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 punerebuyer
    This was supposed to criticize business but it is very well suitable for builder lobby...

    Another genius cartoon from my favorite Scott Adams!


    It applies to all walks of life today...LOL :D
    CommentQuote
  • Eurozone Crisis Deepens

    As you all must be aware, Ireland is now on its way to become another Greece & it is said that Portugal will be next. Thousands of jobs have been cut in Ireland, wages cut. Reason:- People spent more than they could afford.

    Here are some links to get some clear idea about its effect on entire Eurozone:-

    The Business: Ireland in crisis-

    There are fears across Europe that a multibillion euro bailout will not be enough to contain the latest economic crisis-

    http://www.guardian.co.uk/business/audio/2010/nov/23/the-business-podcast-ireland-crisis-euro

    UK banks threatened by Ireland's economic crisis-

    http://www.thisislondon.co.uk/standard-business/article-23899684-uk-banks-threatened-by-irelands-economic-crisis.do

    Btw, US unemployment rates still remains close to 10%.

    * PS:- I am happy with JD(U)-BJP, ie NDA coming back to power in Bihar with almost 3/4th majority :). Laloo got kicked out & it seems Baby Rahul's magic didn't work here ?(don't know from which angle Rahul is a baby? :D )
    CommentQuote
  • CEO of LIC Hsg, GMs of BoI, Central Bk arrested

    http://www.moneycontrol.com/news/business/ceolic-hsg-gmsboi-central-bk-arrested_501133.html

    Is this just the tip of the iceberg..
    CommentQuote
  • CommentQuote
  • Last two days I was reading various material from different sources and can’t stop myself for comparing Ireland debt crisis with our RE scenario. Story resembles to what is happening now in India. Being optimist I hope our top bankers are smart enough to learn from those mistakes and I guess our sheer size will avoid collateral damage.

    Hope So!

    http://www.businessweek.com/magazine/content/10_48/b4205082055642.htm

    Update after 6 hours:


    My confidence in banker caught by lighting after I stumbled on the news related to LIC/PNB. Come on guys please gave us break!!!
    Ironically yesterday on this same forum some one was arguing that private sector/professionals brings sanity in business and there is no corruption!

    Queen of grand old party mentioned that “India is getting increasingly corrupt, greedy: ” Thanks for letting us know and not acting on it even though you are in power.

    Jai Ho!!
    CommentQuote
  • Lavassa and Kumar have represented Pune...



    http://maharashtratimes.indiatimes.com/articleshow/6982265.cms
    Here are the names of companies engaged in scam...
    We can say Lavassa and Kumar have represented Pune:bab (59):
    ...
    लावासा, कुमार डेव्हलपर्स, एन्मार एमजीएफ, ऑबेरॉय रिअँलिटी, सुझलॉन, डीबी रिअलिटी, आशापुरा माइनकेम, ओएमजी जीआरपी अशा कॉर्पोरेट कंपन्यांची नावे या घोटाळ्यात सीबीआयच्या अहवालात असल्याचे वृत्त आहे.
    CommentQuote
  • Rot is deeper

    Now Deepak Parekh has said that entire loan procedures for home loan & to builders should be scrutinized. He expects some stringent action will be taken in terms of realty loans further & there are talks of non banking HF institutions being brought under RBI. Lets see what happens.

    Btw, has Pune MP, Kallu returned back?:bab (38): About 4 days ago, he fled to Monaco from China:D to avoid Indian investigating agencies & media as his close associates have now spill all the beans :).
    CommentQuote
  • Real, You have serious insider info!

    Originally Posted by realacres
    Now Deepak Parekh has said that entire loan procedures for home loan & to builders should be scrutinized. He expects some stringent action will be taken in terms of realty loans further & there are talks of non banking HF institutions being brought under RBI. Lets see what happens.

    Btw, has Pune MP, Kallu returned back?:bab (38): About 4 days ago, he fled to Monaco from China:D to avoid Indian investigating agencies & media as his close associates have now spill all the beans :).



    Real,

    Your insider info based post are really entertaining! :D

    Keep it coming ...

    Btw, where will RE sector head to now?

