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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  • Well said wiseman & sansei.

    Wiseman, agree with what you say but who jacked up the RE rates including land at first place? Builders. The price of flats went up & thinking that prices will always go up, builders wanted to sell as much as possible, hence they bought land at higher cost as the land owners then started demanding their pound of flesh from the builder.

    Hence,
    High cost of flat>> Increase in land price>> Increase in flat prices.
    It is a viscous circle.

    Today, the value of land banks given as collateral by big builders like DLF,Omaxe, Unitech etc. has fallen by over 55%. DLF even sold it's land at much cheaper cost than market price in May 09.

    In Baner. a plot which was going for INR 2100/sq ft is now available for INR 900/sq ft!! Similar cases are there even in eastern parts of Pune.
    Builders can still make flats at 15L even today, what they won't earn is the 300%+ profit which they make.

    * Most of the builders had purchased land at throw away rates before the boom period! Areas like wakad & Balewadi had price of sub-INR 100 sq ft for land. Not to forget agri land purchased at even lower rates & later converted to NA.
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  • When RE falls, overpriced land also falls!!!

    Originally Posted by realacres
    Well said wiseman & sansei.

    Wiseman, agree with what you say but who jacked up the RE rates including land at first place? Builders. The price of flats went up & thinking that prices will always go up, builders wanted to sell as much as possible, hence they bought land at higher cost as the land owners then started demanding their pound of flesh from the builder.

    Hence,
    High cost of flat>> Increase in land price>> Increase in flat prices.
    It is a viscous circle.

    Today, the value of land banks given as collateral by big builders like DLF,Omaxe, Unitech etc. has fallen by over 55%. DLF even sold it's land at much cheaper cost than market price in May 09.

    In Baner. a plot which was going for INR 2100/sq ft is now available for INR 900/sq ft!! Similar cases are there even in eastern parts of Pune.
    Builders can still make flats at 15L even today, what they won't earn is the 300%+ profit which they make.

    * Most of the builders had purchased land at throw away rates before the boom period! Areas like wakad & Balewadi had price of sub-INR 100 sq ft for land. Not to forget agri land purchased at even lower rates & later converted to NA.



    Folks,

    I have always maintained that anything overpriced must correct to an affordable level. This is called reversion to the mean!

    There is this common belief that land is immune to it. Why? There is no reasonable explanation given to accompany that belief. Its like, my mother always did this, so we continue!!!

    **********************************
    There is this story about preparing turkey for thanksgiving (its a US story, so vegetarians excuse; I too am a veggy:D). Following tradition, the daughter of the house snipped off the end of the turkey (considerable snip and so a considerable waste) and put it into the oven. The hubby, married into the family and so not knowing the tradition, asked, "why did you do that and waste so much, especially given the price of turkey"?!

    Daughter(wife) said, "thats always been the family tradition and so I follow it"! So, hubby went to mother-in-law and asked, "why do you do that"? She say, "my mother always did it and so I follow the tradition"!!

    Finally, hubby goes to grandmother (in those days they lived a long life) and asks, "why"?

    She says, "simple! so that it would fit within the pan which is too small"!!!:D

    Note: While many traditions have a sound reasoning which we may have forgotten, not all of them are sound in their basis!!! We need to question each tradition not to disrespect it, but to see if it has a sound basis!!!
    *******************************

    So, while builders and landowners misused their position and duped buyers into high prices with stories like "land is not being made again", etc, all they did was play to the fears and greed of human nature. Fear that land will run away never to return to a price we can afford. Greed that, if we are the first to book, we can flip it after 6 months for a 50% profit.

    When this cooked up demand deflated, the builders who fell for these stories themselves are now left holding high-priced land with no demand. They can't hold it indefinitely as it costs money!!! So, this land has to come to market and has to get sold at lower prices.

    > In Baner. a plot which was going for INR 2100/sq ft is now available for INR 900/sq ft!! Similar cases are there even in eastern parts of Pune.

    So, I continue to wait for this inventory to be cleared out with continuously declining prices as weakened land-owners on debt are forced to sell at lower and lower prices. I will buy when it is affordable to me! I may miss the bus waiting, but at least I will not make the bigger mistake of holding high-priced RE and paying thru my nose to builder and banker so that they can ride in their Mercs!!!:D Plus, when I buy the market will have bottomed and prices will be on the rise, so my investments are safe and readily saleable!

    cheers
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  • Liked the story wiseman. Btw, when do you think the market will bottom out? Personally, I can't give dates but yes it will be faster due to poor monsoons & it's ill effects on the economy.

