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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • I would like to put few points. You may feel like, I'm from perticular lobby or so... I don't care.. I feel fools get influenced, and intelligent ones just listen everybody and take decisions..

    1. I feel this forum is dominated by a segment of people who want to see/predict bottom/blood-bath in RE. Its completely fine and may happen sooner/later or already happened.

    2. Most of us try to predict stock market using current economic condition. But, common man like me, I'd do just apposite. I don't have intelligence/recources to predict it. But, with my experience I think, common guy can use current market to predict economic condition in next 1/2 quarters. And, I call people genious who can predict beyond 2 quarters.

    3. Coming back to RE. Considering buyers in Urban RE, as you all know there are 2 kinds. Investor and the one who really wants it for leaving (let me call them genuine buyer).

    4. For investors, it becomes important to speculate/predict the slope of RE market. I intentionally didn't write predict bottom/peak. Investors care only about short term (2-4 years in terms of RE) profit. They can get that buy guessing positive slope, irrespective of bottom, peak, or middle.

    5. For genuine buyer, the most important thing is affordability. So, if a genuine buyer feels buying a house of his choice is affordable at current price, he/she can go ahead. But, as a litmus test he/she can use some criteria/guidence like stock market/ RE market trend as stated in point 2.
    Also, he/she should know the 'affordability' criteria. You can get N number of theories about affordability by googling.

    6. So, my point is simple, both investors and genuine buyers may not gain if they go on fishing bottom/peak. I don't say just go on and buy anytime. I just said, use your own criteria, instead of looking for bottom/peak.
    CommentQuote
  • Data.

    The US unemployment data states that about 2.2L jobs were lost in Aug 09 & unemployment rate has reached 26 year high. In India, the trade deficit stands at whopping 45%! Banks have indicated that interest rates may head northwards in coming months. The inflation (CPI) which ended this week stood +12.67%. Over 50% of districts in India have been announced as drought affected. Situation is expected to worsen by year end. high inflation, lower growth means you spend more & save less.
    CommentQuote
  • Real State of Real Estate

    Here is a very informative article giving the real ground realities of RE factors in play right now. Putting it up as pdf attachment. Please check it out.
    CommentQuote
  • Bull's Eye

    Yes the real problem has been nailed in this article, i had read earlier.

    Another factor apart from zoning and development rules :

    The infra development, unless Govt gives that stimulus Roads, water , Elect etc cannot come up. Even if it comes up, it will be prohibitively expensive.

    The last factor is regulation. in light of almost Nil Govt presence, the Govt should have stricter regulatory environment. Remember, Despite BSNL, MTNL Govt keeps a HAWKS eye on telecom tariff , so also in number of sectors. Why not in RE. Isn't it a basic necessity???
    CommentQuote
  • The housing recovery mirage

    I heard people saying that housing recovery is on the way in USA and same will follow here. Please read the below article.

    ="http://money.cnn.com/2009/09/01/news/economy/homebuilders.fortune/index.htm?postversion=2009090211"]

    I liked the summary at the end of the article.

    "It took 10 years to create this problem," said Hanson. "Do people really believe we can correct it all in 36 months?"


    India was better than USA. We created the problem of unrealistic housing price in 5 years! :D

    regards
    MJ

    India was better than USA. We created the problem of unrealistic housing price in 5 years! :D

    regards
    MJ
    CommentQuote
  • The housing recovery mirage

    I heard people saying that housing recovery is on the way in USA and same will follow here. Please read the below article.

    ="http://money.cnn.com/2009/09/01/news/economy/homebuilders.fortune/index.htm?postversion=2009090211"]

    I liked the summary at the end of the article.

    "It took 10 years to create this problem," said Hanson. "Do people really believe we can correct it all in 36 months?"


    India was better than USA. We created the problem of unrealistic housing price in 5 years! :D

    regards
    MJ

    India was better than USA. We created the problem of unrealistic housing price in 5 years! :D

    regards
    MJ
    CommentQuote
  • Its easier to buy in US

    Originally Posted by MJHome
    I heard people saying that housing recovery is on the way in USA and same will follow here. Please read the below article.

    ="http://money.cnn.com/2009/09/01/news/economy/homebuilders.fortune/index.htm?postversion=2009090211"]

    I liked the summary at the end of the article.


