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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Originally Posted by rsatitkar
    Man I know you like cars. But this time this example does not suit here :)

    Man, if you or anyone else have been hurt, I apologize for the same. Seems I just became like Shashi Tharoor with my words:D. Got it interpreted wrongly.
    CommentQuote
  • Some inputs required.

    Friends,

    I would just like to know the following:-

    While searching for a house, how many of you have come across projects selling based on DP &/OR PROPOSED?? No need to give the names of projects, just %age will be fine.
    CommentQuote
  • It would be around 40% in my case. Projects we had been to are in Undri, Pisoli, Handewadi Road, Manjri, Wakad, Dhanori, NIBM, FatimaNagar.
    CommentQuote
  • Originally Posted by realacres
    First & foremost, this thread was not created for hating builders. This was meant to expose the ill-practices of builders & ways to avoid it. Now if a builder is crook 24*7, then automatically it becomes hate builder type of thing. But you need to know that some projects have been appreciated as well.

    I also fail to understand why typical Puneris get angry if something is said good for someone else?? I have mentioned earlier as well that Pune has taught me a lot & I owe a lot to the city. But man, if one says Accord is better than Wagon-R, there is no need for Wagon-R fellow to get angry.

    *PS:- I said I love Mumbaities, does it mean that I hate Puneties??
    This is the bad part here:- Say good things only about you & never for others:o.


    Why do you see energy as local trains only. In Pune, you call up someone for service maybe electrician, plumber etc. They will say 'will be there in 2 hrs' & will not come the whole day.

    In Pune, so many shops are closed between 1-5 pm (these require a nap in afternoon:D). Hardly see such things in Mumbai . How many areas in Pune offer food after 1 pm? This is called as energy levels. Also, the let's do it attitude is far stronger in Mumbai.

    Anyways, lets get back to RE. Seems people don't like some issues discussed on lighter note outside RE.


    I dont find any issue admitting that generally Pune people are lazy than Mumbai . The example about shops closing in the afternoon is also true . Recent example I saw is Chitale Bandu in Deccan . There were a few South Indian people who came travelling from far away and they arrived at this shop when the shop was ALMOST closing(not closed) for the afternoon break . Guess what ? these guys were not allowed to enter the shop despite their pleading .
    CommentQuote
  • Originally Posted by suryawork
    I dont find any issue admitting that generally Pune people are lazy than Mumbai . The example about shops closing in the afternoon is also true . Recent example I saw is Chitale Bandu in Deccan . There were a few South Indian people who came travelling from far away and they arrived at this shop when the shop was ALMOST closing(not closed) for the afternoon break . Guess what ? these guys were not allowed to enter the shop despite their pleading .


    Man it's not a great qulaity of Mumbai people, it's just situation demand. With such a tremendous population people have to do that. Pune is also changing and can find many shops which are open from 9-9 on all days.

    many people admired Mumbai spirit after Taj incident in 2008. Everything was running normal on very next day. Somebody rightly pointed out, it's not Mumbai sprit it's just they can't do anything? Can anyone stay at home all the time becasue of the fear of bomb blasts? No? They have to go for work for survival & this is bitter truth. Ask any Mumbaikar & they will have the same opinion.
    CommentQuote
  • Yeah.. maybe other way to look at it is your personal life sucks.. Even during rains.. when trains are cancelled and people just get into over crowded trains..

    The moment some semblance of transportation is available people get back to work.. I have done it so many times.. but feel now if it is a desirable quality at all..
    CommentQuote
  • This thread has gone off track many time... (I have also been a part is some off trach discussions..).. this is yet another time it is not going the desirable way.

    Hence let me refrain from any comments. So let us discuss if "Builders and RE Bulls theory is proved Wrong!!!!" :bab (59):
    VK
    CommentQuote
  • Originally Posted by rsatitkar
    Man it's not a great qulaity of Mumbai people, it's just situation demand. With such a tremendous population people have to do that. Pune is also changing and can find many shops which are open from 9-9 on all days.


    It's not issue with only working-timings. I sometimes found poor service-attitude towards buyers at especially local-shop and auto-rickshaw.
    Sorry veeemkay.
    CommentQuote
  • Originally Posted by hitmady
    It's not issue with only working-timings. I sometimes found poor service-attitude towards buyers at especially local-shop and auto-rickshaw.
    Sorry veeemkay.


    u must be staying in Aundh or some remote area.....
    Cming to topic...
    So finnally it seems builders/bulls theory is proved correct as in this Diwali also couldnot see any price drop....
    CommentQuote
  • Originally Posted by hitmady
    It's not issue with only working-timings. I sometimes found poor service-attitude towards buyers at especially local-shop and auto-rickshaw.
    Sorry veeemkay.


    +1 to this. Attitude of Auto-drivers & PMPML personnel in Pune is really worst. The way they treat passengers is really bad. They are so rude to public, do not even understand that their roj-roti is based on the passengers only.

