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?

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  • Originally Posted by ttt43
    There is one major difference in owning RE in US and India. The property taxes are pretty high in US. In India if you buy with cash, there is no expense for owning the property, while in US you have to pay between 1-3 % as property tax every year which is pretty high. Many of the properties in Michigan are sold for this reason for $1000. Also some of the municipal services like garbage(maybe even gas/elec) are compulsory.

    Yep, but look at the corresponding infra too. In Pune if you see, we are charged ROAD TAX which (roads) hardly exists. In Canada, one is hardly required to change the suspension of vehicle, in India, to be precise Pune you need to have a thorough look at this after 1.5 years:(. In Pune we need POTHOLE TAX:D. The latest one was 'EDUCATIONAL CESS'. I can show over 50 schools on paper which actually don't exist, yet the payment is made regularly. Same is for NREG Scheme.
    Hence, we pay for those things which never exists.

    Another important aspect:- the interest rates are 1/3 that of US or maybe even less. Hence, the amount which you pay as EMIs is substantially lower in US keeping the tenure constant.

    Hey, btw, municipal services like garbage(maybe even gas/elec) are compulsory>> What do you mean by this? Don't we require these things?
  • Originally Posted by wiseman

    So, to come back to the point. I go with the rule, "Plan for the Best,
    Prepare for the Worst" and this seems to be a sound rule, especially in these very troubled times. Plan to have lots of cash on your hands over the next 2-3 years with at least 6-9 months of living expenses just in case. And to make this cash really go the distance it would be much better not to have a 40k EMI like a millstone around your neck!

    That's so wise of you wiseman. Thanks for giving such an intellect advice to the pizza eating & coke drinking techies who are evidence to only rise of IT in india and that too without humiliating them. :D
  • You are right, the level of infra and schools is not matched, so it justifies the property tax.

    I am just saying that to own a investment property with cash WAS easier in India since no property tax and low property prices(before 2004).

    Hey, btw, municipal services like garbage(maybe even gas/elec) are compulsory>> What do you mean by this? Don't we require these things?

    I meant for unoccupied properties. But I think the cost is minor.
  • Originally Posted by ttt43
    You are right, the level of infra and schools is not matched, so it justifies the property tax.

    I am just saying that to own a investment property with cash WAS easier in India since no property tax and low property prices(before 2004).

    Hey, btw, municipal services like garbage(maybe even gas/elec) are compulsory>> What do you mean by this? Don't we require these things?

    I meant for unoccupied properties. But I think the cost is minor.

    OK. Got the point. Btw, property tax was there even earlier. Somewhere I read that now in India there is going to be a rule modification:-

    Property tax will depend on current market prices & not on original price. Hence, the person who bought a property in 2005 will have to pay same property tax as that of person who bought in 2009. Hence, unlike earlier, property tax may be variable soon. Let's see what happens.
  • Diverge

    Would diverge from Wise one. Here in Pune, now u cannot get any land in the city central areas.

    The land prices are way above any one can afford. Now even bldrs themselves who r the cause of it, cannot afford the prices. So u see a lot of partnership, and development deals here than any where else perhaps.

    All the lands even in out skirts of the city are bought and fenced. U find Big cars in the surrounding villages, who do not know to drive them. The Scorpio people heard somewhere o n the net.

    Now if Land prices r astronomical, how would the flat prices come down from the current price ( Fair price? ), unless the bldr is on tenter hooks.

    Yes Real, not only Govt is dis-incentivising property buys - New Tax Code; but the property tax ,vacancy tax are other proposals heard to prevent hoarding of property especially after the repeal of ULCA, and presence of heavy industrial power houses here.

    Unless the flats are heavily leveraged with excess FSI, and prices; dont see them coming to 1200 psf even in out skirts.
  • Are your freehold property papers in order?

    Though the following link talks about Delhi, most of it is applicable here too.
  • Invitation.

    Hello friends,

    I got a invitation for discussions on RE. I won't be able to attend these as the dates are not suitable. Forwarding it here; if anyone interested, please do visit.

    The direct link is:-


  • Election woes


    the election mania is on us. The Govt + opp parties are in a sanction / dreaming drive.

