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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  • In one line - CHEAPEST IS NOT ALWAYS THE BEST !!!!

    Ash, apart from the interest rate, their are many other things you SHOULD and MUST look, infact sometimes, its worthwhile to go for a slightly higher EMI, and take in all benefits that come attached with it.

    For eg,Tata AIG,ICICI,New India may give the cheapest Motor insurance, but if you compare the actual policy, IDV values,claim settlement rates- its better to take insurance from Bajaj Allianz if if its slightly expensive...

    For me- Terms & Conditions, and the Freedom to payback anytime,the tranparency of declaring all the rates and values online always, history of the bank in times of high and low interest rates, matter more than 0.5 or 1% interest, in the long run, it PAYS you out.
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  • pcpune and ash7979, if you can add numbers to what you are saying then we can arrive at some conclusion.
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  • ash7979,

    Issue is people think of the EMIs they have to pay today & not tomorrow. Add to it that many are bachelors, in 5 yrs, they may get married. If already done with this procedure, then there maybe kids. Hence, their personal expense rises & so will the EMIs. People forget this aspect. Also inflation is not taken into account.

    LICHF charges prepayment penalty, hence all the benefit of low interest rate is lost if you won't continue full term.

    Btw, if one can repay in 8 yrs, why buy house today? Better wait 3-5 yrs & buy on full downpayment.
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  • How green is Pune?

    Just for a change from RE, see the state of nature in our city....degrading every day passing by:(. We need to do something to contain this....I have stopped using plastic bags for past 4 months & our society now has wet garbage disposal in place where it is converted into manure which can be then used by farmers :).

    http://punemirror.in/index.aspx?Page=article§name=News%20-%20City§id=2&contentid=201006192010061900314533653ed4f1d
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  • Originally Posted by RAJESHP
    pcpune and ash7979, if you can add numbers to what you are saying then we can arrive at some conclusion.


    Dont think I have the numbers now, but I remember SBI being the cheapest, HDFC and LIC HF,in that order -- that is EMI per lac, but when I checked the Terms & Conditions, agreement favours, other charges, penalties,etc...for a small amout that is 20-50 Rs per month per lac of extra EMI, BoB and Central Bank has one of the best home loan schemes in India. However, I had a taken a loan for one of my old properties from UBI, which is as good I believe...in 2005.

    When I calculated this - Rs 50*12 months*30lacs= 18000 per year of extra payments, against the benefits provided by these - VERY conservative and VERY transparent banks - they WAY out-weighted the comparison...You could actually save about 5-10 lacs with the flexibility provided by these banks in lieu of the 18K per year or 1 lac extra conceded over 5 years....

    Its similar to buying a LCD TV or car - people prefer Samsung or or Panasonic AND Maruti , not sharp or videocon or Indica(Tata Motors)---

    The flexibility and running/service costs over years OUT_WEIGHS the Current PRICE DIFFERENTAILS...

    Most Indian consumers DONT understand this.
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  • As we keep discussing abt the RE trends here in this forum .. Check out how this Pune Builder ..Avinash Bhosale quitely made whooping 280 Cr in just one of the deals ... this nexus of Ashok Chavan + Bobada Power and Pune Builders is just too powerfull .. God knows how much money is enough for them .. :bab (4)::bab (38):

    http://timesofindia.indiatimes.com/city/mumbai/Govt-gifts-almost-Rs-300-cr-to-influential-developer-in-land-deal/articleshow/6193625.cms
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  • Originally Posted by rogern
    As we keep discussing abt the RE trends here in this forum .. Check out how this Pune Builder ..Avinash Bhosale quitely made whooping 280 Cr in just one of the deals ... this nexus of Ashok Chavan + Bobada Power and Pune Builders is just too powerfull .. God knows how much money is enough for them .. :bab (4)::bab (38):

    http://timesofindia.indiatimes.com/city/mumbai/Govt-gifts-almost-Rs-300-cr-to-influential-developer-in-land-deal/articleshow/6193625.cms

    Very pathetic and shameful. Public money is going in builders pocket.
    There is no other way than to kill such persons.:bab (45):
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  • Originally Posted by pnb_2k
    Very pathetic and shameful. Public money is going in builders pocket.
    There is no other way than to kill such persons.:bab (45):


