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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  • LOL, Frugality.

    Very apt comparison.

    More likely, Rupee will devalue like crazy after a while, and local inflation will wipe out its value. Deflation in India is very unlikely. So driver will have to spend more and more on vegetables and that is all he will be able to afford - everything else will be too costly and unaffordable, especially flat.
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  • Dear Frnd,

    Just to update you

    1) India is second biggest foreign direct investor in UK.

    2) China is biggest holder of US treasuries.

    3) The main reason the world economy is still growing is because of higher growth in China, India and Brazil.

    All these three countries are considered as labour, BPO and manufacturing hubs only

    Prices of RE depends on many parameters, the major being demand, as India is not having much urban housing readily available, the prices are going up. India's population is having a postive poulation growth rate, however most of the western countries have negative population growth rate.
    Prices might be unreasonable in near term and might correct to 10 or 20 percent but surely the RE prices in India will edge higher and can surpass the prices of Western countries.

    FYI the Chinese real estate prices have jumped by over whooping 60 percent in last 1 year only. The people there are also have money tag higher than India. ( I have stayed in china for a good time)

    Originally Posted by frugality
    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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  • Originally Posted by frugality
    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 ;)


    Frugality, the story of Boss and Chauffeur we can relate to IT client and IT service provider. But we can not directly relate to developed nation and India. India is not only IT service providers. How much percentage of our GDP we earn by exporting product and services to developed nations (below 15%?) ? That includes all the goods and services.
    Today, in automotive industry, suppliers prefer supplying to domestic OEMs than exporting to global OEMs. That is due to assured business and potential. Indian economy is presently growing due to its domestic consumption. The potential is high due to growing middle class. The barriers are our political and bureaucratic establishments. That way Indian economy is on auto pilot mode. Of course with help from deregulation done by some wise leaders.
    This doesn't mean that I am justifying Pune RE prices. It is high..ahead of time.
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  • Originally Posted by frugality
    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.


    Funny ;)

    ooh yaaah???? Examples and instances please!! Hope ur nt talking about the down towns for sure!!

    Why bother converting dollars to rupees then, lets buy Bay area properties then than paying for these HOLES in Pune!! Imagine MV 2 for 22 lacs as featuring in Times Sqaure...
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  • Originally Posted by Digvijay
    Dear Frnd,

    Just to update you

    1) India is second biggest foreign direct investor in UK.

    Black Money!

    2) China is biggest holder of US treasuries.

    True

    3) The main reason the world economy is still growing is because of higher growth in China, India and Brazil.

    Brazil percapita GDP ~10,000$, China 4000$, India 950$ (from memory)

    Not much contribution in terms of quantum from India

    All these three countries are considered as labour, BPO and manufacturing hubs only

    Workers in Brazil and China much more capable, efficient, productive and amenable to training and discipline

    Prices of RE depends on many parameters, the major being demand, as India is not having much urban housing readily available, the prices are going up. India's population is having a postive poulation growth rate, however most of the western countries have negative population growth rate.

    Agree totally

    Prices might be unreasonable in near term and might correct to 10 or 20 percent but surely the RE prices in India will edge higher and can surpass the prices of Western countries.

    Will never happen. RE might appreciate in Indian Rupees, but then Rupee will depreciate accordingly. Better quality RE will command the better value.

    Indian RE is pathetic quality.

    FYI the Chinese real estate prices have jumped by over whooping 60 percent in last 1 year only. The people there are also have money tag higher than India. ( I have stayed in china for a good time)

    What do you mean by money "tag"?

    Chinese RE is unusual - it is basically replacement RE. All Chinese have pucca houses already (unlike India).

    But they are in the village or are of poor quality.

    They are replacing them with better quality urban flats - like going from 15 year old Maruti 800 to new Wagon R.

    Prices in China are also in bubble territory and will stay static or decline from now onwards as their economy falters.


