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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  • Sign the right agreement, while buying a home

    A must read for all here:-

    http://economictimes.indiatimes.com/quickiearticleshow/6175637.cms
    CommentQuote
  • Originally Posted by realacres
    Hey nice to see you back after a long time.
    Coming to this, the banks basically see the following:-

    Nature of work,
    The company,
    Savings,
    Age,
    Future Prospects. It is here where the speculation starts. First the banks offers the loan for 20 yrs & later say that 25 can also be done. Hence, at 20 yrs rate, they give more loan than that can be given, main reason being that post marriage the income will increase. This I have personally seen especially in case of ITGs as many ITGs marry ITGs (hey gals here:D). This is a step taken by the bank based on FUTURE INCOME, if fails, increase the loan duration.

    Man, do you know the way how banks were busy sanctioning loans before sub-prime crisis in US??? This is the sole reason of rising NPAs. You can also confirm the EMI:Income ratio as well if you have some known senior people in home loan section.

    Btw, I have personally seen a person's credit card limit being halved in less than 6 months after he took the home loan.

    What matters is not just the servicing of home loan EMIs but also making sure that your current lifestyle is not hampered after taking a home loan, that's all.


    Thanks RA for welcoming me back:)

    Why you generalize so much, specially when writing on ITGs:bab (34):

    Things are not that rosy, what you think man:)
    CommentQuote
  • Originally Posted by ash7979
    Thanks RA for welcoming me back:)

    Why you generalize so much, specially when writing on ITGs:bab (34):

    Things are not that rosy, what you think man:)

    cos most of the cases, these are the fools who buy at such exorbitant Pune prices (Fun intended)..i also belong to the same community!!
    CommentQuote
  • Originally Posted by frugality
    In Some previous threads we discussed how China will eat indian ITES Market ...

    Now it has started happening ...


    China has replaced India as the primary destination of outsourcing and shared services for Asia-Pacific companies, according to the accounting firm KPMG.


    The survey also revealed low labor costs as one of the reasons for contracting outsourcing providers.

    Time to wakeup ...... :bab (35):
    when flats will cost so much ... in turn ....employee need higher salary ....
    so the shifting will happen to China....



    http://economictimes.indiatimes.com/infotech/ites/China-replaces-India-as-preferred-outsourcing-destination/articleshow/6171831.cms

    Greed wins :bab (59):

    Nice article to read. All prospective buyers taking home loan should think about the repayment capability in the future. Our salary is not increasing the way RE prices have increased, so better to pay more in cash and take less loan. If business cost more in India companies will definitely think of shifting to China in future.
    CommentQuote
  • I have been saying this for so long ...

    Originally Posted by pnb_2k
    Nice article to read. All prospective buyers taking home loan should think about the repayment capability in the future. Our salary is not increasing the way RE prices have increased, so better to pay more in cash and take less loan. If business cost more in India companies will definitely think of shifting to China in future.



    Every new product or service has a cycle. There is the inception stage, the growth stage, the maturity stage and finally the decline (or extension) stage.

    It is in the growth stage that the maximum jumps in pricing and profitability happens.

    People today are acting about the IT business as though its in the growth stage. That ended a few years ago. Coincidentally, with this global deflation threatening to be around for a few years at least, there is going to be a severe dogfight for a jobs pie that is becoming smaller by a workforce that is growing larger ... and hungrier!!!:o

    Take two examples.

    1. Just 10 years ago, the Philippines was a near-zero in BPO. Last year they have become the second largest and are only a stone's throw away from India's turnover. And thats just Philippines, such a small country. I for one, know that there are a Billion Africans (SouthAfrica, Kenya, Uganda, etc) who are English bred and are so terribly hungry for a job. Not to mention the Chinese!!! I have seen each of these face-to-face and believe me they are really hungry!!! Just last week I was trying to advice a (South) Korean, here to learn English, how to migrate to India with a job here!

    Most of these guys are much more professional and hard working than the average Indian (if you have an argument with that, then you must be one of the exceptional Indians! :)).

    2. TCS just announced their latest quarter. Did people notice something? In a single statement they let out several secrets (and contradictions). First they said that this was a very good quarter and one should not expect such a good quarter for a few Qs down the line. Second, they stated that they added around 2,800 people to the workforce. They then go onto say that this year they plan to hire 40000 people.

    Can't figure that one out. When they hired 2800 people in their best quarter, how exactly do they propose to hire 37200 in their not-so-good 3 quarters coming up (with a global slowdown also looming especially in their strongholds of UK and EU?).