    Btw, Pune has got 30% water cut from now on due to poor monsoons.
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  • RE prices were just beginning to go up in the last 2 months...when the following happened in the last week...
    H1 N1, no house tax benefits from 2011, PMC cutting water in the monsoon (for the whole year, looks like now), .... Add Recession with high interest rates.. Do'nt see even one postive factor that would cause prices to climb furthur..
    Can you think of any (except human greed/fear)?
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  • I might get targeted for this, but must say it anyways!

    Originally Posted by realacres
    Liked the story wiseman. Btw, when do you think the market will bottom out? Personally, I can't give dates but yes it will be faster due to poor monsoons & it's ill effects on the economy.

    Btw, Pune has got 30% water cut from now on due to poor monsoons.



    Folks,

    Wouldn't we all like to know what will happen tomorrow so that we can take advantage of it and secure our lives a little better?! Why do you think astrology, palmistry, numerology and similar areas of knowledge are doing such roaring business in India.

    Similarly, from ancient times, Indian philosophy has it that the world (basically time or kaal) goes in cycles (please note I said cycles and not circles). Cycles need not be the exact same, but are likely to be similar.

    Some people have also noticed that these cycles follow an important mathematical sequence - the Fibonacci series named after Loenardo of Pisa who brought it out in 1202 ad; for those of you who pride themselves on the fact that for every discovery in the West there is an equivalent Indian discovery that dates much further back, this numerical series seems to have been stated by Pingala in the 4th century BC; Pingala incidentally was reputedly the younger brother of Panini, the great gramarian who laid out the grammer of classical Sanskrit and who also strangely met his end when he was attacked and killed by a tiger (who knows!).

    Anyways, coming back to the topic, many things in nature seem to follow the Fibonacci series. This is exploited by chartists (charts can be in any market, not only stocks) who also have systems that follow cycles, one of the more famous being the Eliott Wave Theory. What these try to forecast is not only the target level but also the likely timeframe using their systems.

    While none of this is perfect, using charts as well as fundamental data of the major economies of the world, some of these experts suggest that we might only see the bottom in the West between 2010 and 2012. India, being better managed, might see it a little ahead of that, maybe in 2010 itself.

    We will definitely know the bottoms has occurred when we see 3 - 6 months of consistently increasing sale volumes along with slowly increasing prices, which denotes the willingness of buyers to take on increasing risks. In any case, there is unlikely to be a runaway increase in prices as bull markets in RE take around 10 years to develop (the crash of 1995 saw prices recover to that level only in early 2005).

    One of the things chartists also believe is that, for reasons unknown to man, prices follow cyclic pattern. Subsequently, humans bring up observations in the world around us to justify and rationalise the trend.

    For example, I have been stating for a short while that, after one more (possibly) sharp rally, the stock markets will stage a major drop and may even go near previous bottoms of 8000 on the Sensx (BigBear will vouch for that). This is what the charts foretell. If this trend happens, post that, we will justify it by saying Swine Flu, Drought (and many other reasons which will become apparent then) will then be shown as the reasons for the fall.

    Don't blame me. I'm just telling you what little I know, have observed and would like to believe!!! :D

    Sorry for boring you all with this long, rambling post:D

    I believe Andy too has been answered in this post.

    cheers
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  • Sorry, Deepak :)

    Originally Posted by deepakpat
    Dear Wiseman.. I am feeling that you are one of the pupular boarders on Moneycontrol site?



    Sorry, Deepak. I do not contribute on any other site regularly other than this forum! :D

    cheers
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  • RE Prices Crashing.

    The current RE prices:-

    DLF earlier had reduced the prices of it's Bangalore & Chennai properties to INR 2200/sq ft. They now have been further reduced to INR 1850/sq ft.
    Similarly, in Mumbai HDIL was selling it's project for INR 12000/sq ft, which was then reduced to INR 10000/sq ft & now stands at INR 7800/sq ft!
    Few builders in Mumbai have started 'Inventory Clearance Sale' this week, (yes this is what they are officially advertising) & have reduced the prices by whopping 40% flat.

    The above e.g.s clearly shows that Mumbai which has land scarcity has reduced prices so has other tier1 & tier2 cities like Chennai & Bangalore too.
    Hence, I see no reason why Pune RE prices can't erode further sharply.
    Pune RE will crash & crash hard. The above e.g.s simply illustrate the same.
    CommentQuote
  • which mumbai builders?