    Replies in blue
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  • Originally Posted by Digvijay
    Dear Frnd,

    Just to update you



    Hey Digviyay, you just posted the 2000th message in this marathon thread started by Realacres. Thread crossed page 200 as well.

    Great going, Real
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  • Originally Posted by HemantDesh
    Frugality, the story of Boss and Chauffeur we can relate to IT client and IT service provider. But we can not directly relate to developed nation and India. India is not only IT service providers. How much percentage of our GDP we earn by exporting product and services to developed nations (below 15%?) ? That includes all the goods and services.
    Today, in automotive industry, suppliers prefer supplying to domestic OEMs than exporting to global OEMs. That is due to assured business and potential. Indian economy is presently growing due to its domestic consumption. The potential is high due to growing middle class. The barriers are our political and bureaucratic establishments. That way Indian economy is on auto pilot mode. Of course with help from deregulation done by some wise leaders.
    This doesn't mean that I am justifying Pune RE prices. It is high..ahead of time.



    Growing on what ?

    1995 - 2001 what was the case ?

    Mining , Agri ... is anyone looking there ...

    One "G.olden Quadrilateral" was NOBLE initiative of Vajpayee Govt. (BJP)

    what such major Quantifiable project has started since then ? A new 500+ km rail link ???
    All current Govt schemes is taking taxpayers money with an intention to help the poor ...(10 paisa goes to them rest all to Politicials etc).

    So by tax you are making Politico rich and by buying RE, imported cars more rich.... :)
    Please keep it high ...

    This is a proof of Slavery ... Service class slave of Govt class.
    And India got freedom in 1947 W.O.W

    If all of sudden the Indian Middle class (chauffeur's community they do not invent or do high end work 90% of them compared to US who is from last Century doing all the inventions where 10 % of outsiders too are there) suddenly gets quick money and assumes future will also keep bringing such money starts to spend like anything ....for the same "goods" Boss is using.
    left his style and now following Boss's style.
    While for Boss its cheaper... in chauffeur's market its costlier.
    (AUDI, Arrow shirt price in India and in US)

    While Boss's and chauffeur's house are compareable in price
    Boss stays in 1/2 acre Bunglow while chauffeur is Apartment scheme with Poor infra, no water, so on.....

    Now in this new found wealth chauffeur has reduced its saving and taken addtional burden of loan(Car loan house loan).

    Earlier he used to be spending carefully now he changes his cycle every two year as new models come every six month ... and other chauffeurs are doing it he cannot resist.

    Think for some time what has changed in last 6-7 yrs??
    Unequal distribution of wealth.
    Lots and lots of Non India companies are tapping indian market ....
    for Few years its good but when ROI and break-even comes shops can get closed too....

    Telecom, Electronics , FMCG ....
    Margins are good but are they increasing ?? soon they will be Wafer thin....

    This on top of US , Euro Crisis not yet fully solved (or Started, maybe you just saw the trailer)

    Don't bring China in comparison.....

    India if don't improve that time is not far when every one will carry a gun and like Alistair MacLean's Novels shoot at blink state.....:bab (45):
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  • Originally Posted by frugality
    Growing on what ?

    1995 - 2001 what was the case ?

    Mining , Agri ... is anyone looking there ...

    One "G.olden Quadrilateral" was NOBLE initiative of Vajpayee Govt. (BJP)

    what such major Quantifiable project has started since then ? A new 500+ km rail link ???
    All current Govt schemes is taking taxpayers money with an intention to help the poor ...(10 paisa goes to them rest all to Politicials etc).

    So by tax you are making Politico rich and by buying RE, imported cars more rich.... :)
    Please keep it high ...

