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 :
  • This is an old story being rewound!

    As far as I can remember, this is an old story. In fact over 1 year ago the news was that ever since the market slide there were no prospective buyers and the builders were looking for alternate sources for funding the project.

    I think this news item is just to stir up things since I don't believe there have been any interested buyer since the last time. In fact, the give-away is the statement by Kalpana Shah about announcing pricing and waiting till project is completed.

    This project will go the way of Sahara Amby Valley (I think they even changed name of that project from the old Amby to new AAmby with the hope that this will turn the project around!:D). Maybe not as bad since that is a large project and this has few flats so they might find a few rich, egoistic bakras who migh fork out a deep discounted price to showcase themselves!

    cheers
    CommentQuote
  • Agree with wiseman. But such type of news leaves the effect they intend.
    In a stagnated market like this, Investors/Buyers who have bought recently, look for confirmation of their bullish beliefs. Such news confirms their beliefs and they stay happy and make more buying decisions.
    CommentQuote
  • wrong theory is provving wrong

    With this thread now becoming more of place of gossip - the wrong theory is prooved wrong.
    CommentQuote
  • Originally Posted by utopian2009
    the wrong theory is prooved wrong.


    HOW? Can you explain with more details?
    CommentQuote
  • Originally Posted by utopian2009
    With this thread now becoming more of place of gossip - the wrong theory is prooved wrong.


    Is this English or ethiopian language?? :D:D
    CommentQuote
  • Originally Posted by realacres
    100Cr flat.....hmm better to put that money in FD & rent a duplex at Nariman point + get couple of Rolls Royce too.


    I am just wondering. Let me assume I have a lot of money + 100 Cr. () Will I want to stay in a apartment. I would probably buy a Bunglow in Juhu or Bandra or Malabar Hill. But i guess RE pricing does not work this way.

    VK
    CommentQuote
  • Originally Posted by veeemkay
    I am just wondering. Let me assume I have a lot of money + 100 Cr. () Will I want to stay in a apartment. I would probably buy a Bunglow in Juhu or Bandra or Malabar Hill. But i guess RE pricing does not work this way.

    VK


    This is a dead project, that keeps rearing its head every now and then.

    I know the effect it creates. For you and I, we'll shrug it off as craziness. But I know when my relatives meet, they will talk about it like the next big thing in Mumbai. They will "discuss" it, wonder which bollywood stars are capable of buying, and then make a who's who list. Believe me, if you talk about it often, soon enough 100cr sounds like sparrow-poo.

    I also know for a fact that many actually consider the news reports of South Mumbai's office space rates a matter of pride and honour.

    I didn't know that jodi-flats in Mumbai were actually in fashion? You don't buy one, you must buy two next to each other! One builder actually asked me if I was considering a side-by-side.
    CommentQuote
  • If you have that kind of money, you will buy both of these a fleet of cars and a country estate and 100th floor of Burj and a flat in London.

    You will also ask for 70% discount from builder but boast to your friends that you live in a 100 crore apt.

    Originally Posted by veeemkay
    I am just wondering. Let me assume I have a lot of money + 100 Cr. () Will I want to stay in a apartment. I would probably buy a Bunglow in Juhu or Bandra or Malabar Hill. But i guess RE pricing does not work this way.

    VK
    CommentQuote
  • looking at the rates GK is better option than Tata. :)
    CommentQuote
  • How can you justify that statement ?
    CommentQuote
  • CommentQuote
  • Originally Posted by ttt43
    Land sharks bite top doc

    ]http://www.punemirror.in/index.aspx?page=article§id=62&contentid=2010022520100225231323511acead250§xslt=

    Really sad, these sharks will keep biting common man. This is what scares me when investing in plot. Specially the outskirts which seems cheap to many people later may find that their plot is actually sold to multiple people. After all there is no police for common man.

    Really sad, these sharks will keep biting common man. This is what scares me when investing in plot. Specially the outskirts which seems cheap to many people later may find that their plot is actually sold to multiple people. After all there is no police for common man.

    Really sad, these sharks will keep biting common man. This is what scares me when investing in plot. Specially the outskirts which seems cheap to many people later may find that their plot is actually sold to multiple people. After all there is no police for common man.

    Really sad, these sharks will keep biting common man. This is what scares me when investing in plot. Specially the outskirts which seems cheap to many people later may find that their plot is actually sold to multiple people. After all there is no police for common man.
    CommentQuote
  • Originally Posted by nareshkheda
    looking at the rates GK is better option than Tata. :)

    And how about the committment? What if GK gives rate of 50% less & doesn't keeps the promises? Cos like Tata, SP, Godrej even if they ask for premium, it is really worth it. Btw, is GK selling for 1k/sq ft?:D
    CommentQuote
  • Originally Posted by ttt43
    Land sharks bite top doc

    ]http://www.punemirror.in/index.aspx?page=article§id=62&contentid=2010022520100225231323511acead250§xslt=
    Man, unable to open this link. Went on official webiste too, yet no results:(. Can you please post the text here ,if possible?
    Man, unable to open this link. Went on official webiste too, yet no results:(. Can you please post the text here ,if possible?
    Man, unable to open this link. Went on official webiste too, yet no results:(. Can you please post the text here ,if possible?
    Man, unable to open this link. Went on official webiste too, yet no results:(. Can you please post the text here ,if possible?
    CommentQuote
  • Budget Demands from builders

    Here are some budget demands from builders from FM:-

      Give low interest rates for developer,
      Home loans should be cheaper,
      Govt should help builders for land acquisition purpose & have more of PPP ventures,
      SRZs i.e. Special Residential Zones be introduced on the lines of SEZ where builder will get the tax benefits,
      Land should be made available at lower price espcecially from Govt bodies like railways which are planning to sell land in major cities,
      Income tax benefits should be given to builders who construct houses less than 1500 sq ft,
      Taxes on RE should be reduced,
      Stamp duty should be reduced so that houses are made more affordable,
      Banks should be more linient towards lending to RE,
      Want RE to be given primary sector status,
      And the list goes on.
      The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.The logic builders give:- If govt does this, houses will be affordable to all. However, no one is committing whether they will pass on the benefit to the buyers or not:p. The budget is going on & I see nothing for RE except that low ROIs will be there for flats worth sub-10L.
    CommentQuote