    The markets (Nifty) are very close to its 50 Day MA and looks like market will bounce from 5800 level to maybe a max of 6030 levels in next few days. But these continuous bad stories may put paid to this relief rally (within India as well as in EU - latest is Irish Banks are seeing SERIOUS EROSION in deposits upto 18% in the last year which brings fears of a run on major Irish banks especially with Cantona asking people to go to their banks and pull money).

    Lets see.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Real,

    Your insider info based post are really entertaining! :D

    Keep it coming ...

    Btw, where will RE sector head to now?

    Definitely will put such updates here :).

    RE is in very bad shape. Was just watching NDTV-Profit couple of hours back & they showed that leading developers like Emaar, Omaxe, Unitech, Lodha, DLF etc. have cash flow probs, some even negative. The loans are huge & these cos aren't able to pay them back & lack of liquidity is the biggest worry for builders & buyers as several projects now are in risk of abandonment or infinite delay.

    This week, on Bloomberg-UTV, in an interview with some bankers, they said that RE prices in India are far higher than rest of the world even by price, let alone in terms of interest rate & affordability. The chain of RE hikes has ceased & economist fear RE to fare the worst.

    The markets (Nifty) are very close to its 50 Day MA and looks like market will bounce from 5800 level to maybe a max of 6030 levels in next few days. But these continuous bad stories may put paid to this relief rally (within India as well as in EU - latest is Irish Banks are seeing SERIOUS EROSION in deposits upto 18% in the last year which brings fears of a run on major Irish banks especially with Cantona asking people to go to their banks and pull money).

    RE has taking severe beating today. See the RE stock prices!!:D
    CommentQuote
  • SEBI Action

    SEBI has formed its own team to investigate the fraud committed in stock market by the cos which took loans for banks. The loan meant for company use was diverted in stocks. They will also investigate the link between builders & the banks involved in the scam.
    CommentQuote
  • Hey, excellent & informative article.:)
    CommentQuote
  • INDIAN RE MARKET SET FOR MAJOR CORRECTION

    Unrealistically high RE prices in India are due to the nexus between builders, bankers, politicians and media. All these four factors are as thick as the thieves they are. Do we common people realise the extent to which we are being exploited? Check this out:
    1] In the past decade, politicians have poured their illicit wealth, lakhs of crores extracted from bribes & scams, into land and construction. Politicians have become builders and builders have become politicians.
    2] With such huge vested interests, they frame economic policies aimed at ever-increasing property prices. Since last year, inflation is in double digits, and yet interest rates on FDs in banks are between 8% to 8.5%. While our savings are actually eroding in value, this cheap credit is being chanelised to RE companies When these loans to RE companies are not repaid, they are 'restuctured' because banks don't want to show NPAs.
    3] The Government rakes in thousands of crores in high stamp duties & registration charges --- another reason for keeping RE prices artificially high.
    4] These politicians -cum- builders develop the land with cheap bank credit + booking money. Then they load on all sorts of hidden costs and sell constructed units at huge profits.
    5] In the past we had 'sahukars' who lent money & kept poor people under debt for generations. Now we have housing finance aimed at enticing suckers to buy property at exaggerated prices and making them pay interest lifelong. One home loan customer = hefty interest assured for next 15 to 25 years.
    Friends, please note how the common people are exploited at every stage mentioned above. They are using OUR money at every stage TO EXPLOIT US.
    Real estate has become a flipping game in India. A sureshot way to earn anywhere between 100% to 300% returns. But as the US, UK, Spain, Ireland, Canada, Dubai have found out in the past 2 years this ponzi scheme cannot go on forever. Contrast this with Germany, a nation that concentrates on producing real goods and services, where property prices have remained stable since the 1990s. They were not affected by the crisis, their standard of living has not gone into a tailspin, and the German Mark is steady as a rock.
    Actually the RE prices should have collapsed in India, as they did all over the world after 2008.
    The factors that led to the world-wide property market crash were present in India in 2007 itself. And yet RE prices hardly corrected. Why? Because it is not in the interest of these thieves to allow RE prices to collapse. Everyday, I see pages upon pages of 'property for sale' ads in newspapers and columns by bogus 'experts' and 'market analysts' --- telling us that this is the best time to buy apartments & rowhouses. Its a huge conspiracy.

