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 :
  • India WILL have a "hard landing" and this is what is good and bad about India that people become greedy and fearful within a time span of say 3-6 months for real estate and stocks.Thankfully,for stocks, we have a decent regulator- SEBI in place and stocks are much more liquid. I believe the prices wont correct for another 1-2 years and then, once there is a panic, it will crash like a falling knife to 50-70% from here. The best time to buy is really when blood is on the streets, in economics they describe this phase as:
    1. Interest rates are the highest - 12-15% in India
    2. Inflation lowest 3-5% in India
    3. No bank willing to lend and have become very conservative
    4. on an all time high
    5. You can atleast pay 50% of the property amount (so that the rest is on interest from bank,dont ask me if interest rates are high,how to buy then,you will know that once the price is less,the interest rate doesnt mean much)
    6. Real Estate prices roughly double as compared to 2003-2004 in 10 hours (global average of 5% rise annually)
    In 2004, the prices were Wakad/Hadapsar 800,Baner-1300,Aundh-2000,Kothrud-1600-2000,Prabhat Road/Central Pune -2000-2500. You might say that even today the prices are only double of these, but we need you need consider the quality/built up area,FSI then, and now. Hence, I believe if on a carpet area/quality calculation in 10 years the prices have just doubled, it will be good time to buy.

    The important thing is whether you can make a killing when there is blood, and to make a killing you need start saving(probably in Equity Mutual Funds//Bonds).

    Thanks
    CommentQuote
  • Originally Posted by piyushchamedia
    The important thing is whether you can make a killing when there is blood, and to make a killing you need start saving.

    Bang on target. Just make sure that you don't get hit in the cross-fire;).
    CommentQuote
  • Developers lure real-estate buyers with ‘assured’ returns

    Another trick of the builders to raise money from greedy investors:-
    Even for properties that exist only on paper, buyers are being tempted with 12% ‘assured’ returns

    http://www.moneylife.in/article/8/4589.html
    CommentQuote
  • Originally Posted by realacres
    Another trick of the builders to raise money from greedy investors:-
    Even for properties that exist only on paper, buyers are being tempted with 12% ‘assured’ returns

    http://www.moneylife.in/article/8/4589.html


    They can find bunch of buyers in Infy itself.:D:D:D
    CommentQuote
  • Kumar Builders Complaints

    Man, even the Bangalore buyers of Kumar builders are hammering him. This Lallu Jain is creating trouble everywhere he goes. High time he is booked under IPC 420;). Read the following links for complaints about Kumar builders & Lallu Jain in Pune & Bangalore.

    http://www.consumercomplaints.in/complaints/kumar-builders-c193347.html

    http://www.consumercomplaints.in/complaints/excessive-delay-and-lack-of-response-from-kumar-builder-management-towards-its-customers-c310615.html
    CommentQuote
  • Tricks used by Mittal

    This Mittal builder (Sun) is using the following tricks, so, get clarified the following:-

      Parking:- 2 cars are put where hardly 1 car can fit. Before shortlisting the car park, better you measure the distances well,
      In Satellite, the staircase upto 1st floor (till sample flat) is of granite, while from 2nd floor onwards, it is of Kota,
      In Sun Planet, he did external plaster & put white paint. However, from inside, only the brick work has been done with no signs of internal plastering,
      Planet is hardly seeing any movement due to less bookings & no approach road. You need chopper to reach here or a dirt bike though the builder claims that he travels here in his cars like BMW & CRV,
      In Sun Universe, the floor plans shows 2 lifts/building. In reality though, there is just a single lift/building.
      Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.Hence, better keep these points in mind well.
    CommentQuote
  • Buy 18,000 sq ft, get 10,000

    SALEABLE AREA From 40 per cent of carpet area, jacked up to 60-100 per cent; housing industry chamber says developers digging own graves.

    http://www.indianexpress.com/news/buy-18-000-sq-ft-get-10-000/597830/0
    CommentQuote
  • Thats the real issue, even if there is law against all these malpractices - no law enforcement agency can implement these on the crook builders.
    So even if we know - there is hardly we can do anything except avoidance !!
    CommentQuote
  • Can RTI be used to foresee why these laws are not implemented and why there has been no action ever?
    CommentQuote
  • Happy to see this thread UP again!:D
    CommentQuote
  • Originally Posted by puser
    Can RTI be used to foresee why these laws are not implemented and why there has been no action ever?

    RTI can be used but there is nothing which one can achieve by this as the builder in the agreement mentions the area according to law:(. Man, there is no mention of price/sq ft anywhere in the agreement just like car park charges. It is shown as 'Alloted' while the money paid by the buyer is not shown separately.

    Hence, builders giving non-existing 60% area means that you are just paying 60% more/sq ft, that's all, & no authority can stop builder from pricing their projects at sky high rates nor can ask the buyers not to buy one. Hence, you have the only option of looking elsewhere if you are not happy with the arrangement, sad but true:(. If not, build on your own if possible, either individually or collectively:).
    CommentQuote
  • Taking this post here as issues on Samrajya thread got diverted away from Samrajya, maybe because Jitu is the sole builder on this forum (who admits this fact).
    Originally Posted by piyushchamedia
    4.No point asking the builders to help the consumers, as none of them wants to grow and become a big or a legend.They just want quick bucks,and only understand profits and losses. We need more companies like Tata,Godrej,etc in the real estate industry.
    5.Why not stay in a rented place which is a lavish one and enjoy some of the fine years of your life.You can holiday,build up some cash/equity,buy a car, live a good life.

    Pune builders should learn from Dhirubhai:- High volume, low profit margins without hampering the interests of shareholders. Anyways, I don't see any Pune builder rising even to the rank of a gardener working at these corporate honchos homes;). The PBAP is full of scorpio chaps, hence risk taking ability with high volume, low profit margins is nowhere to be seen. They are trying to kill the hen which lays en eggs:(.

    Anyways, I liked point 5.:) Man, don't waste your prime age wasting for illogically priced RE. There are better things in life to do than RE.
    CommentQuote
  • No big move in markets this year: Morgan Stanley


    http://economictimes.indiatimes.com/articleshow/5795913.cms
    CommentQuote
  • Panel asks RBI to track housing prices closely

    “It has now become contingent to monitor the price movements of the financial assets like equity and houses, lest unintended price rise leads to wasteful speculative investment, particularly by the households that would turn out to be deleterious for growth and consumption in an economy,” the panel said in its report.

    http://www.indianexpress.com/news/panel-asks-rbi-to-track-housing-prices-closely/602644/0
    CommentQuote
  • Originally Posted by realacres
    “It has now become contingent to monitor the price movements of the financial assets like equity and houses, lest unintended price rise leads to wasteful speculative investment, particularly by the households that would turn out to be deleterious for growth and consumption in an economy,” the panel said in its report.

    http://www.indianexpress.com/news/panel-asks-rbi-to-track-housing-prices-closely/602644/0



    May be our children will see some action on this recommendation by panel
    CommentQuote