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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  • ^^ u too fast man .. me was editing that one :D
















    and not FIIs but people are buying RE.. haste makes paste :D
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  • Originally Posted by m_square
    ^^ u too fast man .. me was editing that one :D
    and not FIIs but people are buying RE.. haste makes paste :D

    Haste makes paste>>> I remember that exercise which we used to do in school (yep, I too went to school for sometime:D), forgot the name but was called ABAB, BAAB etc.

    Anyways, here is the real poem:-

    Buyers make haste,
    Due to bad taste,
    Falls in builders' waste,
    And ends up red faced.

    Moral:- Manacha Brake, Uttam Brake (read this on highway in marathi)
    i.e. Minds brake, best brake:D

    Hey, I can now go to kg2:p.
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  • Originally Posted by realacres
    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


    I don't agree with some of the points made by you. FIIs may not directly buy RE, but they invest in some of those big projects.
    I think there is some relation between stock market and RE. Infact the subprime n all things I thought are very much related to RE. And we all know that was the reason for market crash.
    I know RE scripts were very badly hammered, and they can not come to their Highs in recent times... I think as market 'zoomed' , RE scripts also 'zooomed'. You can give some examples for falling scripts, but I can give more examples which went up.

    Though, I agree that even if market reaches 21k, those scripts may not go to their lifetime high..

    Again, RE scripts were very much operpriced... but, due to this subprime n all, they got really badly hammered..

    I don't say , RE will again start booming as in 2007-08... But, still feel that there is some relation between stock market and RE, don't you?

    So, may be its like:saying E=mc^2 for both , only thing 'm' (mass) is different for them...:)

    I cound not understand meaning of.. "It is not about money, honey but boney, poney!:D".. So, I can't comment on that..
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  • evolving standards..

    Originally Posted by s_rathore


    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.


    I dont know of everyone background. But a couple generations back (the Gandhi-wadi generation) my Grand-parents had a limestone based house (engineers - I know limestone if treated can be a very strong compount like concrete..), built with thatched structure and wooden beams. The floor was plastered with cow-dung, and we were instructed not to jump up on the terrace for the fear of the limestone giving away. The bathroom was an outhouse.

    Just a different perspective-timeline and what we refer to as progress.
    This always intrigues me
    >>
    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.
    <<
    please read before you sign. More importantly you do NOT need to sign. I am sure one can still acquire/build a 'haveli' in rural parts with a cow-path to city with borewell, septic tank, generator and a Dish. Who needs to depend the govt.

    heehaw

    -bb
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  • Originally Posted by tpshere
    I don't agree with some of the points made by you. FIIs may not directly buy RE, but they invest in some of those big projects.
    I think there is some relation between stock market and RE.

    There has been drastic change in the way FIIs are coming in.
    In boom period, the FIIs used to pump in money in particular projects of the builders through a JV or SPV. However, currently if you see that now the FIIs are picking up equity in the company & not specific project. This has led to drop in promoters holding due to the route taken by them:- QIPs. In many cases the promoters holding have come to as low as 22-23%!!

    In short, unlike 2004-08, nowadays it is more of selling off the company. Spot the difference.
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  • I agree on this Post by you. That is why I said Don't expect 2007 period soon... I know those stocks with QIPs.. and don't like them..

    But, you tried to explain, stock market and RE are 2 different universes. ..
    I can't agree on that...they are very much related..
    Stock Market -> Economy -> RE
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  • Confusing

    There r confusing signals in the mkt.

    Employment is at the lowest level with out any recovery in sight.

    Consumer confidence / sales r sluggish but ,Taj mahals r being built at furious pace. Read - Chin.

    Stocks r up so r bond yield and Gold.

    Many r calling it a printing money session to ease out of recession, but is it so simple. Mean while the stock prices and commodities r touching highs not due to any eco fundamentals of growth or demand but excess liquidity.
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  • markets will turn again once banks start sucking money again. the money which is printed again needs to be sucked out of system. interest rate in india will start hardening again and US will also need to suck the money printed.

    now a days equity market is very agile, to the way it has moved up (1 billion money came in by FII every week) but same will hold true when the FII's will book the profit
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  • Originally Posted by tpshere


    I cound not understand meaning of.. "It is not about money, honey but boney, poney!:D".. So, I can't comment on that..