    I sense a lot of anger and resentment building up in the common man, as he acquires info and comes to realise what I realized couple of years ago. The back of this evil cartel is going to break and cause a massive price correction. DON'T BE THE GREATER FOOL. Don't be enticed by fraud propoganda. Have patience for a year or two & preserve your cash.The Indian RE market is primed for a major correction.Just wait & see what skeletons are going to tumble out of the present CBI investigation.
    CommentQuote
  • ^^^^yes heretic, the million dollar question is when? any answer?
    CommentQuote
  • Originally Posted by RAJESHP
    ^^^^yes heretic, the million dollar question is when? any answer?


    I'm not an astrologer like our great FM Pranab --- but I can say that the downswing is gathering momentum. Last week I checked out some flats on NIBM road. There is a society near Corinthian club, where the broker was quoting 23 L for 2BHK flat. I did not feel it was worth it so I came away. Today he calls me up and offers the same flat for 21 L :o I can sense the desperation. And this flat has been up for sale for the past 6 months.

    This is just one example. Desperation is setting in amongst sellers. We dont yet know what s**t is going to hit the ceiling from the CBI probe. Just sit back and enjoy. probe. Just sit back and enjoy. probe. Just sit back and enjoy.
    CommentQuote
  • Originally Posted by heretic
    Unrealistically high RE prices in India are due to the nexus between builders, bankers, politicians and media. All these four factors are as thick as the thieves they are. Do we common people realise the extent to which we are being exploited? Check this out:
    1] In the past decade, politicians have poured their illicit wealth, lakhs of crores extracted from bribes & scams, into land and construction. Politicians have become builders and builders have become politicians.
    2] With such huge vested interests, they frame economic policies aimed at ever-increasing property prices. Since last year, inflation is in double digits, and yet interest rates on FDs in banks are between 8% to 8.5%. While our savings are actually eroding in value, this cheap credit is being chanelised to RE companies When these loans to RE companies are not repaid, they are 'restuctured' because banks don't want to show NPAs.
    3] The Government rakes in thousands of crores in high stamp duties & registration charges --- another reason for keeping RE prices artificially high.
    4] These politicians -cum- builders develop the land with cheap bank credit + booking money. Then they load on all sorts of hidden costs and sell constructed units at huge profits.
    5] In the past we had 'sahukars' who lent money & kept poor people under debt for generations. Now we have housing finance aimed at enticing suckers to buy property at exaggerated prices and making them pay interest lifelong. One home loan customer = hefty interest assured for next 15 to 25 years.
    Friends, please note how the common people are exploited at every stage mentioned above. They are using OUR money at every stage TO EXPLOIT US.
    Real estate has become a flipping game in India. A sureshot way to earn anywhere between 100% to 300% returns. But as the US, UK, Spain, Ireland, Canada, Dubai have found out in the past 2 years this ponzi scheme cannot go on forever. Contrast this with Germany, a nation that concentrates on producing real goods and services, where property prices have remained stable since the 1990s. They were not affected by the crisis, their standard of living has not gone into a tailspin, and the German Mark is steady as a rock.
    Actually the RE prices should have collapsed in India, as they did all over the world after 2008.
    The factors that led to the world-wide property market crash were present in India in 2007 itself. And yet RE prices hardly corrected. Why? Because it is not in the interest of these thieves to allow RE prices to collapse. Everyday, I see pages upon pages of 'property for sale' ads in newspapers and columns by bogus 'experts' and 'market analysts' --- telling us that this is the best time to buy apartments & rowhouses. Its a huge conspiracy.

    I sense a lot of anger and resentment building up in the common man, as he acquires info and comes to realise what I realized couple of years ago. The back of this evil cartel is going to break and cause a massive price correction. DON'T BE THE GREATER FOOL. Don't be enticed by fraud propoganda. Have patience for a year or two & preserve your cash.The Indian RE market is primed for a major correction.Just wait & see what skeletons are going to tumble out of the present CBI investigation.


    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...

    Man...this is just perfect...can't agree any more...you just said it what I would have...keep it up...
    Sit on your hard earned hard cash and enjoy the show, it's live and free :D
    Now, I don't care if Indian RE corrects or don't correct, but for sure the Mango man has woke up...
    CommentQuote