    Arithmetic must be their strong point, no?!!!:D

    So, ever-rising salaries in a mature industry heading into a severe global economic hurricane is a contradiction.

    Second, Indian RE will see real downward pressure when our jobs scene gets hit seriously (when?).

    One has to be really gutsy getting into a high level of debt (with rising interest rates) on a huge, long-term commitment!!! What could be the motivation? Can someone explain it to this dumb guy (me)?

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Every new product or service has a cycle. There is the inception stage, the growth stage, the maturity stage and finally the decline (or extension) stage.

    It is in the growth stage that the maximum jumps in pricing and profitability happens.

    People today are acting about the IT business as though its in the growth stage. That ended a few years ago. Coincidentally, with this global deflation threatening to be around for a few years at least, there is going to be a severe dogfight for a jobs pie that is becoming smaller by a workforce that is growing larger ... and hungrier!!!:o

    Take two examples.

    1. Just 10 years ago, the Philippines was a near-zero in BPO. Last year they have become the second largest and are only a stone's throw away from India's turnover. And thats just Philippines, such a small country. I for one, know that there are a Billion Africans (SouthAfrica, Kenya, Uganda, etc) who are English bred and are so terribly hungry for a job. Not to mention the Chinese!!! I have seen each of these face-to-face and believe me they are really hungry!!! Just last week I was trying to advice a (South) Korean, here to learn English, how to migrate to India with a job here!

    Most of these guys are much more professional and hard working than the average Indian (if you have an argument with that, then you must be one of the exceptional Indians! :)).

    2. TCS just announced their latest quarter. Did people notice something? In a single statement they let out several secrets (and contradictions). First they said that this was a very good quarter and one should not expect such a good quarter for a few Qs down the line. Second, they stated that they added around 2,800 people to the workforce. They then go onto say that this year they plan to hire 40000 people.

    Can't figure that one out. When they hired 2800 people in their best quarter, how exactly do they propose to hire 37200 in their not-so-good 3 quarters coming up (with a global slowdown also looming especially in their strongholds of UK and EU?).

    Arithmetic must be their strong point, no?!!!:D

    So, ever-rising salaries in a mature industry heading into a severe global economic hurricane is a contradiction.

    Second, Indian RE will see real downward pressure when our jobs scene gets hit seriously (when?).

    One has to be really gutsy getting into a high level of debt (with rising interest rates) on a huge, long-term commitment!!! What could be the motivation? Can someone explain it to this dumb guy (me)?

    cheers



    Good post wiseman. I am one more dumb guy here willing to hear, But also sure one will tell us.:D:D
    CommentQuote
  • Six countries give I-T dept data on NRI black money

    http://economictimes.indiatimes.com/news/economy/finance/Six-countries-give-I-T-dept-data-on-NRI-black-money/articleshow/6182431.cms


    Will there be any impact on pune RE ?
    CommentQuote
  • Any thoughts on what one can expect in returns over the next 3 to 5 years by buying a flat as an investment?
    CommentQuote
  • From the article
    >>
    India has, meanwhile, informed the foreign authorities to send any future data with complete information containing PAN, date of birth, father's name of the person to whom payments have been made, etc.

    >>

    How can India instruct a foreign country where it has no jurisdiction on what needs to be done ?

    If Income tax guys cannot locate tax evaders based on their full name then they better go back to investigation school.

    This article is a sham. If they want to find tax evaders they don't have to leave the shores of India. You can spend the rest of your career locating and prosecuting these fellows in India.

    This article seems to be intended to justify their foreign budgets.
    CommentQuote
  • Originally Posted by realacres
    Speak with LIC-HF & SBI. These LIC-HF have come up with different teaser rates for 5 yrs, however, they come with T & C!!
    Btw, this LIC fellow told me that if someone is earning 50k/month in techmahindra/infy etc. & other person is earning in 50k/month in not so big co., the loan sanctioned is reduced for later :(. Why man, can't techmahindra guys be fired or take salary cut?? Alongwith builders, even the banks are pushing buyers to the brink & later these will be same banks who will refuse you car loan, personal loan etc. coz they say already the income:EMI ratio is bad:bab (61):.