    However though very few in numbers, there are some exceptions (for auto drivers I have seen, but not seen for PMPML though.)
    CommentQuote
  • Originally Posted by rsatitkar
    Man it's not a great qulaity of Mumbai people, it's just situation demand. With such a tremendous population people have to do that. Pune is also changing and can find many shops which are open from 9-9 on all days.

    many people admired Mumbai spirit after Taj incident in 2008. Everything was running normal on very next day. Somebody rightly pointed out, it's not Mumbai sprit it's just they can't do anything? Can anyone stay at home all the time becasue of the fear of bomb blasts? No? They have to go for work for survival & this is bitter truth. Ask any Mumbaikar & they will have the same opinion.


    Try to setup Internet connection in pune or Just ask mechanic or electrician to visit after office hours. or Take a hint from Rikshawalas :bab (34):
    are they better than Mumbai ?
    Mumbai service sector has much more professional attitude.
    Its not "population" its "Competition" which drive Mumbai.

    About Spirit

    I have seen people leaving in the slum areas, with their houses under 10Ft water helping other people with food & water bottles during 26th July Rains.
    CommentQuote
  • You got me wrong, Venky!

    Originally Posted by Venkytalks
    Thanks for the good links, frugal.

    But the fringe "end of the world" brigade have been writing these opinions for the last 3 years. What they are forgetting (and I also forgot in 2009 to my financial detriment) is that stock and other markets, while inefficient, manage to accurately price in risks in just 6 months, once the risk is exposed.

    Stock markets have a 6 months time frame for everything. They cannot think longer term. Nor can they finish their "business" of price discovery in a shorter time frame.

    So these opinions are one and a half years too late. (The new York post article was actually written 2 years ago when Obama took office).

    There are 8000 + banks in USA. 138 failures is just a negligible amount.

    The problems. which are likely to erupt in the next year or two are probably not a boiling of the same pot - that is already dry. Lightning doesnt strike the same place twice.

    My own anticipation is either an adverse, extreme currency movement event or an oil superspike or a war like event or a bad bursting of the US bond bubble causing a failure of QE 2.

    Hitmady, I have always wondered why the Indian elite did not buy up an island (or Sri Lanka) and shift the productive 50 million Indians there, just to escape our terrrrrible govt. and its corruption/reservation/general ineptitude.

    I am sure our professionals will find it better to get employment in Singapore or its low cost equivalent, when it comes up. Unfortunately, it is the high salaries of techies which has elevated the RE price, RE cost figures lower than employee cost for IT. Cant put the cart before the horse.

    I never cease to be amazed at the poor quality of life in Mumbai for our top financial pros. Somehow, there is a love for Mumbai which over-rides everything else. Which those from outside Mumbai can never understand (I am married to a Mumbaikar and live in Delhi)



    Venky,

    Now you are jumping the gun and going all the way to the other extreme.

    I definitely DO NOT rule out an actual 50% drop in nominal Rupee terms somewhere down the line. The only thing that I did not factor in is the massive INTERFERENCE of global Central Banks to delay / postpone the inevitable.

    If we had been in the 1990s, when the crash happened, it took only 3 years, crashed as much as 85% in certain places but quickly recovered because failed people were allowed to fail and go out of business and recovery was therefore quick!

    Today, we have the opposite happening. Failed banks are not only allowed to function due to criminal changes in the law itself, but their risky behavior has been REWARDED, enticing them to become EVEN MORE RISKY and take the world to an even worse situation. Therefore, what should have taken 2-3 years will now take much longer and go much deeper.

    Therefore, with the impending QE2, much higher amounts of money will be pumped into the world's economy, possiby leading to much higher levels of mal-investment (investing in all the wrong places), which would temporarily (for next 12-18 months at most) drive prices higher. But at the same time G.old will also rise as much larger number of people, perceiving much higher risk of major crashes will hoard much larger amounts of g.old.

    Eventually, the much larger bubble will burst in an uncontrolled and chaotic manner and prices will take much larger plunges - even in India.

    If you ask me, I'm even more sure of very large fall in asset prices (except g.old, until it also becomes a massive bubble and crashes) after they rise in the beginning due to bubble creation.

    The Western world has created a world economy of continuous bubble-blowing and crashes every few years.

    If you figured this out and got the cycles right, you can make fortunes only on this premise!!!

    Time will tell.

    cheers
    CommentQuote
  • Originally Posted by hemanshu

    Its not "population" its "Competition" which drive Mumbai.



    Yes it's competition. No doubt. But why people have to compete at every moment of their life in Mumbai? Population isn't it?

    This competition starts from getting 4th seat in a local train and runs till getting a self owned house 'somewhere' in Mumbai :)
    CommentQuote
  • The REAL misunderstanding here ...