    I guess it some song .. not sure where i heard it ..














    or may be he is just trying to ryhme :D
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  • Originally Posted by tpshere
    But, you tried to explain, stock market and RE are 2 different universes. ..
    I can't agree on that...they are very much related..
    Stock Market -> Economy -> RE

    Man, stock market doesn't depend on the outlook but the ability of the company to manipulate that outlook. Stocks are no govt. bond. Investment is done not only keeping in mind the company but the value of Re:$ & vice-versa by FIIs. Do you think that 16k+ is justified? Is current scenario like end 2007? My investments in MFs are up by only about 11% though stocks rose by over 60% in same period. Reason:- The MFs are sitting on a cash reserve of INR 23,000 Cr & not investing in stock market right now.

    Economic fundamentals are not related to stock markets. Had this been the case, the GDP should have been atleast 7.5-8.2%.
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  • Buyers fight against builders false promises.

    Friends,

    Look at the following video where buyers took on the builder with the help of media. Good one.

    http://ibnlive.in.com/videos/101077/cj-fights-against-false-promises-of-builders.html
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  • Some governments do take action against policies that fuel speculation...

    Press Release on 14th Sept 2009 in Singapore.

    ===========
    Singapore will tighten rules on housing loans to make it tougher for people to borrow, National Development Minister Mah Bow Tan said today according to state television.
    With the new rules that come into effect immediately, banks and developers will not be allowed to offer housing loans whereby the borrower only pays the interest and defers repayment of the principal to a later date, Channel NewsAsia said.
    Home prices in Singapore have soared in recent months, with transactions hitting record monthly highs, as buyers flock to showrooms for new apartments.
    ===========

    VK
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  • Tightening measure

    Govt is slowly tightening the norms to prevent bubbles.

    C the new Tax code
    The commercial rates of interest on homes loan for third house.
    Prioritisation of Govt largese to poorer sections.
    Regulatory body

    Hopefully, in abt a yr, the stuck residents would be able to haul the errant bldr to jail.
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  • Originally Posted by realacres
    Man,

    Thanks, yes I'm male. :)

    Originally Posted by realacres
    stock market doesn't depend on the outlook but the ability of the company to manipulate that outlook.

    Common, if things are written in bold, that does not mean they are true always. You can say this for some companies, not for whole stock market.

    Originally Posted by realacres
    Stocks are no govt. bond. Investment is done not only keeping in mind the company but the value of Re:$ & vice-versa by FIIs.

    Yes, there are many factors including (and important) factor of companies present and future performance.

    Originally Posted by realacres
    Do you think that 16k+ is justified?

    I don't know. You tell, Which level is justified (8k, 13k, 16k)?


    Originally Posted by realacres
    Is current scenario like end 2007?

    I never said that. Infact I said, we may not get that period soon. But, i learnt, the stock market tries to predict (many times successfully) the future economy by about 1-2 quartes.

    Originally Posted by realacres
    My investments in MFs are up by only about 11% though stocks rose by over 60% in same period.

    My God, which MF do you invest in? This is the list of MFs and their performance in last 6 months. Don't see any with 11% return. Average must more than 60%
    ]http://www.moneycontrol.com/mutual-funds/performance-tracker/eqd/ab


    Originally Posted by realacres
    Reason:- The MFs are sitting on a cash reserve of INR 23,000 Cr & not investing in stock market right now.

    In Feb it was more than 20k, in jun it was 18k, in july it was 15.8k.
    Not sure, if they increased it to 23k... even if (i've doubt) they've increased, then do you say July levels are 'justified'?

    Originally Posted by realacres
    Economic fundamentals are not related to stock markets.

    This time you did not make it bold. anyways, if ok if you don't want to beleive it, i beleive it..

    Originally Posted by realacres
    Had this been the case, the GDP should have been atleast 7.5-8.2%.

    What is the formula for this? May be from Goldman Sches, Lehmans, morgan stanley etc.. Anyways, if they said this, then may be..:)


    Finally, lets concentrate on the forum, which is for RE...
    What is the formula for this? May be from Goldman Sches, Lehmans, morgan stanley etc.. Anyways, if they said this, then may be..:)


    Finally, lets concentrate on the forum, which is for RE...
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  • Hi t sphere,

    The sen is in caution zone.

    No need for any expert analysis, just c the P/E multiples. They r expensively valued, perhaps highest among Emerging mkts presently.
    Stock mkts reflect economy + sentiments generally.

    Nicholas Sarkozy has recently proposed Happiness + satisfaction index as measure of Eco progress instead of GDP. But remember France has been languishing at the bottom of other Euro econpmies for some time.
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