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 wiseman
    Munish,

    Overall you are correct that people over 40 (or let me say, older people) are less risky (assuming that their earning years are decreasing) and therefore they would like to be safe about it.

    But this is a theory which is based on salaried people. If you look at business people (especially successful business people, like Real is pointing to like NRN, etc), they are not only moneyed but also have a balanced approach to risk, calculating it and entering only when the calculations are in their favor (while it looks risky to us, they do their calculations).

    For example, when I was salaried I took less risks and invested almost all my money into companies that had large amounts of cash (earned through business over long periods of time) and were leaders in their business continuing to throw out large amounts of cash. This has paid off very handsomely as pcpune has been stating.

    Today (well over 40) I take tremendous risks with 5% of my portfolio (while stashing the remaining in stocks bought long ago, RE bought long ago and gol.d (bought some time ago).

    Throughout life risks must be taken but with calculation as to what are the potential loss Vs gain (risk-return ratio). If your calculations are correct, you will do very well. If not, you lose 5% of your wealth (and can still live with it). In either case you learn some valuable lessons which could stand you in good stead when you get into the next risky venture!!! :D

    cheers


    Wiseman,

    I agreed to what real said and i also agree to what you are saying.

    See the point is that not everyone is going to be as smart/informative as u guys when it comes to managing their money. There is more than 90% salaried janta who doesnt figure out how to make money from money and they keep asking whether bank deposit is better or stocks:) i was one of them till a couple of years back, though i am still a novice.

    U only mentioned few days back that in our country most people do not know how to exit from stock market.

    So basically u dont believe in debt investment:)
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  • Guys, its a great intellectual forum..
    You all are really intelligent, experienced....
    I found, all your thoughts can be understood by reading just few of the posts..

    But, I have a very genuine request to all of you..
    Its ok to advice on the economy, RE sector, markets, buying/renting, when to marry.., how to become successful in life, etc.

    But, I noticed there are many threads which are completely unanswered or just a few comments without fulfilling a genuine need..

    Most of the people come here when they decide to buy.. and they are looking for good projects/ builders.. I know few of them get answered.. but, mostly the forum disappoints in that front..

    I know few senior folks are very knowledgeable about the good locations, projects, prizes etc. Please utilize your bandwidth in helping those queries more..
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  • Originally Posted by tpshere


    Most of the people come here when they decide to buy.. and they are looking for good projects/ builders.. I know few of them get answered.. but, mostly the forum disappoints in that front..

    I know few senior folks are very knowledgeable about the good locations, projects, prizes etc. Please utilize your bandwidth in helping those queries more..


    Then you have wrong expectations my friend... Name of this thread is "Builders & RE Bulls Theory Proved Wrong.", so you cannot expect buying advise on this thread anyway... :) ..

    Besides, this is not a RE sales portal, but it is a discussion forum which simply discusses the projects. Since you can always get the positive points about any project from the builder (or from RK's blog :D), you dont need this forum to tell you that, but instead this forum highlights the negative aspects of the projects so now you have the full picture.

    Based on this information, you (and only you) can make a decision. Once you make a decision either way, you are encouraged to share your experiences on the forum as a guideline for other members.

    Do not look at this forum as a one stop portal giving a list of projects to buy. There are many other sites who do that already. I am on this forum for almost an year now and believe that the folks are giving extremely good information on many aspects in RE.
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  • I'm not talking about this thread... I'm talking about "indianrealesateforum" in general.
    I see lot of (hundreds) of threads which are unanswered..
    Most of the experienced guys can help people who are genuine buyes..

    Your username is also "punebuyer" :)

    And, I think about 90% visit this forum are genuine buyes.. include 'guests'
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  • Originally Posted by tpshere
    Guys, its a great intellectual forum..
    You all are really intelligent, experienced....
    I found, all your thoughts can be understood by reading just few of the posts..

    But, I have a very genuine request to all of you..
    Its ok to advice on the economy, RE sector, markets, buying/renting, when to marry.., how to become successful in life, etc.

    But, I noticed there are many threads which are completely unanswered or just a few comments without fulfilling a genuine need..

    Most of the people come here when they decide to buy.. and they are looking for good projects/ builders.. I know few of them get answered.. but, mostly the forum disappoints in that front..

