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 gharondabhai
    I have a simple question to ask, do you personally know an end user purchased during the so called CRASH in 30% discount?

    You know the answer and I know the answer. If there is a real crash, only the investors with deep pocket and a much deeper risk appetite get the benefit... normal end user are then to scared to buy a house.

    In 2009, group bookings was a hit. This took place in Mont Vert projects at Wakad where flats were sold for 2150/sq ft. In Bangalore, Ajmera Infinity sold flats for 2250/sq ft without floor rise as against 3500/sq ft with floor rise.

    Now tell me, if builders-investors keep selling to themselves & keep inflating the price, will end user jump in ??

    * PS:- I know 3 people who bought RE at good rates. 1 bought at Bangalore, 1 in Mumbai & 1 bought land in Chinchwad.
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  • Why not be the contrarian yourself?

    Originally Posted by gharondabhai
    I have a simple question to ask, do you personally know an end user purchased during the so called CRASH in 30% discount?

    You know the answer and I know the answer. If there is a real crash, only the investors with deep pocket and a much deeper risk appetite get the benefit... normal end user are then to scared to buy a house.



    Gharondabhai,

    You are right in what you say. The average "joe" will act like the crowd and buy at the highest levels and sell around the bottoms.

    But what Real is trying to say is, why don't you (or I or Real) do the hard thing of following our conviction and holding back when everyone is saying buy because prices are running away and instead wait for the 30% declines (meanwhile accumulating more cash via speculation - oops, "investment" :) - in other markets) when we have much more choice and many more builders chasing us rather than the other way around.

    There is one more thing I want to bring up here.

    I would request everyone to please introspect with how each one of us "invested" in the last 2 years. Did we really buy good stocks and hold them? OR, did we keep buying and selling them for profits every now and then.

    Buy-n-hold is a very hard thing to do even in booming times. In churning times like these, it is a true test of our character!!! Which most of us fail ...:D

    cheers
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  • Originally Posted by wiseman
    Gharondabhai,

    You are right in what you say. The average "joe" will act like the crowd and buy at the highest levels and sell around the bottoms.

    But what Real is trying to say is, why don't you (or I or Real) do the hard thing of following our conviction and holding back when everyone is saying buy because prices are running away and instead wait for the 30% declines (meanwhile accumulating more cash via speculation - oops, "investment" :) - in other markets) when we have much more choice and many more builders chasing us rather than the other way around.

    There is one more thing I want to bring up here.

    I would request everyone to please introspect with how each one of us "invested" in the last 2 years. Did we really buy good stocks and hold them? OR, did we keep buying and selling them for profits every now and then.

    Buy-n-hold is a very hard thing to do even in booming times. In churning times like these, it is a true test of our character!!! Which most of us fail ...:D

    cheers

    Hey, nice post Wisey. Your experience really counts...it also takes off some strain on my fingers!! I would also like to add besides your investment point, how many buyers have saved over 40% of their salary in past 2 yrs?
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  • Originally Posted by gharondabhai
    I have a simple question to ask, do you personally know an end user purchased during the so called CRASH in 30% discount?

    You know the answer and I know the answer. If there is a real crash, only the investors with deep pocket and a much deeper risk appetite get the benefit... normal end user are then to scared to buy a house.


    This is where the point is. What real has been recommending is keep on accumulating and buy when there is doom all around. The key here is don't get swayed by the sentiment prevailing at that time. In order to reduce the risk further, look for a ready possession property which for sure are available always irrespective of the times...
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  • Originally Posted by realacres
    In 2009, group bookings was a hit. This took place in Mont Vert projects at Wakad where flats were sold for 2150/sq ft. In Bangalore, Ajmera Infinity sold flats for 2250/sq ft without floor rise as against 3500/sq ft with floor rise.

    Now tell me, if builders-investors keep selling to themselves & keep inflating the price, will end user jump in ??

    * PS:- I know 3 people who bought RE at good rates. 1 bought at Bangalore, 1 in Mumbai & 1 bought land in Chinchwad.


