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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  • Yes & as many members here are ITGs, they can have a simple exercise:-
    Go to Bangalore & see the property you can buy for 3k/sq ft or say 40L. Compare the same with Pune in terms of quality, specs, location & infra & you will be surprised to see that Bangalore RE is much better, cheaper & more VFM than Pune RE. Also, I think that there may not be the case that Pune ITGs are paid more than their Bangalore counterparts. Hence, post correction, Bangalore is more lucrative than Pune despite being IT hub of India or for that matter Asia. Think.....


    Phew!! so you have finally relieved ITGs of that burden that they are the primary reason for stupid RE prices in Pune :D :p
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  • Originally Posted by wiseman
    The last time builders pledged their stake to borrow excessively and catch the boom (2007) before it could run away, the post-crash repurcussions had many nearly going under and losing their stakes and companies.

    It was the Govt stimulus programs which came at the nick of time which provided a safety net for builders before they could crash into the ground.

    Then, not realising their luck in being saved thus, and ignoring the Govt's advice to lower prices and not be so greedy, they merrily went on a rate hiking spree while ignoring the fact that volumes were not increasing - signalling that buyers were having none of that runaway boom nonsense this time.

    Once again builders are going out on a thin branch to over-leverage and borrow more than prudently advisable in order to cash in on their belief that the global depression is over and boom time is coming (as an example, while our Govt is shouting 9% GDP growth next year, the World Bank just released a report suggesting 6.7% this year, around 7.5% next year and less than 8% in 2011-12. Personally, if Agriculture comes in lower and the world does a double dip, even these figures look too rosy!).

    This time around, the risks are much higher as builders reserves are much thinner, profitability is lower, volumes are less, buyers are much smarter and the world is on the edge of a bigger and more painful fall from late-2010 onwards. And they have still not addressed the huge debt they already have on their books from the last time.

    This time around, the expected boom may simply be a figment of builder imagination (probably is). And when the tumble does happen, there may not be a safety net to catch them before they hit ground!

    Whatever you do, do not invest in these builder's shares!:D

    cheers


    Couldnt agree more, Wiseman. Very Wise.

    USA did not realise their good luck in 2002 in coming out of the dotcom bubble unscathed. They built the RE bubble next and got crushed.

    As you point out, builders have not realised their good luck and are getting greedy against all the best advice, even from Govt itself.

    Unfortunately, the common man also has to tolerate the negative effects produced by their greed.
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  • Buying negotiation.....
    Guys is there any professional tution class where we can go and learn negotiation skills with builder....:))
    My experience telling that if you go to builder in starting construction phase on his so called MRP he will give around 25% discount, if you go in middle he will give 10 to 15% discount and if you go in the last(almost 90% sold out status) if you can get between 5 to 10% you are a lucky man.
    may be my negotiation is not so sharp but this is my experience based on my negotation with 10 different builder's.
    Comments most welcome.
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  • Originally Posted by Technocrat
    Phew!! so you have finally relieved ITGs of that burden that they are the primary reason for stupid RE prices in Pune :D :p

    No man, they still remain a factor, however, Bangalore ITGs must be having better sense of RE purchase than their Pune counterparts. Add to it the absence of Pawar & Co. in Bangalore;).
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  • Originally Posted by siddeewan
    Buying negotiation.....
    Guys is there any professional tution class where we can go and learn negotiation skills with builder....:))
    My experience telling that if you go to builder in starting construction phase on his so called MRP he will give around 25% discount, if you go in middle he will give 10 to 15% discount and if you go in the last(almost 90% sold out status) if you can get between 5 to 10% you are a lucky man.
    may be my negotiation is not so sharp but this is my experience based on my negotation with 10 different builder's.
    Comments most welcome.

    A post related to negotiation is already there somewhere in this thread. Please check old pages.
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  • Parsvnath may sell BEST land to Kanakia

    Another major building facing cash crunch as well. Another eg. of greed's side-effects:-

    Parsvnath spokesperson did not deny the development and said they would not like to comment on it. It had plans to raise Rs 242 crore by the end of the quarter through the private equity route which hasn’t happened yet. An analyst said Parsvnath does not have money to develop these projects.....:D

    http://www.dnaindia.com/money/report_parsvnath-may-sell-best-land-to-kanakia_1360267
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  • Sobha too ...

    Originally Posted by realacres
    Another major building facing cash crunch as well. Another eg. of greed's side-effects:-

    Parsvnath spokesperson did not deny the development and said they would not like to comment on it. It had plans to raise Rs 242 crore by the end of the quarter through the private equity route which hasn’t happened yet. An analyst said Parsvnath does not have money to develop these projects.....:D

    http://www.dnaindia.com/money/report_parsvnath-may-sell-best-land-to-kanakia_1360267



    I read somewhere else that Sobha too is looking to unload 500 (or is it 800?) Crores worth land that they had accumulated during the boom times.

    One of them is right opposite Koshy's Restaurant on St. Marks Road in Bangalore. Its quite a large property cleared for development some 3 years ago (or maybe even more) and they are looking for 200 Crores which no one is willing to pay. Imagine locking 200 Crores for 3 years (probably on loan funds at least partially), which even at 15% interest would be around 105 crores loss. And if you calculate the rest of the 500 crores, then interest burden alone would be in the range of 250 Crores.

    Now you realise why builders are so desperate to play Russian Roulette with their customers. They know in the back of their minds that time is running out and are trying to wriggle out of the deeeep hole they have dug themselves into by trying to tie the burden of their "homes" onto buyers who can then face the pain (currently felt by the builders) for the next 10 - 20 years!!!:D

    So, why are buyers getting so desperate and buying into this con-game by builders. I can only think of one reason. Most buyers have only seen 2000s boom years and are locked mentaly into "prices will forever rise and run away beyond our means" type of thinking.

