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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  • One thing which I really find funny about stock markets:-

    Support Levels:D.

    When Nifty falls from 5000 to say 4900, these so called market experts say:- "Expect support at 4850 levels". When markets falls below 4850, they say, support is expected at 4780-4795 levels & so on:D.

    Man, sometimes I feel that these people should enter politics, as they keep changing the goal-post!!:bab (65):
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  • Real,

    Warren B and Ben Graham have said - nobody can predict the markets over a extended period of time or even for short term... Also about the supports, many of them who are chart analysts, take in (say a 1 year )graph and check for lower tops and lower bottoms and mark it as support 1, support 2,etc in a declining market...


    For me, charts dont signify anything, its only the businesses behind the stocks that generate value....

    However, the PE of the current market is about 18-20, which is definately unsustainable since the companies arent growing at 20% forward earnings.....I guess the earnings are about 10-15% at max, even lesser for most,,,and hence the markets should correct to 12-15000 kind of levels, stay there for a while and then increase again -- towards 25000-30000.....

    Long term,markets have grown at about 10-15% on an average....hence the outlook.... should be 13-15K in about 2012, and 20K in about 2015-2017, but again, no point to predict the stock market movements....

    FIND GREAT BUSINESSES......AND THEY WILL SURELY BEAT THE INDEX
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  • The real crux of the matter remains that market doesn't go on fundamentals, it runs on what the arbitrators do, using some crap sentiments. If you really want to make money on stock markets, go for dabba trading:bab (35):.
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  • Real,

    I dont agree with you here, you can make really good money in stock markets by investing and not speculating...

    Infact, I have been in stock markets since 1998, my father since 1980s and have made and are making decent money(but not through speculation).... Only now, we have gone through 3-4 boom and bust cycles and understand what Warren B says is absolutely true,...

    If a you find a great business,,,,the stock price definately catches up sooner or later.....
    But,you need to do a lot of effort to find the great business....

    For starters - MFs such as HDFC Taxsaver - Growth and Reliance Growth Fund - Growth are the best bets - they have returned a CAGR of over 25% since last 15 years,,,,I believe they would do for the next 100 years as well....if they follow the same meticulous approach...

    Please do read during your leisure time

    "The Intelligent Investor" - By Ben Graham

    Warren Buffet - Letters to Shareholders,and other books

    Peter Lynch - One up on Wall Street...
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  • Originally Posted by realacres
    The real crux of the matter remains that market doesn't go on fundamentals, it runs on what the arbitrators do, using some crap sentiments. If you really want to make money on stock markets, go for dabba trading:bab (35):.



    Now our practical person and stock market expert, ash7979 will come to chew you alive. Get ready. according to him stock market is very much predictable on some macro analysis and safest investment with high yield.
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  • MF? I had invested in RNRL, just managed to get out by making couple of thousand loss that too after holding it for almost 1.5 yrs:bab (45)::o. The Mukesh-Anil spat made this downperform, though the company looked promising. So, more than fundamentals, these things also matter. I though don't deny the fact that under-leveraged, good performing cos are better bet if you are ready to hold the share for atleast 2-3 years.
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  • Real,

    I dont want to say your investment was a bad one, but does RNRL have any business, all it does is oil and gas trading, and all its business is modelled in future on gas trading....

    According to Warren B,,, the business has to grow continuosly by 10-15% for atleast 5 years to make it a good investment,...

    RNRL,Suzlon,IFCI(infact all Reliance counters).. are all speculative and trader favorite scrips with very little value and growth prospects, however some companies like RCOM- may become good investments at around Rs 70-80 kind of levels...

    Also, the view for stocks has to be atleast 10-25 years,,,,and Warren B wants to hold the stocks for ever until something changes very drastically...

    So,with a 2-3 years view....you MUST start investing in MFs(mutual funds) rather than stock markets and even hold the MFs for long ..more than 10 years atleast...

    Patience & Compounding are the Magic Words in Stock Markets....infact if a person had invested only Rs 5000 per month in Reliance Growth Fund - since 1996,,,for 15 years - the value today would have been 1.3 crores on a total SIP investment of 8.6 lacs...

    What more,,,if you do it for another 5 years...it would grow to 5.5 crores... on a investment of 9.2 lacs....

    Just use any SIP calculator and check the values yourself...
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  • Originally Posted by pcpune
    Real,
    Just use any SIP calculator and check the values yourself...