    With the model code of conduct to be enforced in a day or two : lots of catchin up to do

    1. SEZ/ MIDC? at Wagholi scrapped.

    2. MERC electricity rate rise order on hold.

    3. Merging of police areas rural with urban in fringe villages order on suspension woes.

    4. Low cost houses for slum dwellers / low income group first batch handed over symbolically by PCMC ( Opp party ).

    5. Tightening of MOFA act. Bldrs can now face a ban upto five years if convicted by courts.Society formation period reduced from 4 to 2 months after handing over peoperty in project. etc etc.

    The unofficial part will start with the propoganda war. Funding of these election ventures. Wait and watch for part II.
  • Precautions to be taken before signing dotted line.

    1.) Definite Price Must Be Fixed on Paper:-

    In some clauses, it is written that the prices may change for any additional amenities, unseen calamities, etc. Make sure no such words are included.
    Tricky words:- Alter, tentatively.

    2.) Clear Deadline on Paper A MUST:-

    The date of possession has to be precise on the agreement & a penalty clause suitable for buyer (discuss this with your attorney) should be included.
    Tricky Words/Phrases:- Tentatively, approximate, At option of timely delivery.

    3.) Sale/Conveyance Deed:-

    Make sure that you get a draft copy sanctioned from your attorney & get it modified if required. No ifs & buts should be in an agreement.

    While signing the final deed, make sure that the original copy is exactly similar to that of draft copy you handed to builder. In some cases, I have observed that buyers sign blindly the final agreement thinking that it is same as that of draft copy.

    Tricks of builders:- Calling you at 11th hour at registration office, asking you to hurry up coz there are many no. of people waiting, if late today next appointment is hard to get, lawyer has to attend some other case etc.

    No matter what, make a point to reach the registration office atleast 40 mins earlier & thoroughly go through the final sale deed & ensure that all the demands incorporated in the draft have been met.

    These small steps ensure you have peace of mind. Now decide whether you want your mind to be in peace or in pieces;).
  • Originally Posted by wiseman

    You have taken this post from an article about American housing and done some cut-n-paste, no? :D Okay, don't take that seriously ;)

    That said, most points here are valid for India too. But some are not.

    1. RE in the US has risen by an inflation-adjusted 1% only over the last 100 years. Which is why Warren Buffet said what he did. Indian RE has a slightly higher inflation-adjusted number. Btw, this is not too high, because, you will note that, in the 70s and 80s (when you got it real cheap) inflation rates were well in the double-digits and would have had a big damping effect on the inflation-adjusted rate of increase.

    2. About the savings part as well as about the wife!

    Unfortunately, most Indians (like most Americans) do not save in any other way than via RE, which is a forced saving. Unfortunately, this is the truth.

    And yes, most wives will seriously contemplate a divorce if the husband has not bought a home by the time he is 40 AND he does not have much in savings. Unfortunately, this is also true in today's India!!! :D

    But most of the rest of the post is equally applicable to India. And I commend you to have taken the time to put in this exhaustive list. Very informative and instructional!!!


    " most wives will seriously contemplate a divorce if the husband has not bought a home by the time he is 40 AND he does not have much in savings."

    This is non sense of the highest degree I heard in this forum.
  • CommentQuote
  • i hd seen many builders dont even give draft copy of agreement to read or show to legal advisor. beware from such builders.

  • Bad Economics

    Thats precisely whats happening in majority of sectors not only in RE as mentioned in the article.

    The good eco sense would have been to deal with the situation squarely and finish all projects paid for, scaling down new projects, liquidating bad asset/ non performing asset, rather than sit on it and wait for things to improve.

    The bldr lobby is particularly criminal in so far at one end they keep on buying land with out fulfilling their commitments to customers booked in their already delayed projects.
  • What next would happen is that they will start asking for the relief from government..!!!!

    In the name of employment of the poor labrours!!!!


  • Originally Posted by Sansei
    The bldr lobby is particularly criminal in so far at one end they keep on buying land with out fulfilling their commitments to customers booked in their already delayed projects.

    this is very true. in 2006/7 builders were purchasing lands at any escalated price and now they r unable to reduce the prices of their apartments to match with the situation. this has led to slowdown of many projects.