    India was better than USA. We created the problem of unrealistic housing price in 5 years! :D

    regards
    MJ

    In 25 Lakhs you can own a house in US , where average house price is 1 crore. ]http://finance.yahoo.com/real-estate/article/107652/a-%2450,000-house-but-at-what-cost.html?mod=realestate-buy
    CommentQuote
  • Hitler parody on RE downfall

    Not sure if this has been posted earlier, but a nice one...

    Hitler parody on RE downfall.

    http://www.youtube.com/watch?v=bNmcf4Y3lGM&feature=player_embedded#t=106
    CommentQuote
  • some comments with link

    Originally Posted by aditi sharma
    Not sure if this has been posted earlier, but a nice one...

    Hitler parody on RE downfall.

    ]http://www.youtube.com/watch?v=bNmcf4Y3lGM&feature=player_embedded#t=106


    I am trying to enter a comment but unable to


    I am trying to enter a comment but unable to


    I am trying to enter a comment but unable to


    I am trying to enter a comment but unable to
    CommentQuote
  • Builders begging for funds

    As per latest figs., the bank NPAs have risen by 20.2% YoY which clearly indicates higher defaults by existing loan borrowers from all segments.

    In Pune RE, DSK has increased it's FD rates to 14.36%!! Wow, this means the builders are running out of funds & no-one is lending them:D. Why is this so is for anybody to guess.
    CommentQuote
  • Originally Posted by tpshere
    I would like to put few points. You may feel like, I'm from perticular lobby or so... I don't care.. I feel fools get influenced, and intelligent ones just listen everybody and take decisions..

    1. I feel this forum is dominated by a segment of people who want to see/predict bottom/blood-bath in RE. Its completely fine and may happen sooner/later or already happened.

    2. Most of us try to predict stock market using current economic condition. But, common man like me, I'd do just apposite. I don't have intelligence/recources to predict it. But, with my experience I think, common guy can use current market to predict economic condition in next 1/2 quarters. And, I call people genious who can predict beyond 2 quarters.

    3. Coming back to RE. Considering buyers in Urban RE, as you all know there are 2 kinds. Investor and the one who really wants it for leaving (let me call them genuine buyer).

    4. For investors, it becomes important to speculate/predict the slope of RE market. I intentionally didn't write predict bottom/peak. Investors care only about short term (2-4 years in terms of RE) profit. They can get that buy guessing positive slope, irrespective of bottom, peak, or middle.

    5. For genuine buyer, the most important thing is affordability. So, if a genuine buyer feels buying a house of his choice is affordable at current price, he/she can go ahead. But, as a litmus test he/she can use some criteria/guidence like stock market/ RE market trend as stated in point 2.
    Also, he/she should know the 'affordability' criteria. You can get N number of theories about affordability by googling.

    6. So, my point is simple, both investors and genuine buyers may not gain if they go on fishing bottom/peak. I don't say just go on and buy anytime. I just said, use your own criteria, instead of looking for bottom/peak.


    Nice post .. appreciate the thought put into it..:)
    CommentQuote
  • How reliable investing in DSK's FD?
    CommentQuote
  • Originally Posted by Diya
    How reliable investing in DSK's FD?


    I think its almost equal reliability than a builder completing his project on time:D:D:D

    If, he wont then he wont get money back, so you also wont get your money back....

    In, nutshell....If somebody offering interest rate better than Banks prevailing rates then the risk is directly proportional to the extra interest rate offered by someone ( be it DSK or TATA)...
    CommentQuote
  • Originally Posted by Diya
    How reliable investing in DSK's FD?

    Simply put:- It is not investing but donating:D.
    CommentQuote
  • RE Updates.

    IT dept. raids are being carried on at the Mumbai offices of realty companies HDIL & DHFL. These companies were siphoning off crores of money so as to manipulate the balance sheets. As the raid is big one, it will go one throughout the night & maybe even tomorrow. All employees after being frisked have been asked to leave & may not come for work tomorrow.

    The housing ministry is going to bill a legislation in coming session where the builders will be rated based on their quality, commitments, delivery etc. so that buyers make their choices carefully.

    Best thing done by RBI to end speculation in RE market:- RBI has issued a notice asking all the banks to charge commercial interest rates from 3 property onwards. Hence, speculators/investors will have to pay 15-16% as interest rates for their 3rd house:).

    RBI governor has said that interest rate hike is on cards. Another big jolt for RE.
    CommentQuote