):

    Man, this is precisely what I mean by QUALITY OF LIFE which is lacking in India despite paying first class prices.
    CommentQuote
  • RBI concerned about banks’ exposure to real estate, infrastructure

    Real estate, housing and infrastructure together account for 25% of banks’ exposure

    The Reserve Bank of India (RBI) is concerned about the extent of banks’ exposure to the real estate and infrastructure sectors, deputy governor R. Gandhi said on Wednesday. The real estate and housing sector accounts for 13-14% of banks’ exposure. When infrastructure in included, the exposure rises to 25% of total loans.

    “We are very much concerned about further exposure beyond these levels,” Gandhi said at a capital markets conference in Mumbai, adding that increasing exposure will not be prudent.

    A real estate firm executive, who too requested anonymity, noted that such comments from senior central bank officials will have an adverse effect on the sector. “The regulator was visibly happy a few weeks ago about the prospects of real estate sector, and officials at the central bank went on the record about the same. I don’t know what has changed now,” said the executive.

    RBI concerned about banks’ exposure to real estate, infrastructure - Livemint
    CommentQuote
  • Are we going off topic - anyways.. about the slow down and bubble burst -

    I tried with igrmaharashtra site for wakad S.No. 127 and found almost 200 agreements to sale in 2014.
    Where's the slow down? 1 agreement to sale every day in just one survey number?

    So I suggest - go, visit igrmaharashtra.org and find out yourself instead of believing anyone or any rumors..
    CommentQuote
  • Originally Posted by investwest
    Are we going off topic - anyways.. about the slow down and bubble burst -

    I tried with igrmaharashtra site for wakad S.No. 127 and found almost 200 agreements to sale in 2014.
    Where's the slow down? 1 agreement to sale every day in just one survey number?

    So I suggest - go, visit igrmaharashtra.org and find out yourself instead of believing anyone or any rumors..



    Just 200 agreements will prove the bull run?

    What is the number of empty units in pune?
    What is the number of people searching flats?
    CommentQuote
  • Originally Posted by NCRTalk
    Just 200 agreements will prove the bull run?

    What is the number of empty units in pune?
    What is the number of people searching flats?


    Also, what were the numbers during previous years? How was the area then (developed/underdeveloped ...).
    CommentQuote
  • Originally Posted by NCRTalk
    Just 200 agreements will prove the bull run?

    What is the number of empty units in pune?
    What is the number of people searching flats?


    It proves that things may not be bad as the bears believe.

    The search is for a particular survey #. It does not have relevance to entire Pune, where houses may not be available for sale. Even if it is a new complex and zero sales last year..or 400 sales last year (majority of units sold off ?) buyers exist in the market.

    It merely proves that demand exists and people are buying flats. Off course, there will be overpriced flats which are not being sold (even RTM), flats at inconvenient locations with no buyers. This will be applicable even in a bull run.

    Finally in the RE market or the stock market..it is the quality of the finished product which matters. Buy a small cap..and be ready for the bumpy ride..
    CommentQuote
  • Originally Posted by NCRTalk
    Just 200 agreements will prove the bull run?

    What is the number of empty units in pune?
    What is the number of people searching flats?


    I am not here to prove anything. Also not talking about pune or NCR or any other city as a whole.
    If you talk about number of people searching flats and if you decide to go out on weekend for a survey, you'll surprised with the numbers - many are looking for flats and everyone has their own priorities and budgets.

    Just one survey number in one suburb had 200 buyers that means at least 300 flats sold in pune - there are buyers.

    Originally Posted by southsea
    Also, what were the numbers during previous years? How was the area then (developed/underdeveloped ...).


    This survey number had only 1 or 2 projects last year which are sold out and many new projects launched this year only. It's still under development with new projects planned to launch in next few months.

    A survey number cannot span across several hundred sq km - one should understand the relevance of information.

    Originally Posted by Que Sera
    It proves that things may not be bad as the bears believe.

    The search is for a particular survey #. It does not have relevance to entire Pune, where houses may not be available for sale. Even if it is a new complex and zero sales last year..or 400 sales last year (majority of units sold off ?) buyers exist in the market.

    It merely proves that demand exists and people are buying flats. Off course, there will be overpriced flats which are not being sold (even RTM), flats at inconvenient locations with no buyers. This will be applicable even in a bull run.

    Finally in the RE market or the stock market..it is the quality of the finished product which matters. Buy a small cap..and be ready for the bumpy ride..


    And that's what my point is - there are sellers, there are buyers. Numbers may not be equatable to previous year or any time in history or future but you can see that a single survey number had at least 200 transactions and we have hundreds of such survey numbers across PMC and PCMC.
    CommentQuote
  • >A survey number cannot span across several hundred sq km - one should understand the relevance of information.
    Which is kind of the point here. One small area having 200 buyers is no way to determine whether a slowdown exists or not.
    CommentQuote
  • Originally Posted by Que Sera
    It proves that things may not be bad as the bears believe.


    It does not prove things are good or bad. You need to read my questions again without assuming I am a bear or bull. I did not mention if buyers are non-existent or flats are in shortage either. Basically any survey without all the required parameters and metrics can't prove things are good, very good, bad, very bad etc ;)

    Originally Posted by Que Sera

    it is the quality of the finished product which matters.



    Absolutely on the spot - Quality at prices driven by demand-supply are best buy. Prices driven by black money investors / price manipulators with not so good quality are best to avoid.
    CommentQuote
  • Originally Posted by southsea
    >A survey number cannot span across several hundred sq km - one should understand the relevance of information.
    Which is kind of the point here. One small area having 200 buyers is no way to determine whether a slowdown exists or not.


    +1

    Builders will make more profit in reducing their inventory with profits at reasonably good margins. That will save them bank interest, increase profit and hence allow to go ahead with other projects and building their repo. Holding off flats with unreasonable prices is detrimental to the very same business.
    CommentQuote
  • Originally Posted by investwest
    Are we going off topic - anyways.. about the slow down and bubble burst -

    I tried with igrmaharashtra site for wakad S.No. 127 and found almost 200 agreements to sale in 2014.
    Where's the slow down? 1 agreement to sale every day in just one survey number?

    So I suggest - go, visit igrmaharashtra.org and find out yourself instead of believing anyone or any rumors..


    This is more real and most useful to the buyers in wakad

    "In S/No 127, after 26th June 2014, only 1 sale deed (agreement to sale of flat) happened as of today"

    So just one sale deed in 4 months!
    CommentQuote
  • Originally Posted by Sj2013
    This is more real and most useful to the buyers in wakad

    "In S/No 127, after 26th June 2014, only 1 sale deed (agreement to sale of flat) happened as of today"

    So just one sale deed in 4 months!


    In S.No. 127(representative of entire Pune???) - I also didnt see a significant number of sale deeds of recent months - a number of deeds are also bank registered mortgage deeds .

    More interesting data that can be extracted :

    1.Number of people having address of Mumbai .
    2.Number of deeds having joint ownership of father,son
    3.Number of deeds having joint ownership of husband,wife
    4.Number of deeds of 60 lac+
    5.Number of deeds having loans of 40 lac+

    I'm not surprised that 1 & 2 numbers are significant while 3,4,5 are comparatively lesser - as I always maintained that pune - especially west is a den of investors than end users , especially from Mumbai . (Sadly Mumbai had the lowest voter turnout in the recent assembly elections .)

    All in all , the govt. site is useful in bringing some transparency in pricing .
    CommentQuote