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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  • Originally Posted by realacres
    Read wiseman & mady post below. Man, you think on such a short term:o. if one can't afford at this interest rates, what will happen in next 20 yrs? Ever given it a thought?:bab (38): Seems frustration is taking toll on you puser, why do you get so desperate??:o


    Hehehiehahi:bab (45): I am just writing what a common layman would otherwise say; giving a different viewpoint.

    People can afford interest rate who got a deal of 8 % fixed fr 3 years and then next floating'; many people would repay lot of loan during these 3 years making EMI level to what it was at less interest rate.

    Obviously that would affect their lifestyle and savings; but unless someone is multi-crore pati and buying 40lakh flat; only then savings would not affect
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  • We are being too optimistic I think ...

    Originally Posted by puser
    Hehehiehahi:bab (45): I am just writing what a common layman would otherwise say; giving a different viewpoint.

    People can afford interest rate who got a deal of 8 % fixed fr 3 years and then next floating'; many people would repay lot of loan during these 3 years making EMI level to what it was at less interest rate.

    Obviously that would affect their lifestyle and savings; but unless someone is multi-crore pati and buying 40lakh flat; only then savings would not affect



    Excuse me for this long post, but I need to get it down.

    Ramesh said that the US problem will be around for 2-3 years. People think that interest rates will go below 8% in the next 2 years.

    Please consider the serious nature of this kind of thinking given the following alternative outlook ...

    The US problem may last as long as 2022 and almost certainly till 2016, since the housing problem, which is still getting even more severe, will last that long. Besides, it will become much, much worse before it starts leveling out with unemployment likely rising even higher or at the least staying so very high.

    I'm simply not trotting out the rot thats out there in the US with many states already technically bankrupt, where, today, over 40 million Americans are officially in poverty and over 41 million food stamps are being given out weekly and the story goes on and on. No need to make things look as bleak as they are. But, for many people blissfully unaware, things are much worse than you think.

    How does all of these affect your assumptions of low interest rates coming back and the global economic crisis going away in a couple of years?

    After the high interest rate regimes of the 1990s (12% - 14% was common), we have swung into a low rate regime in the mid '00s mainly because of the massive levels of liquidity injection. Now, as we will see, when fear comes back into the market as the next round of Sovereign Debt Crisis hits (please note that the Greek, Spain and other debt issues have only gone below the radar and are silently getting worse), liquidity will swiftly drain from our system.

    Given that by that time 100s of thousands of Crores would be locked into various mega projects on the basis of rosy outlook by the Govt based on current ultra-bullishness, this will put a severe strain on liquidity that could easily raise interest rates well above today's rates.

    Please consider that this boom currently is substantially Govt-spending-driven, with Private Sector spending remaining weak. In fact, just yesterday Montek announced that this year's Trade Deficit target would go up from $120 to 135 Billion, which is an additional 70,000 Crores. So, the 105,000 Crores windfall gain from Telecom Sale (which was used to show how the Govt is reducing/controlling out Deficit) is already more than adjusted by the 54000 Crores additional spend by Govt + 70000 Crores Trade Deficit jump!!! :) This Boom is proving to be a very expensive boom with massive deficit spending to keep it going and show those fabulous GDP numbers. We are NOT as out-of-control as the West, thats the only saving grace!

    What would you gentlemen do if interest rates rise and stay high around 14%+ for next 3-5 years? May not, but ...

    When doing financial planning, always consider the worst case situation and figure out if you can cover them. Then get in, hoping for the best case! Most people work on the best case scenario as the low-point and get in hoping for even better so that they can make a windfall gain like in Satta!

    Just wanted to give out an alternate scenario that has a very good chance of happening, given that the US is almost certainly headed for a disruptive decline in its financial system sometime in the next few years. And the EU (Germany excepted) and Japan are not far behind.

    cheers
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  • Well thats your speculation or opinion; and you're entitled to it.

    So others have their opinions or speculations and they're entitled to it.

    I did not say rate will go down below 8%; I said prepayment is possible due to savings done while rates are low so EMI is leveled out.
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  • Originally Posted by realacres

    Alongwith inflation, the GDP growth too is very meagre as per revised figs. The difference between growth & inflation is huge, meaning you spend more & save less.



    Actually, GDP figures are supposed to deflate the nominal growth by inflation deflators to arrive at the final figure.

    So 8% growth and 14% inflation means nominal GDP should have grown 22%, talking in simplistic terms - just for discussion's sake.

    In actuality, I dont believe that inflation is properly adjusted at all and your take on it is probably right - most of our growth is probably just inflation being counted as growth.

    Aditi, there is a chicken and egg situation with teachers - until we pay them much much better, our quality of teaching will not improve. Even the best schools (my kids study in one such so called best) have pathetic teaching. If we pay them a lakh a month, we will get better quality and can make them accountable also. If you pay peanuts, we will get only monkeys - who are teaching our kids right now.

    Wiseman, could not agree more - if inflation persists, we are heading to 14% rates soon - if you cant afford 14% rates, better avoid RE until you actually can.

    Puser, return on bank FD will also go upto 12% if RE loan is at 14%
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  • Originally Posted by Venkytalks
    Aditi, there is a chicken and egg situation with teachers - until we pay them much much better, our quality of teaching will not improve. Even the best schools (my kids study in one such so called best) have pathetic teaching. If we pay them a lakh a month, we will get better quality and can make them accountable also. If you pay peanuts, we will get only monkeys - who are teaching our kids right now.