    Gharondabhai, Pjain, Real and Wiseman,

    I for one bought my "Dream Home" ,and I honestly mean it; in that Trough of 2009, precisely March'09, after a lot of thought. I bought an Unused Resale Flat in 3100/Sq Ft all inclusive. The asking price now for the same apartment with a pile of buyers falling over each other is 5000/Sq Ft.

    For once atleast my dear Wiseman I made a good decision. Otherwise I put down GE at $ 5, Starbucks at $ 7 and Discover Card at $ 5 on the table and left. All are 4 - 5 baggers now. And I believe in your Investment philosophy completely. I would have booked profits now. These are different times and so your strategy of Returns Maximization is the best. Buy and hold is old like Mr. Buffet.

    The other good investment decision at those times was Agricultural land. Clear title with 7 - 12 and Naksha, Namuna everything. These are 10 baggers as of today.

    Cheers,

    NT
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  • Stay perennial ...

    Originally Posted by perrenialquest
    Gharondabhai, Pjain, Real and Wiseman,

    I for one bought my "Dream Home" ,and I honestly mean it; in that Trough of 2009, precisely March'09, after a lot of thought. I bought an Unused Resale Flat in 3100/Sq Ft all inclusive. The asking price now for the same apartment with a pile of buyers falling over each other is 5000/Sq Ft.

    For once atleast my dear Wiseman I made a good decision. Otherwise I put down GE at $ 5, Starbucks at $ 7 and Discover Card at $ 5 on the table and left. All are 4 - 5 baggers now. And I believe in your Investment philosophy completely. I would have booked profits now. These are different times and so your strategy of Returns Maximization is the best. Buy and hold is old like Mr. Buffet.

    The other good investment decision at those times was Agricultural land. Clear title with 7 - 12 and Naksha, Namuna everything. These are 10 baggers as of today.

    Cheers,

    NT



    Congratulations! You achieved one of the most difficult things to do that even seasoned and professional money managers find difficult to achieve!

    This is why, in the old days, our earlier generations used to bargain so much to drive down prices to rock bottom levels before buying. This practice minimizes risk and maximizes profits. Traditional money people like Marwaris do this even today and you can see the results.

    And do not fear that prices will only run away in a single direction. The US and others have shown us that, for a guy who waits for his realistic and reasonable price, the day will always come. Patience is a rare virtue among our younger crowd today, who are all consumed by the "instant gratification" habit!!!:)

    Stay perennial in your quest for the "better" way to multiply. :D And make it a repeatable habit.

    cheers
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  • Originally Posted by wiseman
    who are all consumed by the "instant gratification" habit!!!:)



    yeah right instant gratification - time kiske paas hai :)
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  • Everyone thinks he is the finest investor... Investing is all about TIMING, in fact everything in life is doing the "right thing at the right time"

    Simple to say, but unfortunately very few are able to do that... My dear Lehman brother guys were equally smart... but all are not equally lucky.
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  • Originally Posted by gharondabhai
    Everyone thinks he is the finest investor... Investing is all about TIMING, in fact everything in life is doing the "right thing at the right time"

    Simple to say, but unfortunately very few are able to do that... My dear Lehman brother guys were equally smart... but all are not equally lucky.

    So, do you think this is the CORRECT TIME to invest in RE in Pune?? If yes, why & how much returns do you expect YoY?
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  • There is no right time or wrong time.

    You need a roof over your head that you can call your own home ... go ahead and buy one. You need now means buy now.... your need is not urgent then scout for the best deal that suits you. There is absolutely no guarantee that tomorrow you will get a better one.... in fact there is no guarantee in anything. You like it means you have to act fast
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  • Originally Posted by gharondabhai
    There is no right time or wrong time.

    This means that even if someone makes profits, it is more of 'matka' than timing. Ofcourse, once they get lucky due to matka, people say 'What timing it was'!! :D You contradicted your statement above.

    You need a roof over your head that you can call your own home ... go ahead and buy one. You need now means buy now.... your need is not urgent then scout for the best deal that suits you. There is absolutely no guarantee that tomorrow you will get a better one.... in fact there is no guarantee in anything. You like it means you have to act fast

    C'mon man, even staying on rent means having a roof on the head. Who said that the roof has to be owned??