    I know few senior folks are very knowledgeable about the good locations, projects, prizes etc. Please utilize your bandwidth in helping those queries more..


    If u start paying me i will utilize all my little knowledge to enlighten u:) issue is i cant take any money from u since this forum is pure discussion and yes its also to have a bit of fun:) If most of people come here only to buy then whats the point of having this forum dont u have better B2B sites to give u enough, and yes thats the very reason why threads remain unanswered.:D
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  • BTW- Rules strictly say buying and selling thru this forum is strictly prohibited:bab (6):
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  • Originally Posted by tpshere

    Your username is also "punebuyer" :)


    Its actually 'punerebuyer' which is an irony itself ... you have rightly mentioned it. I was someone who was planning to buy in RE and like many 'guests' came to this forum searching for good properties. If you see my earlier posts, i had discussions some properties which I personally visited or my friends visited.

    But after reading / contributing the discussions, i have put my decision on hold. This is my own decision. That's exactly what i am telling you also, that folks can come here and read the messages and can take their decisions.
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  • Originally Posted by RAJESHP
    The argument continues. The bottom line is:

    Point I want to make is, real reason why one buys house is NOT because of problems with renting, but because he/she believes that prices are not going to fall tomorrow. Anyone disagree?

    Do we marry because we think we won't find a better girl? :-)

    I bought my house because I saw tremendous value in it. It satisfied all my requirements at that time and at a price that I could "afford". I don't care if the price in my area goes up or down as its a notional gain/loss. Although I know in the long run the prices will go up. they might not outclass index but who cares as I am enjoying my asset too.

    Originally Posted by wiseman
    rocknroll,
    pcpune has hit the nail on its head in terms of what exactly the "seniors" are reccommending.

    Its descended into a "buy" Vs "Rent" argument (and that lead us nowhere). This is what we are saying ...

    In life, taking rigid positions like "NEVER" do this or "ALWAYS" do that is not necessarily beneficial to oneself! Everything changes in life. Can you afford to NOT change (IF SITUATION DEMANDS)?


    I do agree that buy vs rent argument won't take us anywhere. The reason I wrote my initial post was that this argument was going one sided... rent rent rent. As if buying was a crime.

    I absolutely agree with your thoughts on rigid positions as well. Hence everyone should not stick to "No Buying" position. The decision should be taken on case by case basis.

    Why is decision to rent is considered practical while buying is an emotional one? Who are we to pass the judgment?
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  • Why Rent is need

    Originally Posted by rocknrolls
    Do we marry because we think we won't find a better girl? :-)

    I bought my house because I saw tremendous value in it. It satisfied all my requirements at that time and at a price that I could "afford". I don't care if the price in my area goes up or down as its a notional gain/loss. Although I know in the long run the prices will go up. they might not outclass index but who cares as I am enjoying my asset too.



    I do agree that buy vs rent argument won't take us anywhere. The reason I wrote my initial post was that this argument was going one sided... rent rent rent. As if buying was a crime.

    I absolutely agree with your thoughts on rigid positions as well. Hence everyone should not stick to "No Buying" position. The decision should be taken on case by case basis.

    Why is decision to rent is considered practical while buying is an emotional one? Who are we to pass the judgment?



    you are right that you have bought it ....
    but answer me
    now whats so special about Pune that its even Costlier then Better cities like Banglore, Hyderabad, Noida ??? they dipped well in 2009 and even now cheaper
    and in real value terms its costlier then Most of the developed Countries RE?
    5 yrs price have raised 3 times......
    now do you expect to double in some time so in all it will be 6 times in 8 yrs ???
    or 9 times in 10 yrs ????
    That could have been possible but certain events worldwide are not supporting that...
    This rise of 2005-08 was due to expacted 6th Pay commission coming in 2010 ???
    What bought this rise?
    Investors .... So prior to 2005-08 there were no investors in India putting money in RE right....?
    why they put money firsthand ??