    Originally Posted by realacres
    And what should be our views then?? Buy in junk projects with 90% loan, 25 yrs loan duration with 80% income in EMIs?? Is this positive?? Don't we share info about projects, if one has decided to buy, don't we support him for future dealings post purchase or simply say, as you have bought, get lost?? Infact, we don't say this, nor would we, nor should we do this. Haven't members here said to shift to other areas like from Wakad to PS, or did they say, don't buy anywhere??? See Maggi here. Bought one in Viva Hallmark & gives updates. Did he run away or anyone abused him?? Same goes with harishkulks (not active these days, seems gone to China again). He bought in Park Street but doesn't recommend to buy under-cons in Pride Group. Please learn something from these guys.


    Look, everyone is free to air their views here. I make a point, you counter-attack, this is the essence of the free form. But what can we do if our queries are unanswered?? Why not face hard hitting Qs? At the end of the day, patience is the name of the game, especially in RE.


    Won't comment as PRB has answered wisely.


    We still maintain that even inflation adjusted price is high of now. How many times you need to see the difference between EMI & rent?? We still maintain that RE rates will have to dip irrespective of inflation.



    Real and other folks,

    The term senior does not have anything to do with age or wisdom! :) Its to do with longevity of membership measured in terms of posts (I think).

    Anyways, coming back to topic, the actual misunderstanding between older (and presumably more experienced) members and younger members is this.

    DEBT does NOT add wealth. This, the older members understand very well through experience.

    Today, DEBT provides younger people jump the gun, fall prey to their impatience (goes with age) and desire to get every high-depreciating asset TODAY (example expensive cars, l.aptops, cell p.hones, club memberships etc, etc). - damn filter eats up even l.aptop and p.hone!

    Living beyond your income = spending your future income => less income in future to take care of much higher expenses => much lower level of living in future!!!

    Got it?

    If you do not believe me, simply look up the budget gap between what the Govt has promised PF depositors (or Pensioners in US) and what they have in hand and project into the future. Clearly, this HUGE shortfall means even more Govt borrowing to fund the deficit OR go back on the promise of PF/Pension payment. Govts of the world are showing youngsters (and all others) what happens to your latter years (when you have least future earning capacity) if you binge in the younger years on high levels of DEBT. Humans never learn from other's mistake ....

    The magic mantra is ...
    1. As early as possible save as much as possible
    2. Put these savings as much as possible in longer-term high-growth investments on CASH BASIS only (not borrowing to buy asset)
    3. Be FRUGAL in the early years
    4. Buy only substantially in cash and only what you need and can afford

    Then, if all else works out, you will be fairly well off even in your middle age and pretty rich in your latter years.

    But since the current generation Y Z ... is programmed by TV, Internet and other media to be susceptible to buy the latest, greatest gadget (whether it makes sense or not), they will generally behave like robots and buy, buy, buy. Time will do the rest.

    This is what the basic difference between Real's philosophy and the "junior"'s thought process.

    This is human nature. Nothing can be done about it.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Real and other folks,

    The term senior does not have anything to do with age or wisdom! :) Its to do with longevity of membership measured in terms of posts (I think).

    Anyways, coming back to topic, the actual misunderstanding between older (and presumably more experienced) members and younger members is this.

    DEBT does NOT add wealth. This, the older members understand very well through experience.

    Today, DEBT provides younger people jump the gun, fall prey to their impatience (goes with age) and desire to get every high-depreciating asset TODAY (example expensive cars, l.aptops, cell p.hones, club memberships etc, etc). - damn filter eats up even l.aptop and p.hone!

    Living beyond your income = spending your future income => less income in future to take care of much higher expenses => much lower level of living in future!!!

    Got it?

    If you do not believe me, simply look up the budget gap between what the Govt has promised PF depositors (or Pensioners in US) and what they have in hand and project into the future. Clearly, this HUGE shortfall means even more Govt borrowing to fund the deficit OR go back on the promise of PF/Pension payment. Govts of the world are showing youngsters (and all others) what happens to your latter years (when you have least future earning capacity) if you binge in the younger years on high levels of DEBT. Humans never learn from other's mistake ....

    The magic mantra is ...
    1. As early as possible save as much as possible
    2. Put these savings as much as possible in longer-term high-growth investments on CASH BASIS only (not borrowing to buy asset)
    3. Be FRUGAL in the early years
    4. Buy only substantially in cash and only what you need and can afford

    Then, if all else works out, you will be fairly well off even in your middle age and pretty rich in your latter years.

    But since the current generation Y Z ... is programmed by TV, Internet and other media to be susceptible to buy the latest, greatest gadget (whether it makes sense or not), they will generally behave like robots and buy, buy, buy. Time will do the rest.

    This is what the basic difference between Real's philosophy and the "junior"'s thought process.

    This is human nature. Nothing can be done about it.

    cheers


    Excellent post. Nice balanced views. To the point writing.
    CommentQuote