    Man, why do people over-leverage?? :bab (39):


    A home loan fixed for 5 years can not called teaser loan...I dont know RA why you see everything negative...I think this a really a great product, as you know its fixed for next 5 years & ROI is also very competitive & most of the ppls who take Home loan for 20 years pay back at the max in 8-10 years, so I must say its a great Product one can have for Home loan..
    CommentQuote
  • Originally Posted by ash7979
    A home loan fixed for 5 years can not called teaser loan...I dont know RA why you see everything negative...I think this a really a great product, as you know its fixed for next 5 years & ROI is also very competitive & most of the ppls who take Home loan for 20 years pay back at the max in 8-10 years, so I must say its a great Product one can have for Home loan..

    Ash, infact this is sole reason the teaser rates must be banned, in most countries they are!!!!!
    I dont think most people understand - for a loan of 20 years, say if the loan amount is 40 lacs, you pay ONLY the interest (about 90%) -- around 35-38 lacs during the first 10 years, and the next 10 is your prinicipal payment....Now if you pay-off after 10, you are essentially paying 40+40=80 lacs, and fore-going your right to use money for the next 10 to 20 years...

    Banks are exploiting this,,,they want high interest rates for the first 3 or 5 years, take in all the interest in the world, and then when you want to fore-close after 8 or 10 years - they are REALLY HAPPY TO DO SO....SINCE THEY HAVE ALREADY GOT THE SKIN OUT OF THE GAME!!!

    I believe banks MUST stop this teaser loan as MOST people in India, dont understand WHEN to PREPAY .........ITS JUST A WIN WIN FOR BANKS!!!!!!!
    CommentQuote
  • Originally Posted by pcpune
    Ash, infact this is sole reason the teaser rates must be banned, in most countries they are!!!!!
    I dont think most people understand - for a loan of 20 years, say if the loan amount is 40 lacs, you pay ONLY the interest (about 90%) -- around 35-38 lacs during the first 10 years, and the next 10 is your prinicipal payment....Now if you pay-off after 10, you are essentially paying 40+40=80 lacs, and fore-going your right to use money for the next 10 to 20 years...

    Banks are exploiting this,,,they want high interest rates for the first 3 or 5 years, take in all the interest in the world, and then when you want to fore-close after 8 or 10 years - they are REALLY HAPPY TO DO SO....SINCE THEY HAVE ALREADY GOT THE SKIN OUT OF THE GAME!!!

    I believe banks MUST stop this teaser loan as MOST people in India, dont understand WHEN to PREPAY .........ITS JUST A WIN WIN FOR BANKS!!!!!!!


    By paying back loan, I didnt mean paying entire money in one go after 10 years, I mean a constant prepayment of loan along with usual EMIs & I think you know if you prepay say 1 lacs it REDUCE your Principal not interest, so lets say you made such 1 lacs prepayment 2 times in year, then you will pay around 16 lacs in 8 years & that will reduce your 40 lacs loan to a meager amount...So paying 2 lacs extra prepayment/annum will make a lot of difference, you dont believe me, just do the math yourself...

    In fact banks a charging lower interest rates for fisrt 2-3 years & then increasing rates (that's what the teaser loans are all about)...

    But I dont think LICHF's 5 years fixed loan at 9.25% irrespective of loan amount (till 1.5 Cr) is a teaser loan...its best product available in market & if not can you please tell me any other better home loan product which can beat this (for home loan for more than 30 lacs):bab (59):
    CommentQuote
  • Originally Posted by wiseman
    Every new product or service has a cycle. There is the inception stage, the growth stage, the maturity stage and finally the decline (or extension) stage.

    It is in the growth stage that the maximum jumps in pricing and profitability happens.

    People today are acting about the IT business as though its in the growth stage. That ended a few years ago. Coincidentally, with this global deflation threatening to be around for a few years at least, there is going to be a severe dogfight for a jobs pie that is becoming smaller by a workforce that is growing larger ... and hungrier!!!:o

    Take two examples.

    1. Just 10 years ago, the Philippines was a near-zero in BPO. Last year they have become the second largest and are only a stone's throw away from India's turnover. And thats just Philippines, such a small country. I for one, know that there are a Billion Africans (SouthAfrica, Kenya, Uganda, etc) who are English bred and are so terribly hungry for a job. Not to mention the Chinese!!! I have seen each of these face-to-face and believe me they are really hungry!!! Just last week I was trying to advice a (South) Korean, here to learn English, how to migrate to India with a job here!

    Most of these guys are much more professional and hard working than the average Indian (if you have an argument with that, then you must be one of the exceptional Indians! :)).

