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 :
  • Stress on banks’ balance sheets a serious threat to Modi’s economic revival agenda

    The amount of restructured loans on the book of Indian banks continued to rise in the three months ended 30 September as more number of companies became stressed units and failed to honour their repayment obligations to lenders.

    In the September quarter, banks approved Rs 19,105 crore of fresh loans for restructuring from 19 companies under the corporate debt restructuring mechanism (CDR), a forum of lenders, which offer relaxed loan repayment terms to troubled companies by slashing lending rates, offering a moratorium and extending the loan repayment period, according to official data.

    Total stressed assets in the banking system (bad loans combined with restructured loans) amounts to 14 percent of the total loans given by the banking system at end-June.

    What is more important and disturbing is that the credit flow to industries, especially medium-sized companies, which are the backbone of an emerging economy, has remained stagnant so far this fiscal year, which indicates prolonged slowdown in the economy.

    The optimism in the economy post the arrival of a stable government at the Centre still doesn’t seem to have much influence on changing the fortunes of industries and banking sector so far. On the other hand, increase in the bad and restructured loan levels of banks necessitates more capital in these banks, adding to the burden of the government fighting a large deficit.

    On Wednesday, international rating agency Moody's retained its negative outlook on the domestic banking system, citing high leverage in the corporate sector that may prevent any meaningful recovery in asset quality.

    "Our outlook for the country's banking system remains negative, as it has been since November 2011.

    The message: It is highly critical for the Modi-government to address the deterioration in the financial health of companies and, in turn, that of banks, if it is serious about what it preaches i.e. breathing life back into a weak economy that has grown at sub-5 percent levels in recent years.

    If not, the damage can be more than what it possibly anticipates now.

    Stress on banks

    Compu,

    You spoke about just SBI home loan, check out what is happening in entire banking system now, thanks to giving cheap money earlier.
    CommentQuote
  • No takers for ‘easy’ schemes by desperate developers

    In a bid to beat their blues in the slackened realty market, developers in Mumbai are trying to make the most of the festive season by dangling lucrative easy payment schemes. While owing an apartment in Mumbai with a ticket price of anywhere over Rs 1 crore by paying nothing more than 10 per cent of the price until possession may seem like an irresistible deal, analysts caution buyers against signing on the dotted lines before reading the fine print.

    “The scheme benefits developers as instead of paying the high interest rate that is levied on construction financing from banks, projects are financed through homes loans that are available at a lower interest rate of 10 per cent to individual homes buyers,” said Abhishek Ranganathan from the financial services company Phillip Capital India.

    The sudden dependence of builders on end-user’s money is also owing to the fact that investors who used to fund projects by booking a specific number of apartments even before a project was officially launched are now refraining from putting their money on real estate.

    Moreover, buyers are not convinced about investing in projects that have not taken off the ground as even in case of the easy payment schemes, if the developer defaults on interest payment or delays the project, the onus will fall on the buyer,” he said.

    Mumbai realty market | The Indian Express
    CommentQuote
  • Caveat investor: DLF and listed realtors have destroyed Rs 3,30,000 cr wealth

    It is common wisdom that you can’t lose money in real estate, given that land is always in short supply. But then, how does one explain the humongous wealth destruction by real estate companies that are listed on the stock markets? If real estate can only go up, how come real estate shares only go down?

    Take the case of DLF, the biggest daddy of them all. According to Firstbiz calculations, from its all-time high price of Rs 1,205 a share in January 2008, DLF has plunged more than 90 percent to Rs 109 today (27 October). This means in six years, just one real estate company has destroyed shareholder wealth to the tune of Rs 1,86,000 crore, falling from a high of Rs 2.06 lakh crore to just Rs 19,502 crore now.

    Firstbiz added up the wealth destroyed by six listed realty companies from their peak prices and today’s values, and the total loss to investors adds up to Rs 3,30,792 crore. Clearly, realty companies are not worth investing in at all.



    So it is caveat investor: it is simply too risky to invest in listed realty companies. Stay away.

    Caveat investor: DLF and listed realtors have destroyed Rs 3,30,000 cr wealth - Firstbiz
    CommentQuote
  • Originally Posted by realacres
    This is another classic case of manipulation by Compu.

    Man, where has SBI said what you have mentioned above ??
    Nowhere is Pune specifically mentioned, nor the price per flat has been given.
    Again, the loan which SBI has said it gives or for that matter even other banks, it is not necessary that it will be for flats only from builders.

    Also, there is nothing mentioned that the home loans disbersed by SBI is for new flat, it can be merely a refinancing option as well.

    Compu, see what SBI guy mentions :-

    On the average ticket size, Sriram said it is Rs 30-32 lakh now.