    This is a proof of Slavery ... Service class slave of Govt class.
    And India got freedom in 1947 W.O.W

    If all of sudden the Indian Middle class (chauffeur's community they do not invent or do high end work 90% of them compared to US who is from last Century doing all the inventions where 10 % of outsiders too are there) suddenly gets quick money and assumes future will also keep bringing such money starts to spend like anything ....for the same "goods" Boss is using.
    left his style and now following Boss's style.
    While for Boss its cheaper... in chauffeur's market its costlier.
    (AUDI, Arrow shirt price in India and in US)

    While Boss's and chauffeur's house are compareable in price
    Boss stays in 1/2 acre Bunglow while chauffeur is Apartment scheme with Poor infra, no water, so on.....

    Now in this new found wealth chauffeur has reduced its saving and taken addtional burden of loan(Car loan house loan).

    Earlier he used to be spending carefully now he changes his cycle every two year as new models come every six month ... and other chauffeurs are doing it he cannot resist.

    Think for some time what has changed in last 6-7 yrs??
    Unequal distribution of wealth.
    Lots and lots of Non India companies are tapping indian market ....
    for Few years its good but when ROI and break-even comes shops can get closed too....

    Telecom, Electronics , FMCG ....
    Margins are good but are they increasing ?? soon they will be Wafer thin....

    This on top of US , Euro Crisis not yet fully solved (or Started, maybe you just saw the trailer)

    Don't bring China in comparison.....

    India if don't improve that time is not far when every one will carry a gun and like Alistair MacLean's Novels shoot at blink state.....:bab (45):



    I agree with you on exuberant prices( Audi ). But if similar products is made domestically it is available at half the price eg VW Polo ( compare price of Polo in India and Europe).
    The another point I am discussing here is about the growth potential which independent of present state in developed nation. The gap is huge and volume is too high. This will keep the money in circulation.
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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

    Thanks for this link man. This Bhosle chap is used to these things. He has gobbled up hundreds of crores in Krishna Valley Project without the project being even completed. The main reason:- Patronage of Ajit Pawar. Bhosle has also built a bungalow for pawar near Pune Universty, off Ganeshkhind road.

    This is what NCP is & the Pune builders are. Had there been more transparency, I am sure that other players would have bid even more amount for this land leading to more revenues for the govt. RE & telecom, these are the 2 things which has cost the exchequer more than INR 35,000 Cr. See how well this would have been used to reduce fiscal deficit & create infra around.

    Maharashtra didn't come up with single power plant in past 10 years, several areas are not irrigated despite having good soil. Imagine what would have Crores of rupees done for this. No one is interested in betterment of the nation, all are busy raking in their share of flesh, sad but true.

    Man, this is the precise reason I say Don't Pay Taxes Honestly coz at the end of the day you are making such thugs rich & then they again exploit mango man using your own money:bab (45):. Pay directly for good cause, not to the govt.
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  • Wrong to compare India & China

    1. China requires a downpayment of 40% for first house & some 50% for 2nd house. This is not the case with India.

    2. The infra, development plans are all in place, unlike India a flyover foundation work is done by some junk minister & by the time people use it, the grandson of minister may come for inauguration:D.

    3. Since Chinese govt officials don't have to worry about their seats, there is nothing like pleasing the law-breakers, encroacher etc. Once they began to bulldoze, they don't stop until operation is over. Here, even some karyakarta of local corporator obtains a stay on his street side hotel on a footpath.
    Please check the no. of people displaced while building the 3 Gorges dam.

    4. Lastly, Chinese govt. does thinks which they find it in the interest of China & ofcourse the CPC & PLA. So, if one can bear with these, all is fine for them.

    5. Most important point:- India can run without any govt in place, rather it will run even better but not China. India is run by private sector & individuals, not China.

    Eg. IF the Indian Parliament is bombed, will you die hungry next day?? Rather you will have more food to eat that too are lesser price:).
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  • Originally Posted by realacres


    Eg. IF the Indian Parliament is bombed, will you die hungry next day?? Rather you will have more food to eat that too are lesser price:).


    . I remember the parliament attack.. the sad part is none of the idiots (MPS) got killed it was the unfortunate guards who bore the brunt..
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  • Originally Posted by realacres
    1. China requires a downpayment of 40% for first house & some 50% for 2nd house. This is not the case with India.