    My sympathies! Real lessons in life are always learnt the hard way.

    cheers
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  • Originally Posted by aditi sharma
    Gujarat RE prices has historially been logical. They rise and fall with market but the market is quite competitive and open. In pune, few with power control it. The land price around Nano project (Sanand) has increased several fold, as govt is planning this belt for auto sector. Though home prices in nearby big city Ahmedabad has not much effect of nano but still in the downturn from 2008-2010, the rates have been slightly up unlike mumbai and pune. But overall the rates are logical. Recently a friend bought a spacious 3bhk (under const) in 27-28L which u can't imagine in pune. Also a friend's father bought a 2bhk in 17L in east Ahmedabad.


    i agree gujrat's real estate market is not controlled by any politicians or mafia's. its a truly competitive economy.
    completely different is the case with maharashra real estate. not just pune all other cities of state has real estate prices controlled by builders & politicians.
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  • Gujjus are very money savvy ...

    Originally Posted by cooldudeRE
    i agree gujrat's real estate market is not controlled by any politicians or mafia's. its a truly competitive economy.
    completely different is the case with maharashra real estate. not just pune all other cities of state has real estate prices controlled by builders & politicians.



    Indians generally are smart. But Gujjus and Madus have money running in their blood (I'm saying this in the positive sense).

    Not only RE, almost anything in Ahmedabad will be competitively priced otherwise people quickly go out of business. Indians have a hard time earning money (maybe not the IT/ITES guys :D) and they get really mad when people try to cheat them by overcharging. Its generally been the easy-money crowd which goes in and throws around money without asking "why so much"?.

    If more people stopped to ask, "why so much"? and "We will not pay so much!", then builders will have no choice but to get reralistic quickly. The urge by the younger and/or easy-money crowd to take on high debt levels (not understanding the issue of risks involved during the period of debt) that makes builders so arrogant. Just go ask the builders "why so much" and they will tell you to get lost because there are so many other greater-fools behind you in the queue ready to throw away their money as easily as they got it!!!

    I'm sure many people will disagree with me, but thats my opinion. What to do!

    cheers
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  • Originally Posted by wiseman
    So, why are buyers getting so desperate and buying into this con-game by builders. I can only think of one reason. Most buyers have only seen 2000s boom years and are locked mentaly into "prices will forever rise and run away beyond our means" type of thinking.

    My sympathies! Real lessons in life are always learnt the hard way.

    cheers

    Yes, very true. Maybe many RE buyers of today don't sit in stock markets, else their attitude towards RE would have been much different. As said before, many people find it hard to digest money, hence they splurge on not VFM things:(.

    Originally Posted by wiseman
    Indians generally are smart. But Gujjus and Madus have money running in their blood (I'm saying this in the positive sense).

    Thanks:).
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  • RBI hikes repo, reverse repo rates

    As predicted, CRR & rev repo have been increased with immediate effect by RBI which will lead the ROIs to go up by 0.5 to 1%. Inflation too will hit 10%, while that in WPI is already in double digits.

    S S Ranjan, CFO, SBI
    It is signal from RBI that money will be costlier.


    http://www.business-standard.com/india/news/rbi-hikes-repo-reverse-repo-rates-by-25-bps/88995/on
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  • Originally Posted by cooldudeRE
    i agree gujrat's real estate market is not controlled by any politicians or mafia's. its a truly competitive economy.
    completely different is the case with maharashra real estate. not just pune all other cities of state has real estate prices controlled by builders & politicians.

    It’s easy to always blame politician for anything which is not incorrect for us. Because they are like douche bags. I think they are reflection of mindset of our society. This blame also needs to be shared by greedy investor who look at RE for locking more than 50% annual returns either by booking shadow flats or giving out black money to builders.

    I can understand pain of the first time buyers as prices are way out of budget. But please just go through some other threads where people are reselling flats. Those are the same guys who would have done whining for exorbitant rates but now they want to sell same flats for twice of the price they brought 3-4 years back.

    I am not lecturing but its brutal time for first time buyers who wants to buy their dream home.
    Investor who are shouting from roof top about high prices coz builders have eaten their profits. And always remember the thing which goes too fast upwards has to come down in the same way (Although its philosophical).

    As 'wiseman' suggested look at the last 20 years not just last ten years for identifying pattern for price rise.
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  • Originally Posted by wiseman

    My sympathies! Real lessons in life are always learnt the hard way.

    cheers


    Absolutely true. Please love to learn the hard way.
    Its always:

    1) Other can get Bankrupt, not me. I am smart investors.
    2) Other builders will negotiate, my builder NEVER.:p
    3) Other builders with cheap quality will reduce prices, but not my builder. His project is a Quality project and will never reduce prices.
    4) My builder is a very reputed builder.( Dont really know what they mean by that )
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  • Originally Posted by RAJESHP
    Absolutely true. Please love to learn the hard way.
    Its always:

    1) Other can get Bankrupt, not me. I am smart investors.
    2) Other builders will negotiate, my builder NEVER.:p
    3) Other builders with cheap quality will reduce prices, but not my builder. His project is a Quality project and will never reduce prices.
    4) My builder is a very reputed builder.( Dont really know what they mean by that )

    Add to it:-

    5) RE prices where I buy will always go up,
    6) I will get good wife if I buy RE:D.
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  • Originally Posted by realacres
    Add to it:-

    6) I will get good wife if I buy RE:D.


    Thats hillarious :D :D :D !!
    I can't stop laughing - but thats very near to be true !!
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