    All what you mentioned in RED above is nothing but story cooked up by your imagination.

    So, when entire news is in front of readers, don't try to fool them man.

    anirban8,

    Can you let us know how many people buy house with 100% downpayment ??


    classic case of manipulation by Compu ... wo wo wo .... man I fell off from my chair :D.

    I could be replying to this post in very fitting manner but would refrain from doing so. Reason. If someone wants to get misguided by non stop negetive statement of each and every RE project or related builder , in face of prices going up'n'up for last 5 years right in middle of all negetive stats posted, its his/her fate. Bulls have in time and again tried to warn against these statement by providing with various evidences , so there is nothing much to post further. I bear any criticism with apt gandhigiri.

    btw I was unnaware of possesion of skill to manipulate people blush
    CommentQuote
  • Construction FDI: Realtors and benami speculators will gain more than home buyers - Firstbiz
    EXTRACTS:
    In fact, the first beneficiaries of this easing will be crooked builders – now struggling to sell property in major cities – and their benami investors, mostly even more crooked politicians. By helping them access more and easier finance, the government is essentially delaying a correction in property prices – and making housing more unaffordable to everybody.
    Consider what is being proposed by the liberalisation. Among other things, the minimum built-up area for projects in which foreign investment will be allowed has been reduced to 20,000 sq metres from the earlier 50,000; the minimum size of investment has been reduced to $5 million from $10 million; and the lock-in period of investment will end the minute a project is completed. The old three-year lock-in applies only to incomplete projects.

    What this liberalisation has done is to make speculative investments easier for foreign investors, especially non-residents. So instead of allowing only domestic speculators to make money through benami holdings, now even NRIs from the Gulf and small-ticket foreign investors can join the party – all at the expense of the genuine home buyer whose prices will stay elevated and unaffordable. It will encourage more speculation as the minimum investment norms are lower, the early exit barriers are gone, and the pool of available speculators is larger.

    This easing will help builders and real estate owners more than home buyers as they can now access cheaper and more finance. The only home buyers who will benefit are those who have already put their money in projects, but builders are delaying completion due to the lack of funding.

    Not surprisingly, the most ecstatic responses have come from builders.

    The Economic Times quotes Rajeev Talwar, Executive Director of DLF, one of India’s biggest value destroyers on the stock exchange, as saying: “The government is bang on (target). We are very glad about the trunk infrastructure completion part as it will bring in asset-based FDI. This will ensure that project developers who have taken FDI are not left with more debt.”

    DLF will certainly benefit by being able to reduce its debt load, but how will home buyers benefit if easy money makes builders more reluctant to lower prices and hang on longer to built property? The only way home buyers will gain if the huge debt load and slow sales forces builders to bring down prices to push sales and improve liquidity. But this is exactly what won’t happen is cheap money flows in torrents as a result of the FDI change. The FDI easing will make builders ability to hoard property stronger.

    My view:
    Political control from behind scenes will ensure that buyer remains disadvantaged in the process of home buying.
    CommentQuote
  • I think such decision are envitable as builders will push the government to come with policies that help them. If anybody thought modi will help to bring down prices then we r living in a fools paradise. At the end he is a baniya and he knows best what is good for doing business. Only way prices will come down if banks go down like in US but it will mean common man is also affected.
    CommentQuote
  • Originally Posted by vaibav123

    My view:
    Political control from behind scenes will ensure that buyer remains disadvantaged in the process of home buying.


    Yes Vaibav. Now, we will be able to say that renting is better that buying probably. But fence sitters will still predict (rather pray) for a RE crash.

    My View:
    One more boom period in RE is expected in coming 4-5 years. however next 8-10 months RE prices should remain subdued.
    CommentQuote
  • Friends,

    As i read here it is clear that real estate is not the best mode of investment / multiplying your money. But come to think of it GOLD has also lost its attraction as an investment option, the NIFTY being at all time high we cant even start an investment in equity.

    In this situation what avenues would you suggest where an average investor like me should invest / park the surplus funds?
    CommentQuote
  • Go in for PPF,Post Office MIS linked with RD a/c.
    Open SIPs in 5 star rated MFs.
    CommentQuote
  • Originally Posted by priyasaxena
    Friends,

    As i read here it is clear that real estate is not the best mode of investment / multiplying your money. But come to think of it GOLD has also lost its attraction as an investment option, the NIFTY being at all time high we cant even start an investment in equity.

    In this situation what avenues would you suggest where an average investor like me should invest / park the surplus funds?