    Hi,
    Would like to know which builders of Mumbai have started Clearance sale, except royal palms. Which I thought was fake. There was nothing for possession as they advertised and promised flat for possession in 2012.

    would be good to know where is the price dropping in Mumbai... cant find any drop in Andheri (W). thats where I would love to get into.

    thanks.
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  • Pune RE Rates Faling.

    Pune RE Crash:-

    As e.g to above news, here are some reduced RE rates:-

    Beverly Hills:- Rs.3500/sq ft to Rs.2600/sq ft,

    Paranjape Saptgiri:- Rs.4000/sq ft to Rs.3000/sq ft,

    Gera Regents Park:- Rs.3700/sq ft to Rs.2850/sq ft

    Concord Portia:- Rs.3250/sq ft to Rs.2650/sq ft,

    MV Tropez:- Rs.3199/sq ft to Rs.2200/sq ft

    Mirchandani Palms:- Rs.3500/sq ft to Rs.2650/sq ft,

    Crossover County:- Rs.3600/sq ft to Rs.2950/sq ft,

    S3:- Rs.3000/sq ft to Rs.2150/sq ft,

    Parkstreet (Sapphire Park):-Rs.3200/sq ft to Rs.2600/sq ft (can be bought down further if you book in under-cons wing),

    Kapil Abhijat:- Rs.7000/sq ft to Rs.4800/sq ft,

    Felicita:- Rs.4251/sq ft to Rs.3000/sq ft,

    Add to it the townships,

    Magarpatta:- Rs.3800/sq ft to Rs.3200/sq ft (resales INR 2600/sq ft),

    Nanded City:- Rs.3700/sq ft to Rs.2500/sq ft.

    The further downfall of RE prices will continue. Better wait & see the fun.:)
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  • ParkStreet (Saphire park) is quoting 3000psqft as of yesterday. I dont know from where you got the figure of 2600. Seems they only have 3bhk's left in that phase
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  • Quotes

    Hi Avi,

    Real mans quotes seem to the lowest generally for any projects.

    Found out to be true in the cases i have checked/deduced.
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  • Going fwd

    Hi friends,

    Going fwd me thinks:

    The push for flats has slakened due

    the certainity of Tax benefits vapourising in near future.

    The election season coming to an end, so one has to wait for goodies till
    next time and be ready for price + int rate rise to sky.

    Excess inventory build up.

    I have advanced my flat purchase and am willing to wait longer.
    OR looking for more central places.

    Expecting investors to start coming to mkt in larger no.s
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  • Mindless

    Pl c the article by some mittalin TOI.

    ]http://ravikarandeekarsblog.blogspot.com/2009/08/few-good-words-about-pune-builders-and.html

    Kinda c mindless and traversing of brains.

    Who has the good relations with bldrs nowadays except netas.

    Where the authors want to take and what she wants to put fwd.

    I have posted abt newspaper in earlier post, just throw in bin, useless.

    Kinda c mindless and traversing of brains.

    Who has the good relations with bldrs nowadays except netas.

    Where the authors want to take and what she wants to put fwd.

    I have posted abt newspaper in earlier post, just throw in bin, useless.
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  • Right Sansei.
    Add to it poor monsoons & it's ill efects of the economy. The people are earning less, getting laid off & due to poor monsoons, the cost of living will go up means people will spend less which means no auto, holidays etc. let alone RE. A neigbor of mine lost his Audi Q7 last week & has been compensated with a humble Innova by the company. Many are losing their Black-berries too. No first class travel, for short distances it is now trains than flights. For long distances, it is video conferencing:D.

    Had to attend a seminar last week at The Le-Meridian, which was later shifted to a hotel at Vimannagar due to swine flu. Didn't attend due to swine flu & seminar had many western people which made it more risky in current scenario but the delagates who came from US insisted that we meet them. However could not do so as they had a flight at 1600Hrs. Earlier, never these things used to happen where the other party used to be so desperate.

    The situation is very bad, & has become worse due to poor monsoons. In all these bad news, the only good news is that the RE rates will crash even harder. Those looking at Kharadi may get one at Kalyaninagar, or atleast Vimannagar now. Baner will see rates of Wakad. I would personally keep the budget same & shift to more better locality now.
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  • Me 2

    I m 2 looking at central areas.
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