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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  • Low Rate Home Loans To Vanish In Sometime

    It might turn out be sad news for many. After sometime, ultra-cheap housing loans are going to be a thing of the past. Banks are now winding down their fixed-cum-floating rate home loan schemes, where rates were in the 8-8.5% plus range for the first year, with the provision that rates may be raised later. Axis Bank has already withdrawn its fixed-cum-floating rate loan and Union Bank of India said that it is going to withdraw its teaser loan scheme starting February 15. Housing Development Finance Corporation (HDFC) said that its scheme is available till February 13. Other teaser home loan schemes, including that of the State Bank of India, are expected to be reviewed shortly. State Bank chairman Mr OP Bhatt has already gone on record to say that he expects rates to rise after April.
    11 Feb 2010 DNA
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  • I think this will have impact only on buyer who are taking huge amount of loan. They will backout. For the buyers who is paying most of the ownership from his old saving will benefit.
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  • Originally Posted by kirunOnly
    I think this will have impact only on buyer who are taking huge amount of loan. They will backout. For the buyers who is paying most of the ownership from his old saving will benefit.


    Current boom is mainly based on high priced loans. Banks have lent loosely. Sab udhar ki aish kar rahen hai. This can't go on endlessly amd soon things will become tight, then ppl will face reality of unmanagable paybacks. RE can only go down from here.
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  • Originally Posted by kirunOnly
    I think this will have impact only on buyer who are taking huge amount of loan. They will backout. For the buyers who is paying most of the ownership from his old saving will benefit.

    Correct but the no. of such buyers is very few in the market. Also, in most cases, those who can make downpayment of 80%+, the house may not be their first one. Hence, if the entire market dips, no one will put the money irrespective of the funds availability coz money has only 1 color.
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  • :(:( This is going to make homes costly....
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  • Originally Posted by puser
    :(:( This is going to make homes costly....

    How? Please explain.
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  • Interest rate will be more, that means more EMI...others had benefit of 2 years 8-8.25% EMI who took loan before...Also less loan eligibility becoz more interest rate...

    Builders are not going to reduce rates anyway (Don't know what stops them)...

    Rates are going up again(or so it is shown)
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  • Originally Posted by puser
    Interest rate will be more, that means more EMI...others had benefit of 2 years 8-8.25% EMI who took loan before...Also less loan eligibility becoz more interest rate...

    Builders are not going to reduce rates anyway (Don't know what stops them)...

    Rates are going up again(or so it is shown)

    I disagree. Reasons:-

      No one will buy if prices are unaffordable. Hence, builders will have to reduce prices,
      If you see in past, the moment ROIs were reduced, RE prices were hiked as builders focus more on EMIs rather than rate/sq ft. Eg. Goel Ganga ads,
      The BPLR lending by banks would mean no further restructuring of loans by the builders. Also, the builders will have to borrow at higher ROIs now. This means, more they hold, more they need to pay. Hence, they will have no choice but to clear the inventory according to market conditions.
      The banks have made RE a High Risk sector meaning loans for buyers as well as builders will be now difficult. Hence, eligibilty goes down (As you rightly said) & hence more pressure on builders to cut prices.
      So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.So, due to high ROIs many can't buy atleast those who over-leveraged themselves (& this formed majority of buyers) meaning more inventory & less buyers. Besides reduction in RE rates, what I can also see is that many projects will be abandoned. Hence, come what may buy if deal is VFM & project's timely completion is assured. Else keep out even at 80% less rate.
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  • Builders know if loan rate increased the sale will decrease. Therefore, it’s good time for builder, they are increasing the price and people are trying to buy at the lower interest rate. It’s just mind game.
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  • Originally Posted by Saurabh01
    Builders know if loan rate increased the sale will decrease. Therefore, it’s good time for builder, they are increasing the price and people are trying to buy at the lower interest rate. It’s just mind game.