    This is probably very very very wrong choice of words. Some how I have always got good teachers right from school. It depends on how you look at it.
    I do not know why people think themselves very smart and others as monkey.:bab (45)::bab (45)::bab (45):

    Respect every human being, even the street begger, I am serious.
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  • Originally Posted by aditi sharma
    Ramesh, What you say about salary rise of teachers is negative thinking.
    Teachers are important part of system and should get paid more. Look at our engineering colleges which are just full of left-over engineers opting for teachers job. same is true in almost all areas, this is because low pay. Why do you think a BPO guy should earn more than teacher ? In fact, a BPO guy hardly adds any value in our system and should get least paid, while teacher adds great value and should get paid as much as a doctor or lawyer or engineer. look at US salaries for said professions.
    You are worried about housing prices going up, so am I. But this is no excuse for them to stay just where they are... sorry for harsh words !!


    I totally agree with Aditi. Teacher's job is more important than BPO/Engineer's or the job of Mr Pawar or the IPL commiissionner. Teachers has long term bearing on what my kids do/select in future. Always expects my kid to respect her teacher. Money is useless if one can not enjoy life with money

    Being an IT manager I see lots of young ITG being sucked in RE, As if RE will pull them out of poverty. These people forget the fact that they are IT engineers first than RE brokers/specatulators.
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  • This was not targeted at you ...

    Originally Posted by puser
    Well thats your speculation or opinion; and you're entitled to it.

    So others have their opinions or speculations and they're entitled to it.

    I did not say rate will go down below 8%; I said prepayment is possible due to savings done while rates are low so EMI is leveled out.



    puser,

    It certainly is my strong opinion. :)

    But I was not using the 8% to target you. Was just responding to Real's post on the whole issue of being careful and not too optimistic and going in with proper level of debt when buying a home.

    cheers
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  • I agree with chicken-egg problem... the pay is pathetic and the quality of teachers is pathetic too.. I am mainly talking about govt paid teachers in govt and grant-in-aid schools. The whole system needs over-haul. But my objection was towards thinking that "the teachers now get as much salary as a BPO guy"

    Originally Posted by Venkytalks


    Aditi, there is a chicken and egg situation with teachers - until we pay them much much better, our quality of teaching will not improve. Even the best schools (my kids study in one such so called best) have pathetic teaching. If we pay them a lakh a month, we will get better quality and can make them accountable also. If you pay peanuts, we will get only monkeys - who are teaching our kids right now.
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  • Originally Posted by aditi sharma
    I agree with chicken-egg problem... the pay is pathetic and the quality of teachers is pathetic too.. I am mainly talking about govt paid teachers in govt and grant-in-aid schools. The whole system needs over-haul. But my objection was towards thinking that "the teachers now get as much salary as a BPO guy"


    govt teachers do get many benefits... first they get a starting pay of INR 18K which grows to 25-28k based on your experience. And this salary is for just going to school, cracking some jokes with other teachers, back-biting, having home made lunch, then gossiping, knitting a warm cardigan for winters, having evening tea, making plans for tomorrow and coming back to home at around 5:00 PM.. so much work these guys do..

    some senior teachers also get monthly groceries from the school's midday meal quota.. this midday meal scheme of govt to help poor and needy students has really helped these teachers and peons.. free wheat, flour, rice, pulses, sugar, salt, vegetable oil, spices to name a few..

    In many govt schools in Punjab, these teachers order the students to bring milk, sugarcane juice, gur (jaggery), mangoes etc from their village for them..

    Being a govt teacher really "pays" in India.. full aish no tension :D
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  • And what about the quality of textbooks?

    Even worse than the eacher problem, here is a glaring example of the lack of quality of textbooks ...

    My son, who is in the 8th Std has a Computer Science text book written by 2 (probably) junior guys in a setup in the back of beyond. Believe me, this is in an area I know very well since I also did my PG in that town (thankfully in a "Super League" B-School - refer latest BS ranking of B-Schools, whatever that means! :o). There are OUTRIGHT FALSE, MISLEADING AND PLAIN WRONG information trotted out in these "textbooks"!!!!

    On the other hand I read an account by a British guy who talks about a Geography text book he used back in the 1950s which was written by the leading man in that field (a Geographer) in the world of those days. Can you even contemplate the difference?!

    I used to recommend a (very large, heavy and very beautifully illustrated) book called "Computers Today" which gave everything from soup to nuts about Computers way back in mid-80s. Have never seen a introduction book better than that even till today.

    The passion that is created in young minds starts with a great introductory book and a teacher with great imagination, passion for the subject and skill.

    Where can you get all of that with the salaries and growth path you provide teachers today?

    cheers
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  • Originally Posted by m_square
    govt teachers do get many benefits... f

    Being a govt teacher really "pays" in India.. full aish no tension :D


    Really? Why don't you go for a career change and become a govt teacher in that case? You will also do full aish and have no tension. Or are the entry barriers to this aish job too high? LOL
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  • Originally Posted by wiseman
    My son, who is in the 8th Std has a Computer Science text book written by 2 (probably) junior guys in a setup in the back of beyond. Believe me, this is in an area I know very well since I also did my PG in that town (thankfully in a "Super League" B-School - refer latest BS ranking of B-Schools, whatever that means! :o). There are OUTRIGHT FALSE, MISLEADING AND PLAIN WRONG information trotted out in these "textbooks"!!!!



    These are some very serious allegations. I am sure along with me every one is also interested in knowing complete details about this.

    Please let us all know the
    1) Publication
    2) Author names
    3) Book name and page number where and what this wrong info is written.
    4) Scan the page and upload the image here and let us all know why that portion is wrong.(Very important)
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  • Pune people already have access and experienced Insignia.

    Is this any different?
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  • Sorry to hear this

    Originally Posted by m_square
    Being a govt teacher really "pays" in India.. full aish no tension :D


    If general people think all these about teachers, Its very sad and disheartening to know. :bab (45):
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