    If you are an Indian citizen then I would recommend the following

    1. SIP into US stocks. India allows Indian citizens to invest upto 75,000 ot 150,000 $$ every yr (pls check correct amount on RBI website) outside India
    2. SIP into Indian stocks
    3. RE estate investment. Go for under-construction projects so you can spread ur payments over 4-5 yrs but your purchase price if fixed
    4. Gold

    Do a mix of the above if you want to but there is no need to buy gold if you are investing money outside India. If you are totally invested in India then have some gold in your portfolio.

    Never ever put ur money in FD. That is like burning your money. Exception to that is PPF as it provides massive tax benefits.
    CommentQuote
  • Originally Posted by anirban8
    Yes Vaibav. Now, we will be able to say that renting is better that buying probably. But fence sitters will still predict (rather pray) for a RE crash.

    My View:
    One more boom period in RE is expected in coming 4-5 years. however next 8-10 months RE prices should remain subdued.


    You are correct. RE boom is will continue over the next 4-5 yrs. Interest rates in India will start to come down from early next yr. Even the incompetent Rajan cant stop that now.
    CommentQuote
  • Originally Posted by realacres
    It is common wisdom that you can’t lose money in real estate, given that land is always in short supply. But then, how does one explain the humongous wealth destruction by real estate companies that are listed on the stock markets? If real estate can only go up, how come real estate shares only go down?

    Take the case of DLF, the biggest daddy of them all. According to Firstbiz calculations, from its all-time high price of Rs 1,205 a share in January 2008, DLF has plunged more than 90 percent to Rs 109 today (27 October). This means in six years, just one real estate company has destroyed shareholder wealth to the tune of Rs 1,86,000 crore, falling from a high of Rs 2.06 lakh crore to just Rs 19,502 crore now.

    Firstbiz added up the wealth destroyed by six listed realty companies from their peak prices and today’s values, and the total loss to investors adds up to Rs 3,30,792 crore. Clearly, realty companies are not worth investing in at all.



    So it is caveat investor: it is simply too risky to invest in listed realty companies. Stay away.

    Caveat investor: DLF and listed realtors have destroyed Rs 3,30,000 cr wealth - Firstbiz


    What a logic - if shares go down, land and flat prices should go down.. wonderful man, keep it up.
    CommentQuote
  • Originally Posted by herohiralal
    If you are an Indian citizen then I would recommend the following

    1. SIP into US stocks. India allows Indian citizens to invest upto 75,000 ot 150,000 $$ every yr (pls check correct amount on RBI website) outside India
    2. SIP into Indian stocks
    3. RE estate investment. Go for under-construction projects so you can spread ur payments over 4-5 yrs but your purchase price if fixed
    4. Gold

    Do a mix of the above if you want to but there is no need to buy gold if you are investing money outside India. If you are totally invested in India then have some gold in your portfolio.

    Never ever put ur money in FD. That is like burning your money. Exception to that is PPF as it provides massive tax benefits.


    There is no rainy day fund in your strategy. If tomorrow stock markets tank, like they have done throughout the history and you are in urgent need of cash then you will be stuck.

    It is better to keep at least 6 months of living expenses in cash or cash equivalents depending on the risk level like FDs, liquid funds, debt funds, etc.

    The average investor should stay away from investing in US companies sitting in india. besides the usual market risk and stock risk now you are playing on currency risk as well. I think for an average investor, this will be too much to handle.

    Put it in FDs, fill out the form 15G and sleep well at night!!!
    CommentQuote
  • Originally Posted by ThodiSiZamin
    There is no rainy day fund in your strategy. If tomorrow stock markets tank, like they have done throughout the history and you are in urgent need of cash then you will be stuck.

    It is better to keep at least 6 months of living expenses in cash or cash equivalents depending on the risk level like FDs, liquid funds, debt funds, etc.

    The average investor should stay away from investing in US companies sitting in india. besides the usual market risk and stock risk now you are playing on currency risk as well. I think for an average investor, this will be too much to handle.

    Put it in FDs, fill out the form 15G and sleep well at night!!!


    Who is talking about a rainy day fund?? The question was about where to invest. Emergency funds and investments are totally different.

    "In this situation what avenues would you suggest where an average investor like me should invest / park the surplus funds?"

    The person has surplus funds. Money that he/she does not need to cover emergency or short term expenses.

    Pls check historical graph of INR and USD and the structural issues about the Indian economy. Inflation in india runs over 8% and look at this - Ranking of economies - Doing Business - World Bank Group

    People then write posts about how RE companies have lost 90% of their value :)

    Putting money in FDs is like burning the money.
    CommentQuote
  • Cheers to RE bull who invested in Pune early this year. As per NHB data city property price rise is highest in India in 2nd qtr. check out
    http://economictimes.indiatimes.com/wealth/real-estate/realty-trends/housing-prices-rise-in-18-cities-by-up-to-3-9-per-cent-national-housing-bank/articleshow/44996094.cms
    CommentQuote