    2. TCS just announced their latest quarter. Did people notice something? In a single statement they let out several secrets (and contradictions). First they said that this was a very good quarter and one should not expect such a good quarter for a few Qs down the line. Second, they stated that they added around 2,800 people to the workforce. They then go onto say that this year they plan to hire 40000 people.

    Can't figure that one out. When they hired 2800 people in their best quarter, how exactly do they propose to hire 37200 in their not-so-good 3 quarters coming up (with a global slowdown also looming especially in their strongholds of UK and EU?).

    Arithmetic must be their strong point, no?!!!:D

    So, ever-rising salaries in a mature industry heading into a severe global economic hurricane is a contradiction.

    Second, Indian RE will see real downward pressure when our jobs scene gets hit seriously (when?).

    One has to be really gutsy getting into a high level of debt (with rising interest rates) on a huge, long-term commitment!!! What could be the motivation? Can someone explain it to this dumb guy (me)?

    cheers



    With high construction cost and increased land prices, do you see any other factor affecting RE prices than just a shift in jobs out of India to other hungry countries?

    Even if jobs shift out of India, it will not be an overnight change. It will take good 15-20 years to affect job market so drastically which would make builder's business unreasonable, unprofitable.

    When buyers, investors move out of buying RE, builders will also start moving out of their business (to something else?) and then land prices will fall, which would cause ripple effect and chain reaction to other parameters that influence end cost of apartment or RE.

    Things are easier to say than to happen. If however builder's profit margins are unrealistically high and high prices are consequence of their cartel-based decision(instead of genuine economical); then prices may correct in less time (may be 6-7 years?) but there is almost no evidence to it; because land prices already have shot up in proportion to cost of apartments, etc.
    CommentQuote
  • Originally Posted by ash7979
    By paying back loan, I didnt mean paying entire money in one go after 10 years, I mean a constant prepayment of loan along with usual EMIs & I think you know if you prepay say 1 lacs it REDUCE your Principal not interest, so lets say you made such 1 lacs prepayment 2 times in year, then you will pay around 16 lacs in 8 years & that will reduce your 40 lacs loan to a meager amount...So paying 2 lacs extra prepayment/annum will make a lot of difference, you dont believe me, just do the math yourself...

    In fact bankc a charging lower interest rates for fisrt 2-3 years & then increasing rates (thats what the teaser loans are all about)...

    But I dont think LICHF's 5 years fixed loan at 9.25% irrespective of loan amount (till 1.5 Cr) is a teaser loan...its best product available in market & if not can you please tell me any other better home loan product which can beat this:bab (59):

    Ash,
    LIC HF charges prepayment penalties - dont know what tenure, now this is what I hat about LIC HF or SBI (apart from ICICI & HDFC which are pure chors).A person - if I have a money NOW, cannot wait for 6 months or a year to pre-pay, I have to do it NOW. The money may/IS normally used up in other expenses or liabilities.

    I personally had taken a loan from UBI, however for a property Pune (which I later decided NOT to go ahead), AFTER a lot of market analysis, found the EMI/lac, daily reducing balance, and AGREEMENT TERMS & CONDITIONS, the best for Babk of Baroda & Central Bank.

    So, I just want you to compare the LIC HF product, its all terms & conditions VS these two banks - and then let me know.I am sure you will be mesmerized with all the "tranparency" of these two banks, every they say is in BLACK and WHITE - with no clauses or fine prints to REVOKE any of the clause - even SBI falters in this regard.
    CommentQuote
  • Originally Posted by pcpune
    Ash,
    LIC HF charges prepayment penalties - dont know what tenure, now this is what I hat about LIC HF or SBI (apart from ICICI & HDFC which are pure chors).A person - if I have a money NOW, cannot wait for 6 months or a year to pre-pay, I have to do it NOW. The money may/IS normally used up in other expenses or liabilities.

    I personally had taken a loan from UBI, however for a property Pune (which I later decided NOT to go ahead), AFTER a lot of market analysis, found the EMI/lac, daily reducing balance, and AGREEMENT TERMS & CONDITIONS, the best for Babk of Baroda & Central Bank.

    So, I just want you to compare the LIC HF product, its all terms & conditions VS these two banks - and then let me know.I am sure you will be mesmerized with all the "tranparency" of these two banks, every they say is in BLACK and WHITE - with no clauses or fine prints to REVOKE any of the clause - even SBI falters in this regard.


    BoB is best bank for home loan, but till 30 lacs, after 30 lacs, their ROI goes up by 1% directly...SO I think LICHF is good, if not best as far as ROI is concerned for loan for more than 30 lacs...
    CommentQuote