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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  • The main problem is that people are getting panicked by recent hikes by builder.... I have some of frnds who are despaerate to book flats and roaming with checks ready.... This is what allowing builders to increase rates unreasonably.... And the data shown in today's Pune mirror front jutify that.... The rule is simple, if people are ready to buy at high rates it is going to get higher.....
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  • Query

    Hi Real,

    This story of charging of commercial rates for third property onwards is it for older properties on loan also.

    There r other thoughts also abt vacant plots being charged to prevent hoarding, but on paper nothing.

    Methinks: This measure will not affect much. Since a person buying multiple properties is either earning too much money, or changing black to white. It will discouraged a few, but sure dampen zealous sentiments of some people.
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  • Amanora

    Today's Pune TOI Amanora city's Despande asking existing homeowners to sell their homes and buy in Amanora, if no one is buying in Amanora who will buy the homes of existing homeowners? :):):)
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  • Originally Posted by Sansei
    Hi Real,

    This story of charging of commercial rates for third property onwards is it for older properties on loan also.

    Yes, any property, be it new or vintage. The moment it is 3rd property, IR goes zoooom;).

    There r other thoughts also abt vacant plots being charged to prevent hoarding, but on paper nothing.
    As you know land can be bought with large amount of cash component in anybody's name. No one bothers much till some development/construction is to be done on it. Hence, this issue.

    Methinks: This measure will not affect much. Since a person buying multiple properties is either earning too much money, or changing black to white. It will discouraged a few, but sure dampen zealous sentiments of some people.
    Black or White, the reg has to be done according to the ready reckoner rates & this amount has to be in white. For the deal to take place, valid investor needs to be there, if not with whom can one deal with?
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  • Originally Posted by realacres
    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.



    Read this :
    http://www.moneycontrol.com/news/cnbc-tv18-comments/hdil-admits-to-hiding-rs-350cr-income-allege-i-t-sources_415225.html

    When companies like HDIL size involve in this type of fraud then builder of Pune are so naive :D:D:D
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  • Be Quite or Shut Up

    I read an ad today of Kumar Shantiniketan on roadside flex board. As usual some greenery was shown & in big letters only 2 words were written:-

    Be Quite!

    Seems more than ad, this is the message which the builder wants to convey to the existing buyers of this project:- Shut your mouth:D!
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  • value for money

    There is a huge difference where we are heading, while for all products (electronics, cars, household goods) have improved with times, like the car you are getting now is better then what you were getting 20 years back for the same price, can that same be applied to homes?

    Our parents used to live in a better home in terms of Space in house, environment, greenery etc can we say that home standards have evolved with times? are you getting a better home?
    Old product: A stand alone house
    New product: An Apartment

    Will the lift work for next thirty years? Will the doors survive thirty years? Will the buildings be as strong thirty yrs from now? Water proofing?
    Sounds crazy but see all old construction and today's offerings
    Today each sample flat has cracks in wall, and each apartment has in a year or so.
    And builder will tell all technical bullshit.

    Because govt haven't planned properly we are forced to live in an apartment.
    Make roads plan first then start planning for living. but its the reverse happening leading to space crisis.

    This is not Japan where there is not enough land for people to live so why the Prices are comparable to US and Japan?
    And lets not compare their Product and our product. Otherwise its not even worth one tenth.
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  • Very well said Mr. Rathore. So very true.
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  • Excellent info

    gENTLEMEN, YOUR DESCRIPTION WAS VERY INFORMATIVE AND MIND BLOWING. KEEP IT UP.
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  • Quantity

    The IT dept raid has yielded abt 350 cr of black money.

    All the bldrs beware abt election woes, keep ur fingers ready for ur contribution to the democracy. Dont favour any one particularly too much.

    The new tax code commitee is already convened. and the draft would be ready by mid december.

    The Bldr lobby r very concerned abt their workers and ancillary units and have started efforts to highlight the importance of construction industry.

    AKA their golden goose:D:D:D
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  • Originally Posted by Sansei

    The Bldr lobby r very concerned abt their workers and ancillary units and have started efforts to highlight the importance of construction industry.
    AKA their golden goose:D:D:D


    Poor workers and farmers who slog in the field to produce food-grains SHOULD ONLY get Govt incentives.
    NOT those chapari-tapari builders of dubious enterprises who cheat buyers.
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  • Incomplete - felled by liquidity crunch

    Here is yet another listed builder who is abandoning the projects due to severe cash crunch & buyers waiting hopelessly for over 5 years yet no sign of even construction going on! Read for more.

    http://epaper.indianexpress.com/IE/IEH/2009/09/12/ArticleHtmls/12_09_2009_019_002.shtml?Mode=1

    Btw, the prices of cement has fallen further. But this maybe of no use to builders as they are not purchasing cement at all:D! We know the reason why!
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  • hmmmm... interesting point Real.

    And the price fall about cement made me wonder...

    Is there a price escalation clause in the agreement.!!!!
    If there is one then.. there should be a price de-escalation clause as well if there is something like de escalation.!!!!

    VK
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  • Lot of peepz buying homes... they are not even telling anyone... a colleague of mine just disclosed on friday that he got one at Kalpataru...I even got two PMs here on this forum with one guy ready to buy at Nirmiti Zion .... there are only some guys on this forum who are playing a waiting game.. but in reality, people are buying realty...

    Right now its "ALL SQUARES" in property market for buyers as they are getting great rates which fit their pockets... and also NO SQUARE ROOTS too in share market these days.. Investors particularly mutual fund investors are getting a nice chink of $$ in their portfolios...so in all, mata Lakshmi is smiling :D
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  • Formulae

    Originally Posted by m_square
    Right now its "ALL SQUARES" in property market for buyers as they are getting great rates... and also NO SQUARE ROOTS in share market these days.. so in all, Its all about money, honey :D

    Well, I didn't knew that FIIs are buying RE. Man, there is no relation between between stock markets & RE. Even though stock zoomed, RE scrips fell, noticed that?
    This is like saying, E = V/R rather than E = mc^2:D.

    It is not about money, honey but boney, poney!
    :D
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