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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  • This is true.
    I saw several flats sealed by banks in magarpatta recently.
    In troubled projects which are lagging in progress, there would be many more..


    Originally Posted by realacres
    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.
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  • Originally Posted by punerebuyer
    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... :-)

    I am regular visitor of this forum. I learn it from here just buy on affordable things either home or LCD J.

    I would also suggest to buy home when EMI is 30-35% of you take home. I started two small SIP two years before and they are giving me good return. Even invest when the invested money (down payment or EMI) don’t degrade your life style.
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  • As you sow, so shall you reap ...

    Gharondabhai,

    No one is targeting you for what you say.

    It is the desire of most people to own a home ultimately (there are few exceptions who want to rent till the end, but even they can buy a home, rent it out and stay on rent in places of their choice!!!).

    And what you say is that most people are financially not well educated. But it is imperative that people get the basic minimum education so that they do not cross the boundaries of PRUDENT financial behavior.

    As Real has said, there ar homes coming up for foreclosure. Each andevery one of these homes was once bought by a person who perhaps hoped that one day he would be the full owner of the home.

    For some reason, along the way, something happened which made him/her not only lose the home but perhaps all his/her savings that he had invested in the home.

    Imagine after 10 years you had to lose everything you invested in the home and had to start all over again!!! Very distressing. And the builder, the broker and the banker (not to mention politician) has the least interest in your safety when you buy. Only their profits!!!

    This is the main reason why we keep repeating again and again that people have to be ultra cautious in getting into massive debt because, when people in their 20s and early 30s get into big debt, they have absolutely NO IDEA what the financial strain is the keep paying EMI over 20 years through all the problems one gets to encounter in life. Bigger family, education, medical and other rising expenses. Job losses. There are so many unknowns.

    This is why people need to save enough and take lesser loans so that they can have their cake and eat it too!!!

    The US is a prime example of Govt and politicians brainwashing Americans that it was the birthright of every American to own his/her own home. This was combined with criminal behavior by Home Loan companies that lent massive loans to people without even an income and also with other large debts (student loans, credit card debt, Car loans, etc, etc). See where they have reached. Millions made homeless in the last 3 years alone. 42 million people on food stamps.

    In the coming few years this kind of behavior will also hit our country and you will find many more repossessions of homes and cars due to this highly risky behavior of wanting to have the latest, greatest, most expensive homes, cars, whatever (simply because, for example, I am a "engineer" and in my trips to the US I found my counterparts behaving in exactly that way, so I too have to ape their behavior).

    Better to be on the other side, amass cash and wait for those foreclosures so I can buy homes fully paid up and much cheaper too.

    cheers
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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.


    Absolutely right, Real.
    I see people, who bought in last 2 years at inflated rates, cribbing most about their salary, EMIs, no savings and no on-site opportunity :D

    My friend bought a flat in Pune-east, switched job and now travels to Pune-west, Hinjewadi and cribs about daily 2.5 hrs commute to work.

    People buy house at inflated rates, not only for roof but some of these reasons:
    1. Fear of price will go up and later they won't be able to buy.
    2. RE never falls and 25L invested today, will grow 2x/3x in 5 yrs.
    3. They will get good marriage proposal & status in society.
    4. They'll get settled in life although always think about CTC offered in other companies :D

    As Wisey pointed out, its impatience wanting instant gratification coupled with short-term (herd) thinking and low financial-planning skills.

    Disclaimer: I want RE to fall >30% so that I get a decent deal with > 50% down-payment.
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  • Originally Posted by realacres
    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.


    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 :).


    completely agree! also even if one decide to pay EMI, one should know that he should get daily healthy meal, get good clothing, electricity bills/ bills etc and THEN pay EMI in surplus amount after required savings(and investmnents)

    Whats point in having huge EMI and having half meal in worry of loan?
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  • Originally Posted by gharondabhai
    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


    owning a home is emotionally driven requirement in our financially innocent but otherwise very smart indian society, a person living on a rent is looked down upon than one who is living in his own house. a former may have high net asset than former but its assumed a person living on rent is in penury. many ppl buy home(youngsters) are victims of this societal thinking amongst us, they fall victim to family, society, friend pressure and make a decision out of force which they have to defend later lest they regret it :bab (45):

    unless i had 80% of amount of downpayment, i would not have cared abouyt time but when one is going for 50 or more percentage of loan one must do plenary analysis before jumping into life's biggest expenditure.
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  • Originally Posted by puser
    owning a home is emotionally driven requirement in our financially innocent but otherwise very smart indian society, a person living on a rent is looked down upon than one who is living in his own house. a former may have high net asset than former but its assumed a person living on rent is in penury. many ppl buy home(youngsters) are victims of this societal thinking amongst us, they fall victim to family, society, friend pressure and make a decision out of force which they have to defend later lest they regret it :bab (45):

    unless i had 80% of amount of downpayment, i would not have cared abouyt time but when one is going for 50 or more percentage of loan one must do plenary analysis before jumping into life's biggest expenditure.

    +1. coudnt agree more.
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  • RE stocks including that of dlf making/nearing a new 52 week low every day. When marker rallied to 21k, these didn't participate in the rally. Now when the market is falling, these are falling at a faster rate.. And no mutual fund house likes them. Most of the RE stocks are still down by about 80% from their 2007 peek. Wonder when this will be reflected in the actual Real estate. Many say, there is no connect between the stock price of RE companies and the RE. Why is this so? Huge land bank is also one of the assets of RE companies right? When the company valuation reduces, shouldn't it affect the land value too?. I fail to understand this.
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  • Originally Posted by kaatesha
    RE stocks including that of dlf making/nearing a new 52 week low every day. When marker rallied to 21k, these didn't participate in the rally. Now when the market is falling, these are falling at a faster rate.. And no mutual fund house likes them. Most of the RE stocks are still down by about 80% from their 2007 peek. Wonder when this will be reflected in the actual Real estate. Many say, there is no connect between the stock price of RE companies and the RE. Why is this so? Huge land bank is also one of the assets of RE companies right? When the company valuation reduces, shouldn't it affect the land value too?. I fail to understand this.