    Thanks, let me see. Anyways, I already have other options where I can invest my money in with much higher returns & that is outside stock markets:).
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  • Originally Posted by realacres
    Thanks, let me see. Anyways, I already have other options where I can invest my money in with much higher returns & that is outside stock markets:).


    Real,

    There is almost no other avenue for investment with returns like the stock market. So your claim that you have other avenues to park your money are false.

    On a sustainable basis, only stock and stock related instruments can provide from 15-30% returns consistently. No other option, including and platinum has shown this much consistency.

    Equities have no competitors when it comes to investing and returns.
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  • It cannot be called false but it is difficult to find investments that can grow above 10% other than stock markets. However, Private loans and mortgage can provide such return but involve a very high degree of risk....

    Real,

    Please be careful on investments with private parties,....
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  • in 1996 a govt person with 10 yrs of exp used to have a salary of 5k.
    A fresher engineer would have had that 5K salary.

    Today would a IT/MBA fresher earning around 25K a month put all the money in MF?. i hardly know any frnds aged around 25 who are ready to even put 5K a month in MF.

    Also timing is very imp in MF.

    My point is: Few ppl have patience to hold things for long like 5+ years.

    Old generation (born before 1960s) used to sacrifice their present for a stable future. that is missing in most of current 'youngistan' generation (specially those born after 1985s)

    Everyone thinks what will i do with crores when i am old. all need good amount in young years to 'live a quality life'

    Originally Posted by pcpune
    Real,
    Patience & Compounding are the Magic Words in Stock Markets....infact if a person had invested only Rs 5000 per month in Reliance Growth Fund - since 1996,,,for 15 years - the value today would have been 1.3 crores on a total SIP investment of 8.6 lacs...

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  • Originally Posted by manoos
    in 1996 a govt person with 10 yrs of exp used to have a salary of 5k.
    A fresher engineer would have had that 5k salary.

    Today would a it/mba fresher earning around 25k a month put all the money in mf?. I hardly know any frnds aged around 25 who are ready to even put 5k a month in mf.

    Also timing is very imp in mf.

    my point is: Few ppl have patience to hold things for long like 5+ years.

    Old generation (born before 1960s) used to sacrifice their present for a stable future. That is missing in most of current 'youngistan' generation (specially those born after 1985s)

    everyone thinks what will i do with crores when i am old. All need good amount in young years to 'live a quality life'


    nothing wrong in that. Anyways most things can only be enjoyed when young. On a lighter note though. :)
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  • Guys,

    If you cannot spare 5K as SIPs, why people dont even think in sparing 20-40K per month in EMIs??? That kind of money in MFs could easily build a lot of wealth for the investor but most people dont realize this...

    Anyways, I have planned my monthly net income as ---

    1. 1/5 for the rent (Can only increase this to 1/4 for EMI - hence cannot buy in current RE scene in Pune)
    2.1/3 for monthly household and personal expenses
    3.1/3 - MF investments & term insurance (which is normally yearly premium)
    4.Spend remaining money on lavish things - holiday,LED TVs,etc...

    Believe this really makes life good - excellent standard of living and good savings...why BUY and live in a hole when LIFE is GOOOOOD......
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  • Originally Posted by pcpune

    why BUY and live in a hole when LIFE is GOOOOOD......


    How Dare you call pune Apt. a hole :bab (35):.
    they are Lavish, Ultra Luxurious , Large, Spacious, Prime, Exclusive(Custom Made)..... etc ... etc .....

    ...You don't know each flat has 4 walls and roof ...
    and roofs are close so that you can clean easily by just over stretching your hands...

    Excellent Aluminum window frame which have life of at least million years.......
    wondering how ??? well glass is recyclable ... Aluminum when it breaks in 5 -6 yrs you can melt it and again make the same window.... so this cycle can be repeated for at last million yrs.....

    but thats not the case with wood.

    .... and they never have any wardrobe inbuilt or ever provided....

    As they know all owners will have at least Mahogany Wood 4 door almirah ...
    Kitchen ...are never furnished as each owner wants his to be custom .... so what it cost lot more later ...

    And Magarpatta City's Lubudum park is second only to England ..Queen's Castle (I am not saying ... it was in the Ad)...:D
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  • Nice Humour Frugality...hope some of the builders read this post... :)
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