    It is indeed mind games, but it was played right from 2005 onwards. However, point to note that the buyers to know that ROIs will go up & will avoid RE purchase as hardly anyone takes home loan for period of 2 yrs. The banks too are not lending now. Just visit any bank & see for yourself as the banks don't want to make any loss due to the fixed BPLR introduced by the RBI.
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  • Originally Posted by frugality
    Business world report ..... see yourself and know the truth

    Smothering The Green Shoots

    http://www.businessworld.in/bw/2010_02_06_Smothering_The_Green_Shoots.html


    Really good article. Shows the situation in Pune is best amongst all. This explains why builders could hold on to prices in spite of places like Banglore RE prices have corrected by a good amount. This was a long standing question of realacres :) (why Pune RE is not coming down).
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  • Question is: what is source of data for this article?
    As I understand, there is no regulatory(who could have registered actual real estate data) for real estate sector in India, what else can be source?

    1. Builders or Builders' association
    2. Govt depts which record stamp duty and registration charges

    Getting and collating data from govt depts is always a cumbersome task.
    I feel, source used by the auther is option 1 above.
    If so, we know what Pune builders or PBAP stands for.
    Then why care?
    Think to yourself, what makes Pune out of the world over other IT cities of India?

    I feel there is nothing special about Pune over other IT cities of India.
    Only differentiating factor is PBAP, which is really out of the world... from hell.

    Originally Posted by compuwalah
    Really good article. Shows the situation in Pune is best amongst all. This explains why builders could hold on to prices in spite of places like Banglore RE prices have corrected by a good amount. This was a long standing question of realacres :) (why Pune RE is not coming down).
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  • Realacres, I am amazed that even you believe in this mirage of falling prices, despite all the words spoken here .

    If interest rates go down, price is increased - buyer can take more loan

    If interest rates go up, price is increased - loan for builder is more expensive, cost is passed on.

    You are in a lose-lose situation, and always have been.

    "Builder will have to reduce prices"????????

    LOL Ha Ha Ha. :D


    Originally Posted by realacres
    I disagree. Reasons:-

      No one will buy if prices are unaffordable. Hence, builders will have to reduce prices,
      If you see in past, the moment ROIs were reduced, RE prices were hiked as builders focus more on EMIs rather than rate/sq ft. Eg. Goel Ganga ads,
      what I can also see is that many projects will be abandoned. keep out even at 80% less rate.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

      Yes, this I agree. Abandoned/slow project is another way of increasing prices. Builder takes money from people promising low rate psf and then goes to sleep under a tree. Your money earns interest in builder's account or is used for all kinds of speculation - or blown up in unseemly ways (you can guess what all a gangster will do with other people's money). You get possession after a long loooooooooooooong time. Adding delay and opportunity cost factor to the so called low rate makes for an actual price increase only.

      Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

      Real, RE in India is a den of gangsters. Enter the den at your own peril.

      Unfortunately, all of us have to enter this den at least once in a lifetime because a roof over your head is essential. Once bitten, do not re-enter. Even if you make money the first time around - your profits were inadvertant.

      Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.
    CommentQuote
  • Originally Posted by Venkytalks

    If interest rates go down, price is increased - buyer can take more loan

    If interest rates go up, price is increased - loan for builder is more expensive, cost is passed on.

    You are in a lose-lose situation, and always have been.

    "Builder will have to reduce prices"????????


    Man, you mean to say that high ROIs mean high RE rates as well?:D The builders have jacked the rates already & are holding to it despite some drop in prices. They too know that people aren't buying the way they anticipated due to holding. Hence, any further hike in RE rates & rise is ROIs are double whammy for buyers. Hypothetically, if we consider that builders stick to their rates, there won't be any sales taking place then as already seen in the past.

    Another way to increase price is to use poor quality of construction. Promise the earth, give lousy quality for bargain basement price from a third rate contractor, pocket the difference.

    This is the precise reason I say go for ready poss or close to completion projects whose timely completion is assured.

    Real, RE in India is a den of gangsters. Enter the den at your own peril.

    Yep, know that man. Have already dealt with various type of people, nothing new. Btw, I also know how to exit the den as well, if required, so this won't be a major issue atleast for me.

    Invest in stocks of these builders if you really think RE is going to do well. Otherwise invest in hotel stocks for a price book value play on RE price escalation.

    Stocks in current times? No man, I won't enter, & RE is big no-no. Even Rakesh Jhunjhunwala doesn't have RE in his portfolio;).
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  • Builders renting out flats

    I have unconfirmed reports that Mittal Bros Crosswinds project is to be put on rent. Rent is 30k/month for 4BR:D. There is no propert tar/concrete road till the project, quality is pathetic & water issues as well. Till date, no one has shown interest even in renting out this flats.
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