    This speaks of state of RE-business in India:
    Shoddy practices & low-sales. And I am talking of A-group companies.

    RE-bulls still talk about growth prospects in RE, limited land, everybody needs a roof etc which is laughable :D
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  • Rising Foreclosures

    Originally Posted by aditi sharma
    This is true.
    I saw several flats sealed by banks in magarpatta recently.
    In troubled projects which are lagging in progress, there would be many more..

    I had got email from HDFC for auctions to be held at Hiranandani's project at Thane for some flats. It was held on 25/26th Jan 11. A 3 BR in Hiranandani's project at Thane went for some INR 92L.

    Some 4-5 flats have been sealed at Sun Orbit, Sinhagad Road as well.

    I came to know this from a banker friend. He even said several notices have been sent to flat owners in past 2 months & said that things will be even worse post Mar 31, 2011. Infact, he says that forget just house buyers, even the builders are on their list :D. And some builders have been asked to provide additional collateral against their loan as banks valuation dept feels that current collateral isn't sufficient enough in current times. The collateral is few flats + some land in these cases.

    * PS:- Those who defaulted had one thing in common:-

    EMIs were over 65-70% of their take home income .

    Btw, a plot having market price of 82L+ at Kothrud went under hammer this week for reserve price of 56L!! See the ad below. Auction was held this week.

    Man, if foreclosures increase.....we know what happened in US.
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  • IMPORTANT

    Pls check out my latest posts about the deteriorating global macro conditions on the 'stock advice' thread on this forum. Very important info.
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  • Originally Posted by heretic
    Pls check out my latest posts about the deteriorating global macro conditions on the 'stock advice' thread on this forum. Very important info.

    Reading the post. I would though request you to put the link directly to your post here so that even after some posts are posted on the thread, it will be easy for viewers to find the said one.
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  • Toppling their sand castles

    In a crackdown on sand mafia, it was discovered that builders are using political clout to avoid payment of octroi. Fines worth Rs 60 lakh were collected from lawbreakers

    The Pune Municipal Corporation (PMC) octroi department chief Hemant Nikam has sent out a warning to those who may be using political clout for evasion of sand mafia crimes. He has issued a statement saying this will not be tolerated and that those involved will have to face criminal action as well as cancellation of their permit and driving licence.

    On the backdrop of the brutal assassination and burning alive of additional collector Yashwant Sonawane on the issue of oil adulteration, the police department has started raids on the sand mafia, as well as the oil mafia.

    On Friday, Nikam confirmed that sand-supplier truck drivers use politicians’ names to avoid octroi and also gave information about fines collected.

    He said, “We have collected fines worth Rs 60 lakh from people who were avoiding octroi on sand within PMC limits. While collecting these fines, we found 18 builders who did not pay any octroi. We collected almost Rs 46 lakh from these builders. The octroi department took action on 300 trucks.”

    From the Shevalwadi octroi post, which is situated in Hadapsar area, a large amount of illegal sand supply takes place by avoiding octroi. The octroi department has decided to file cases against such truck drivers and owners.

    Besides that, PMC officials seized trucks and provided information to the Regional Transport Office (RTO) and requested them to cancel the permits.

    Here is the link for the story:-

    Toppling their sand castles, News - City - Pune Mirror,Pune Mirror
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  • Found this link somewhere about our future-PM-hopeful Rahul Gandhi...

    http://en.wikipedia.org/wiki/Rahul_Gandhi#Swiss_bank_account
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  • Everybody kindly read this post..even if a little long one--part1

    Dear all,

    recently i recieved a mail from a navi mumbai broker which he is using to lure
    customers ,kindly read into it and pls tell me a fitting reply to it so as i can stop him from luring customers on false promises.

    ************************************************
    Here is an insight into Real Estate Investing.
    At the outset, let me make some disclosures:



      Since I deal in Real Estate, there would be a slight bias towards this investment.
      Quite a few persons who would be reading this have either bought or have shown interest in buying real estate and this could be construed as a ‘business promotion’. However, persons who have invested through us have made annual returns of between 45 – 85 % after our brokerage. Not one client has lost money or has seen the value of their property fall below their purchase price.
      My primary area of operation is in Navi Mumbai and in some parts of Mumbai. I am not referring to property in places other than these, simply because I do not know the prices and trends there.
      It is my opinion that in Mumbai, no real estate is available at a cost that is lesser than that available 3 or 5 years back, inspite of the deep recession that took place in 07 – 09.
      This mail is quite long as there are some calculations, etc, but I’m sure that understanding the funda behind it would be immensely beneficial.
      Assumptions:

        The first investment is made in 2005 to take advantage of CIF (Cost Inflation Factor) already known.
        Though the investment cycle could be 3 years (to avail of long term capital gains), we assume a cycle of 5 years to give 2 years for the construction of the property.
        We assume the property prices go up by 10% a year on an average.
        Loan is availed at 9% per annum. The amount of interest paid is calculated on the complete loan amount for all 5 years, though the amount would reduce every year.
        80% of the property value is paid by loan.
        Except for the down payment, no other money is invested. The entire profit is used for down payment in subsequent investments.



        o Stamp duty / registration / brokerage is not taken into account to keep the calculations simple. This would bring down the profit amount, however, it will also increase the loan amount.
        o Rental income and society outgoings have not been considered in the calculations to keep things simple.

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