    What many people forget is:-

    Many either RENT HOUSE or RENT MONEY (LOAN). At the end of the day, one remains renter & real house ownership is one when there are no more home loan EMIs.
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  • Originally Posted by realacres
    This means that even if someone makes profits, it is more of 'matka' than timing. Ofcourse, once they get lucky due to matka, people say 'What timing it was'!! :D You contradicted your statement above.


    C'mon man, even staying on rent means having a roof on the head. Who said that the roof has to be owned??

    What many people forget is:-

    Many either RENT HOUSE or RENT MONEY (LOAN). At the end of the day, one remains renter & real house ownership is one when there are no more home loan EMIs.


    A simple thing you don't understand, a common man is not a financial whiz kid.... many are still novice about equity... ohh sorry share. forget about rest of financial jargon

    They simply look at the fact that Home is their own, whatever EMI he is paying is for his own asset. Whatever rent he pays goes to drain. Don't show me complicated number game.... a common man is least bothered about those. And you know very well, those numbers are based on hypothesis. Hope you understand what hypothesis is.
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  • Originally Posted by gharondabhai
    A simple thing you don't understand, a common man is not a financial whiz kid.... many are still novice about equity... ohh sorry share. forget about rest of financial jargon

    And this leads to foreclosures. I will be posting the offers which I received from banks for auctions of several flats due to default here soon.

    The buyer understands how he has been hammered when his full loan EMIs start.

    They simply look at the fact that Home is their own, whatever EMI he is paying is for his own asset. Whatever rent he pays goes to drain. Don't show me complicated number game.... a common man is least bothered about those. And you know very well, those numbers are based on hypothesis. Hope you understand what hypothesis is.

    If EMI is 4x-5x the rent, what sense does it make?? It is better to have SIP using the amount equivalent to EMIs & then buy flat on downpayment after 8-9 yrs. And this is not hypothesis, it is a fact, you can check out any rent & sale price charts in the city.

    If one thinks that rent goes down the drain, then he is an idiot. It is like saying one should buy a rickshaw rather than pay fare as paying to rickshawala is putting the money down the drain.

    Man, didn't that person use the house?? What do you think that the rent should be free?? By that logic some of the biggest establishments in the country are idiots as they opt for lease agreement than outright purchase which include banks as well :D.

    * PS:- We do financial calculation coz we VALUE MONEY :).
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  • Originally Posted by realacres


    If EMI is 4x-5x the rent, what sense does it make?? It is better to have SIP using the amount equivalent to EMIs & then buy flat on downpayment after 8-9 yrs. And this is not hypothesis, it is a fact, you can check out any rent & sale price charts in the city.

    If one thinks that rent goes down the drain, then he is an idiot.


    Realacres you are right - I am a glaring example of living on rent - saving big chunk of money for the down payment of 80% now I own more than 2 houses ;) and all are fully paid for.

    It does make sense to do some calculations then use the right tool to find the undervalued yet upcoming areas - believe me there is no shortage of that.

    I have written in many of posts before that everyone should go for atleast one short term financial planning course.

    Rohit
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  • Originally Posted by gharondabhai
    A simple thing you don't understand, a common man is not a financial whiz kid.... many are still novice about equity... ohh sorry share. forget about rest of financial jargon

    They simply look at the fact that Home is their own, whatever EMI he is paying is for his own asset. Whatever rent he pays goes to drain. Don't show me complicated number game.... a common man is least bothered about those. And you know very well, those numbers are based on hypothesis. Hope you understand what hypothesis is.


    i guess thats why we are discussing this topic over and over... because many people do not understand it and the goal is to make them aware of the facts..

    common man take home loan offers more seriously than the advice of an investment consultant... at times they can be wrong too but at least you get to hear another side of investment and not just the loan selling agent.. and the agent gets a commission as well, so you are getting a paid advice there also so why not take an investment advice too?

    The best thing about IREF is that you get them for free here... thanks to Wiseman, Venky, Real and other seniors... they are open to debate on their ideas, accept the improvements/suggestions and promote objective discussion.

    We should make more and more people visit this site and especially this thread for discussing RE as an investment.. in fact, there are some points on this thread which can be edited to make a book... :-)
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