    2. The infra, development plans are all in place, unlike India a flyover foundation work is done by some junk minister & by the time people use it, the grandson of minister may come for inauguration:D.

    3. Since Chinese govt officials don't have to worry about their seats, there is nothing like pleasing the law-breakers, encroacher etc. Once they began to bulldoze, they don't stop until operation is over. Here, even some karyakarta of local corporator obtains a stay on his street side hotel on a footpath.
    Please check the no. of people displaced while building the 3 Gorges dam.

    4. Lastly, Chinese govt. does thinks which they find it in the interest of China & ofcourse the CPC & PLA. So, if one can bear with these, all is fine for them.

    5. Most important point:- India can run without any govt in place, rather it will run even better but not China. India is run by private sector & individuals, not China.

    Eg. IF the Indian Parliament is bombed, will you die hungry next day?? Rather you will have more food to eat that too are lesser price:).


    Good comparison REAL.

    Attached are some snaps I clicked in China (Guangzhou city) where you can see tremendous difference in infra between us and them. We can also see some "chawls" among huge sky scrappers.

    Image-1 is the apartment where I had stayed.
    Image-II : Park & a monument
    Image-III : Another big shot aprtment
    Image-IV : Garib logonka ghar amongst the skyscrappers
    Image-V : Football Stadium (They were also present in football WC 2010 unlike India)
    Attachments:
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  • Originally Posted by harishkulks
    Good comparison REAL.

    Attached are some snaps I clicked in China (Guangzhou city) where you can see tremendous difference in infra between us and them. We can also see some "chawls" among huge sky scrappers.

    Image-1 is the apartment where I had stayed.
    Image-II : Park & a monument
    Image-III : Another big shot aprtment
    Image-IV : Garib logonka ghar amongst the skyscrappers
    Image-V : Football Stadium (They were also present in football WC 2010 unlike India)


    Can not resist to comment. Some of our premium marketed projects looks similar to
    'Image-IV : Garib logonka ghar amongst the skyscrappers' after 5-6 years :bab (59):

    Its really eye opener compilation of these pictures and some previous posts, timing was too good!!!
    Thank you!!!
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  • Very True, I have been to Beijing & stayed there for almost 10 months & never felt that this city has 200 million Population....Unlike our cities Mumbai & delhi they had 10 lanes internal city road along with service roads...

    Their railway station was much bigger the our Pune's Airport....So they think Big in all sense & that is not possible in India, so there is no point in comparing India & china at least in terms of infra...in year 2000 there steel computation was 11 times on INDIA's steel compunction,so we can imagine why they have world class infra & we have world's worst infra because when they were busy in making bridges, Flyovers, Big roads & posh apartments we were busy in making SLUMS:bab (45):
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  • Dear all,

    We all should remember one most important thing, the Chinese are Communist and India we have democratic set up. Dont bash India so much as the privliges you are getting here cannot be compared with China.
    I have been to china a couple of times, and just to enlighten you guys

    The China does not have pay by profession work( its changing now). Few years back when I was in China the project manager told me that his salary is just 25 percent higher than that of the basic labour working there. I was also surprised to listen that as he had a team of 350 people working there.

    A little more digging in past, he told me tht his father never used to get salary, he used to get a house and food for his hardwork. And these perks were same for all, that means after working for 1 month u will get certain quantity of rice, vegetables, meat, fishes and house to stay. Off course this was provided by govt.

    Such kind of labor exploitation has led to very cheap manufacturing in China in the past.( still continuing)
    And this was also used to build huge infra and govt. projects.

    Now the question we should ask is that are we prepared for this, how happy we will be staying in a society like this.

    In last 20 years China has changed quiet much, but we should remember if you want to change so fast and so good, then one full generation has to work for food and shelter not for money. And clearly our generation in India is not redy for it. At least Iam not.
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