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?

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  • Huge inventory to keep prices down

    Originally Posted by Swapnil N
    As per today's Loksatta - there is inventory of 67k unsold houses in playing another gimmic...using FM channels under disguise of good Samaritans for people...where RJ's suggesting / asking people if they want to / planning to buy houses? when? and suggesting people to go to builders with cheque of down payment and do hard bargaining....desperate measures??

    The property prices in Mumbai, one of the highest in the world, are expected to be stagnant for the next couple of months.

    Besides huge inventory, a slew of launches in Mumbai and its suburbs after a long gap is expected to have a cooling effect on home prices.

    Investors are withdrawing from the market as they do not foresee prices doubling in the next three to four years. For end users, affordability is not there… New supply will pose a challenge for developers. That is why I think prices will stay where they are or correct,” said Amit Bhagat, CEO and managing director at ASK Property Investment Advisors, a Mumbai-based fund manager.

    New launches to keep Mumbai home prices stagnant | Business Standard News
  • Homebuyers should wait for prices to fall

    Scout for locations of choice, study price trends in those areas, and buy if and when prices fall

    Chandan Malaviya, 30, manager with a foreign bank in Gurgaon, has been looking for a house to buy for the past couple of years. The locations of his choice are Dwarka Expressway and Sohna Road in Gurgaon, but exorbitant property prices have thwarted his plan. But he is hopeful now. “In almost all the projects, there are units available for sale, and for almost a year, there has been no increase in price; rather, property brokers are offering discounts on their last quoted price,” said Malaviya. He thinks that prices will fall further.

    There are many people in a similar position who think that property prices in some areas went too high during the realty boom and have significant scope of a price cut. Besides that, the overall subdued realty market is mounting pressure on developers and they may reduce prices.

    Developers have been struggling with low sales, increasing inventory, high debt and liquidity crunch since the past three years.

    At present, most homebuyers are waiting for a significant decrease in prices. If the situation does not improve for developers, homebuyers’ expectation may come true.

    With discourses of economic revival yet to show empirical evidences of a turnaround and the banking regulator not yet convinced of gifting a substantial rate cut to homebuyers, we don’t see homebuyer sentiment improving. This simply means a continued resolve from homebuyers to stay away from markets. This is expected to add further pressure on the existing moribund finances of developers which rationally calls for a possible price cut,” said Zia.

    Agrees Magazine, “Housing sales remained muted even during the festive season, as a cautious buyer sentiment rode over discounts and attractive marketing offers. This is perhaps a signal that prevailing high property prices and high interest rates need to be rationalized.

    A few developers also admit that there is a need to reduce prices, especially in certain locations. Aniel Kuumar Saha, chairman and managing director, Saha Group, said: “Developers in certain locations where prices rose drastically may go for a price cut to clear unsold inventory.

    Manish Agarwal, managing director, Satya Group, and secretary, Confederation of Real Estate Developers Associations of India (Credai), NCR, said: “If the slowdown continues even after a year, developers with heavy inventories may be compelled to go for drastic measures, including price cuts.”

    Developers also feel that now homebuyers are looking for reasonably priced properties.

    Homebuyers should wait for prices to fall - Livemint
  • Builders and their theories!

    While we’ve been discussing builder theories for quite some time, this one is baffling:

    Since many years, I’ve been taking this small service lane from Santacruz highway to BKC because it cuts my commute to office by several kilometers and few minutes. Like all other by lanes, service lanes of Mumbai, this one too is encroached by slums. You have to be very careful while driving through because there are dogs, rats, pigs, hen and naked babies moving about freely. Best is to take a cab/auto so that you can cover your eyes and nose – people defecate on both sides of the road and on the divider in between. There is also a stinking nullah going through and the stench during monsoons is unbearable.

    Right on this nullah –right on it, is a new luxury residential project (SRA obviously) called – (hold ur breathe)- Paris!!

    Seriously? Wtf! How?

    Here’s how:

    To cut off the Paris from the Bangladesh – the builder has covered all the sides with 15 feet tall tin sheets. The sheets facing the road have been covered with green creepers and tall posters of blonde models – to give the ‘feel’ of Paris of course. A section of the road divider near the project has now got potted plants. As soon as you enter the magnificent gates, right at the entrance- is a cafeteria called ‘Café de Paris’. You can see the team of the firangi architects and project managers discussing the project details over a coffee table inside.