    Soon we will all be Naxalites :)
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  • Originally Posted by rogern
    As we keep discussing abt the RE trends here in this forum .. Check out how this Pune Builder ..Avinash Bhosale quitely made whooping 280 Cr in just one of the deals ... this nexus of Ashok Chavan + Bobada Power and Pune Builders is just too powerfull .. God knows how much money is enough for them .. :bab (4)::bab (38):

    http://timesofindia.indiatimes.com/city/mumbai/Govt-gifts-almost-Rs-300-cr-to-influential-developer-in-land-deal/articleshow/6193625.cms


    The only way to stop this or at least make it weak is to stop buying properties which have heavy political connection. And stop buying which are under construction.

    That is our only saving grace.

    Pls understand that politicians run a fantastically intelligent game of stealing our money and making buildings out of it and sell it back to us using, again, our money!

    Not buying politically linked properties or under construction properties are actually a public service to society which you can feel proud of.
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  • Originally Posted by harshalx
    The only way to stop this or at least make it weak is to stop buying properties which have heavy political connection. And stop buying which are under construction.

    That is our only saving grace.

    Pls understand that politicians run a fantastically intelligent game of stealing our money and making buildings out of it and sell it back to us using, again, our money!

    Not buying politically linked properties or under construction properties are actually a public service to society which you can feel proud of.


    i wonder if one can buy any property in pune which is not under political influence... i have seen and observed that in main pune area, even a 4000-5000 sq ft plot (or old bungalow) cannot be sold without giving commission to local corporator ...
    :bab (34):
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  • Originally Posted by punerebuyer
    i wonder if one can buy any property in pune which is not under political influence... i have seen and observed that in main pune area, even a 4000-5000 sq ft plot (or old bungalow) cannot be sold without giving commission to local corporator ...
    :bab (34):



    Ohh Yes.. this is India.. everyone is corrupt.. me, you.. everybody here..

    India is beyond repair.. So Eat, Pray and Love
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  • Originally Posted by pnb_2k
    Very pathetic and shameful. Public money is going in builders pocket.
    There is no other way than to kill such persons.:bab (45):


    Problem is not these people make money, but our (buyers') hubris & greed which let it happen.
    We pay unreasonable rates by in-slaving us in home-loan & then compromise on other good things in life.
    Have you seen people living in 25L house but the family of 4 travels on scooter ?
    Almost everybody thinks that he can sell his property with 200% profit in next 5-10 years.

    Present Govt's policies in maharashtra and center has strengthened my belief of impending civil wars in India.
    Most notable signals are huge inflation and in-fighting for water/dam.
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  • Indians are not designed for beirut like civil wars at all.

    Of course, there'll be the odd flare-ups from time to time. But largely the vast majority of us like status quo for most of the time.
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  • More likely there will be total collapse of law and order.

    Whole of India will become like Bihar/Jharkhand/Chattisgarh.

    I rate the chance of this happening in 2011 at 1%, by 2013 at 3%, by 2015 at 10%, by 2020 at 30%.
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  • Originally Posted by Venkytalks
    More likely there will be total collapse of law and order.

    Whole of India will become like Bihar/Jharkhand/Chattisgarh.

    I rate the chance of this happening in 2011 at 1%, by 2013 at 3%, by 2015 at 10%, by 2020 at 30%.


    Globally and specifically in india
    prices of most services have come down.

    If RE prices of Pune keep on rising then soon they will surpass(may be already surpassed) that of Developed Countries like US and Europe.

    A small Boss and chauffeur story.

    So its like Boss's(IT Clients - Companies of US and Europe) house is cheaper then chauffeur's(Indian IT industry for Example) house.

    Or Boss's is spending less then chauffeur's.

    Or Boss's buying a cheaper car then chauffeur's.

    This is when there are some risk to Boss's finances and he may soon wont need chauffeur or settle for a cheaper chauffeur at half the salary.

    Or his car may be taken by bank.

    Something somewhere is wrong and with time its going to correct.

    And when some chauffeur's neighbor warns him he says you are too NEGATIVE soon my salary will be increase (more then the Boss's).
    Funny ;)
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