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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  • what if sky falls?


    Originally Posted by venkytalks
    i actually agree completely with wiseman here.


    Some "what if" scenarios that i frequently use are

    1. What if i die
    2. What if i fall seriously sick
    3. What if interest rates rise enormously to 15% or more
    4. What if interest rates fall to zero like in usa
    5. What if rupee appreciates 30%
    6. What if rupee depreciates 30%
    7. What if there is a war
    8. What if there is a global depression
    9. What if there is global hyper-inflation
    10. What if india or usa govt changes (assuming bjp/republican)

    appreciating as well.
    CommentQuote
  • Originally Posted by realacres
    Here is my simple funda:-
    Spend as if we will become Buffet tomorrow & save as if we will be Mallya tomorrow:bab (4):.

    Hope you all got the point .


    Or like Mallaya will invite you to a buffet tomorrow :D
    CommentQuote
  • Originally Posted by ash7979
    If that happen true then why bother to Invest???

    Hey Venky, are you always do everything while thinking so much negatives???

    What if I drive Car & a truck run me over...what if I take left & somebody hit me???

    if you think worst case scenarios, so why thinking about sen- at 17000 or 15500, why not ZERO (0), Actually in theory that is also possible, isn't it???


    Do you have a family?

    Have you heard of insurance?

    Do you know anything about investing?

    Do you know anythiing at all?
    CommentQuote
  • Originally Posted by utopian2009
    what if sky falls?


    What if you get a brain transplant?
    CommentQuote
  • Lolz !!

    Originally Posted by Venkytalks
    What if you get a brain transplant?


    Its getting dirty Now !!
    CommentQuote
  • Originally Posted by monds
    Is this Sunday FEVER or Swine Flue???


    :D Probably, Sunday fever.
    CommentQuote
  • Wiseman now your mantras are like a true Indian, Compare yourself always to the bottom of every thing never to the top.

    CAN

    Originally Posted by wiseman
    People who talk badly av=bout Indian infra should go out and see such roads.

    I had one such experience in the Congo a couple of year back where there was literally no road and due to rains the loose mud was many inches deep where even high-riding, jeep-type vehicles got bogged down.

    In those countries, most people fly from town to town in old Russian Antonov transports (AN-24s) and I have seen people rushing to board them just like in our private bus stands. I believe these planes frequently take off with standing passengers who hang on to a wire stretched across (like in our buses). There are frequent crashes not surprisingly.

    We are much more lucky riding Volvo buses at such cheap prices.

    cheers
    CommentQuote
  • That was really nice play with words!

    Originally Posted by razer
    O ye Wisemen.

    Heads I win, Tails you Lose. :D

    I lose money, but I still make more money.

    I make money, when you were playing in your chaddis, and I will make money when you're playing in your trousers.

    Who am I? A closet bull, but in the guise of a ferocious bear. Or a ferocious bear, in the guise of a closet bull. You pick one, and whooosh...I'm the other one. Gotcha then! :bab (6):

    Dare you challenge me? I will eat you, then throw you up, then eat you again. Get that?! :bab (4):

    So shut up you all, and let me be. :D



    Good wordplay Razer! Keep it up!:D

    cheers
    CommentQuote
  • Lets cool it guys ...

    Originally Posted by anurag_khurana2003
    Its getting dirty Now !!


    Folks,

    Lets remain within the boundaries of propriety, even if we do not feel so.

    pcpune - As regards not seeing the point in some cases and trying to keep it simple always, here's my take on it ...

    Investing has many facets to it. At tle lowest level is the buy this and sell that kind of transactional activity (needs no brains).

    At a higher level there are goals, strategies to reach these goals, etc.

    At a much higher level, there are philosophies.

    So, when people talk at different levels, you just have to figure out at which level they are talking and take whatever you can from them.

    Of course, if one wants to keep it extremely simple, one can always say ...

    Buy low, sell high

    But it does not come anywhere close to helping the same guy actually do it. So we need these philosophies, methodologies, strategies, plans, etc.etc - without getting bogged down by analysis-paralysis! :D

    So, even if I sound aimless and meandering at times, maybe there is something in it somewhere. Otherwise, simply ignore it!:D

    No offence meant in any of my posts.

    I just wanted to also point out the near-impossibility of achieving the 10000% returns in, say the next 10 years from these price and P/E levels.

    If you buy a stock with a trailing P/E of 20, then, in the next 10 years this company needs to grow at 35% per annum compounded over 10 long years. This is a near impossible task (please show me a company that has done it in the last 10 years from a base of 20 times P/E)

    Therefore, if we buy into this level of market hoping for even average returns in the next decade, its going to be an uphill climb.

    Which is why I keep suggesting that people wait for significant declines in the markets to get in, since the low base price will ensure that you soon overtake your peers who bought at high prices.

    cheers
    CommentQuote
  • Originally Posted by Venkytalks
    What if you get a brain transplant?



    It is beyond your brain kid!
    CommentQuote
  • Originally Posted by Venkytalks
    Do you have a family?

    Have you heard of insurance?

    Do you know anything about investing?

    Do you know anythiing at all?


    Ok Ok you are KNOW ALL!
    CommentQuote
  • The ’38 double dip

    Here is a nice opinion-editorial page of IE. The extract has been taken from New York Times (NYT), written by Paul Krugman. It just shows how we have learnt nothing from our past mistakes & coming out of this mess is going to be a lot tougher than that of 1930s.

    * Please read this neutrally, without seeing a bull or bear here. My humble request.

    http://www.indianexpress.com/news/the-38-double-dip/678129/0

    Btw, HDFC has increased lending rates by 50 bps or 0.50%.
    CommentQuote
  • CommentQuote
  • http://www.prlog.org/10604008-puravankara-plans-prefab-housing-plant.html

    Prefabricated housing ha the potential to reduce building costs by 30% and improve construction quality at the same time - also reduce labour costs which are rising with NREGA and inflation.

    If a cement biggie like Birla latches on to it, it can be a game changer in Indian construction. Unfortunately Tata has sold its cement business, otherwise they would have been perfect - Nano housing!

    Some of the prefab Singapore housing is amazing. Building goes up in weeks.
    CommentQuote
  • Originally Posted by Venkytalks
    http://www.prlog.org/10604008-puravankara-plans-prefab-housing-plant.html

    Prefabricated housing ha the potential to reduce building costs by 30% and improve construction quality at the same time - also reduce labour costs which are rising with NREGA and inflation.

    If a cement biggie like Birla latches on to it, it can be a game changer in Indian construction. Unfortunately Tata has sold its cement business, otherwise they would have been perfect - Nano housing!

    Some of the prefab Singapore housing is amazing. Building goes up in weeks.


    What kind of technology is it ? Is it similar to aluform technology (Originaly from beigium) used by Naiknavare which uses RCC walls with loadbearing avoiding bricks. ?
    CommentQuote