    Across the city there are hoardings like – ‘Live Paris’, ‘Experience the Paris of Mumbai’. I wonder who will buy a 6 crore flat there? The Bangladeshis are still there and the nullah is not even in the list of the new river ministry – it will never get cleaned - not even in 2022.
  • rembrants,
    Challenge to develop Mumbai or any city for that matter involves work from ground level.
    Drainages,leaking pipelines,dirt and squalor.
    I really doubt whether anyone has the will to do so.
    Slogans and posturing is for votes and not for fundamental change which has to come from each Indian.
    The dirt comes because we litter and urinate anywhere and everywhere.
    Builders take short cuts and save money.
    Nullahs get closed and water diverts somewhere else.
    It is too complex and unless there is strong political will change will not happen in big way.Certain changes are happening no doubt.
  • So what makes the builder think he can launch a luxury residential project there and that it will get sold?
  • Originally Posted by rembrants
    So what makes the builder think he can launch a luxury residential project there and that it will get sold?

    Indians have resigned to the fact that this is life and we deserve no better. A lot of businessman with black money and a few top high ranking salaried class will stay in this "Paris". They roam around in chauffer-driven AC cars busy on their smart phones so they wont have a clue what's happening right outside their Paris.

    The black component in such projects is so much that the builder wont be worried even if it takes more than 4 years to sell all flats. eventually some bakras will take the bait...mostly the people who have never been to paris or any other developed city for that matter.

    the builder is not offering the beauty, art or architecture of Paris but rather a dream of Paris which quickly turns into a nightmare the minute you look out of your walled garden.
  • Wadala Dosti is a good example of a premium project in the middle of a slum.

    In Mumbai it works
  • Easier FDI in real estate means govt is inflating India's urban housing bubble

    will property bears please comment on above article?

    why did prices fall in last saffron rule anyways?
  • Indian home prices fell most among 52 nations, IMF says

    Indian home prices fell most among 52 nations, IMF says
  • Will FDI rejuvenate the real estate sector?

    Will FDI rejuvenate the real estate sector?

    will property bears please answer?
  • Housing sector could turnaround in 2015 with boost of FDI

    Housing sector could turnaround in 2015 with boost of FDI

    property bears comments?
  • Originally Posted by Venkytalks
    Wadala Dosti is a good example of a premium project in the middle of a slum.

    In Mumbai it works

    The builder will sell it as a feature that you will easily get domestic help and your bai will always be on time given the short commute :bab (59):
  • Another lesser-known fact is that if you sell the house within five years of taking possession, the deductions claimed on principal payments are reversed. The amount deducted in previous years is considered as income in the year of sale and taxed accordingly.

    Another cost of holding.
  • Originally Posted by FedupBuyer
    Easier FDI in real estate means govt is inflating India's urban housing bubble

    will property bears please comment on above article?

    why did prices fall in last saffron rule anyways?

    I feel following lines are important:
    "Builders increased prices to accommodate investors at every stage of the development, thereby creating a false sense of price appreciation. With a steep slowdown in genuine sales (both Delhi and MMR currently have the highest unsold inventory), they are stuck in a catch-22 situation."

    There needs to be an end demand to meet the exit price point. For example if some investor is buying a flat at 70 Lac today with a target of 15% returns, he should be able to find a end user at 1.06 Crore at 3 year horizon. Considering all the decent flats are in this range at this point, how many end users will buy at 1.1 Crore.

    FDI expect returns and if returns are not coming, why would they put their money on RE. Moreover there are hardly any transparency and regulations in Indian RE market, which is also a negative point.

    But again all these are opinions. Writers opinion, My opinion. Others might have different view.
  • One more thing, buyer profile in Pune can't be compared with that of Mumbai. Mumbai has limited land, has people with multiple diverse industries which are not dependent on fixed salary (Film and Television industry, Import Export, Most of Big businesses in India are based out of Mumbai, Fair IT industry presence, Most of Corporate Headquarters, many PSU headquarters, Civil Servants, Ministers, MLAs). What does Chichwad or Remote Villages like Hinjewadi has to command these rates?