    IT and Service sector Growth Right or wrong ?

    take the period of 2009 - 14 ... do you expect to grow even further to beat the current Price/Running cost?
    You expect pays to cross that of Developed world ? Only then this 9 times price rise is justified in 10 yrs ...

    look at this below chart of US RE price rise ...
    Doubling in 7 yrs only to fall back in 1 yr.....
    in all these last 2 - 3 yrs(2006 - 2007) its very tempting to buy only to learn later that you are bankrupt....

    So every Buyer is Uneasy as we are now in Phase of (2006 - 2007 US raise) blind to every reality.
    He is getting pressurized by himself as his decision not to buy and wait for dip is at risk ....
    This Stimulus sooner or later is going to fade...

    -US States in huge Deficit
    -US commercial RE default (bigger then sub prime at 2 - 3 Trillion)
    -Job scenario is as is, rather more cuts in line.
    -Europe Risk
    This matters more for Pune etc rather then for Indore ....

    Renting is not Choice but need of the Hour in such turbulence ....

    And few months back I wrote in Post that Environmental vagaries are going to increase and floods will be a big issue for Pune ..
    when Pak Flooding happened and now it was just 2 days of rain and PMC tops house is flooded.... what about conman man
    Check you Pune Mirror of last few days .....

    God know about the quality of stuff builders have used ... Emerald city wall ... The poor quality ones will depreciate the most....
    and that picture will become clear in 6 - 8 yrs ...
    The current 10 yr old lot is far better in Quality ....
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  • Originally Posted by rocknrolls
    Why is decision to rent is considered practical while buying is an emotional one? Who are we to pass the judgment?

    With 3rd rate/laughable infrastructure in Mumbai, Pune, RE prices (EMI=4x Rent) are comparable to USA/Europe.
    Forget about comparing RE-quality & income-levels in USA/Europe and Mumbai/Pune :o
    Residential RE buying is purely emotional. It is precisely the reason for prices so high and builders unaccountable :o
    Originally Posted by rocknrolls
    Do we marry because we think we won't find a better girl? :-)
    I know in the long run the prices will go up. they might not outclass index but who cares as I am enjoying my asset too.

    Would one marry his house-maid coz in the long-run house-maid rate will go up? A more absurd question :D
    When majority (read upper-middle-class) can't afford property today then how you can expect price to go-up further?
    Do you expect American/European to buy RE here?
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  • Originally Posted by rocknrolls
    I bought my house because I saw tremendous value in it. It satisfied all my requirements at that time and at a price that I could "afford". I don't care if the price in my area goes up or down as its a notional gain/loss. Although I know in the long run the prices will go up. they might not outclass index but who cares as I am enjoying my asset too.


    Thanks for being candid. That is what I was saying.:bab (6):
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  • Originally Posted by frugality
    now whats so special about Pune that its even Costlier then Better cities like Banglore, Hyderabad, Noida ??? they dipped well in 2009 and even now cheaper
    and in real value terms its costlier then Most of the developed Countries RE?


    Dude write atleast one post that does not curse Pune RE and does not compare it with developed countries.
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  • Originally Posted by hitmady
    When majority (read upper-middle-class) can't afford property today then how you can expect price to go-up further?
    Do you expect American/European to buy RE here?


    This is where RE bulls do not want to think. They expect some Harry potter magic to pocket people with money to feed builders.

    People can pay only what is there in their pocket, question is has buyers pocket depth hit, I think yes, way back in 2008.
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  • Originally Posted by hitmady
    Residential RE buying is purely emotional. It is precisely the reason for prices so high and builders unaccountable.

    If thats the case why are you on this forum? Why do you want the prices to come down? If its an emotional decision, wait for your emotions to spill over. :-) Don't worry about the money and what builders are doing etc.

    Originally Posted by hitmady
    Would one marry his house-maid coz in the long-run house-maid rate will go up? A more absurd question
    When majority (read upper-middle-class) can't afford property today then how you can expect price to go-up further?
    Do you expect American/European to buy RE here?

    Please go and watch Matrubhoomi. You would get the answer to your absurd question.
    How do you know majority upper-middle-class?? do you have statistics? how do you categorise upper middle class?? how many of them you know personally? how do you know the other upper middle class people are not buying?

    Originally Posted by RAJESHP
    Dude write atleast one post that does not curse Pune RE and does not compare it with developed countries.

    +1 to that.
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