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 :
  • Sometimes I wonder if these builders are living in a la la land...just spoke to PRA builders for East Avenue, Wagholi and apparently they've stopped pre launch 2600 as they've out sold and would now open launch at 2800-2900 in May June...
    CommentQuote
  • vikrum

    nothing wrong in part of builders as it is us common people only
    who keep on blowing bigger the speculative bubble by naively buying pre-launches till the bubble will burst.

    i stay in DELHI-NCR and have a couple of frnds in mumbai who ask me
    where to invest in NCR zone as they find prices not increasing in mumbai but foolishly think prices will keep on increasing in NCR region???

    now whom to blame....builders or speculators?????
    CommentQuote
  • 200 news and business tv channels, zillion plus internet forums, bi weekly dedicated pullouts in newspapers, 1 hr of discussion everyday at office and above all eyes searching for a house whereever you visit.

    Now with this kind of information and analysis bombarded one is sure to get confused.
    I am amused that nowadays everyone talks about "investments" no one looks at primary housing - a great start for the boom and then doom followed by gloom :D

    Anyways while these information has made our lives bit easier it has done more harm to an average person seeking his first home.

    A new tv ad is aired every hour which is focused on establishing the cost of antaacid nano pack at Rs 15 wow a whopping 15 times more than normal cost.

    This what these tv channels are doing with print media - they are shaping the minds towards are particular time frame.

    No one talks about the primary housing there - everyone is focused on "investment"
    No one says buy home with maximum cash from own funds - everyone is busy pushing home loans hard.

    A sure shot recipe for disaster for late comers - we have seen this in Japan, in US and we will witness it in India.

    Refrain from "investment" if your primary home is NOT fully paid - pay your first home first period then only you qualify for a second house.

    Don't fall pray to the sucker rallies

    rohit
    CommentQuote
  • Originally Posted by vatsalbajpai
    vikrum

    nothing wrong in part of builders as it is us common people only
    who keep on blowing bigger the speculative bubble by naively buying pre-launches till the bubble will burst.

    i stay in DELHI-NCR and have a couple of frnds in mumbai who ask me
    where to invest in NCR zone as they find prices not increasing in mumbai but foolishly think prices will keep on increasing in NCR region???

    now whom to blame....builders or speculators?????


    Quite possible...but don't you think that some builders might be speculating themselves in order to create this artificial demand? especially on inquiries.

    That's why this forum is a great tool to somewhat reduce the information asymmetry problem.
    CommentQuote
  • Originally Posted by rohit_warren
    200 news and business tv channels, zillion plus internet forums, bi weekly dedicated pullouts in newspapers, 1 hr of discussion everyday at office and above all eyes searching for a house whereever you visit.

    Now with this kind of information and analysis bombarded one is sure to get confused.
    I am amused that nowadays everyone talks about "investments" no one looks at primary housing - a great start for the boom and then doom followed by gloom :D

    Anyways while these information has made our lives bit easier it has done more harm to an average person seeking his first home.

    A new tv ad is aired every hour which is focused on establishing the cost of antaacid nano pack at Rs 15 wow a whopping 15 times more than normal cost.

    This what these tv channels are doing with print media - they are shaping the minds towards are particular time frame.

    No one talks about the primary housing there - everyone is focused on "investment"
    No one says buy home with maximum cash from own funds - everyone is busy pushing home loans hard.

    A sure shot recipe for disaster for late comers - we have seen this in Japan, in US and we will witness it in India.

    Refrain from "investment" if your primary home is NOT fully paid - pay your first home first period then only you qualify for a second house.

    Don't fall pray to the sucker rallies

    rohit


    Admire your very apt post Rohit.

    For some people housing is laughably now or never situation, even-if it means paying more than half of salary in EMI with zero savings :D

    Have seen some IT guys taking their job for granted when taking big-ticket long-term housing-loan and then sitting fearful on IT-bench. If economic-turns ugly, they will stand in front-lines seeking foreclosure/bail-out putting self/family in trouble :(
    CommentQuote
  • www.outlookindia.com | Pawar's Time Of Reckoning

    Slightly old article.. but how unfortunate for us that this man was our defence minister as well..
    CommentQuote
  • Originally Posted by Sharpj
    www.outlookindia.com | Pawar's Time Of Reckoning

    Slightly old article.. but how unfortunate for us that this man was our defence minister as well..


    Sad. 20 years on and nothing has changed. India shining is all superficial if the roots are in shambles.
    CommentQuote
  • My observation

    Originally Posted by vikRum

    That's why this forum is a great tool to somewhat reduce the information asymmetry problem.


    I live in Bangalore and commute 60 km to and fro to my workplace everyday and so it covers a large part of the city. Over past couple of months I have noticed that that there are increasingly commercial properties that have shut shop and not getting re occupied and the number of empty ones are increasing by day. And then there are many more that are being completed and ready to occupy but not filling in. It was pretty similar to 2007 when the price of property was increasing without co relation.

    Would be helpful to know what others see around them and what this can mean in coming months
    CommentQuote
  • Originally Posted by Useless
    I live in Bangalore and commute 60 km to and fro to my workplace everyday and so it covers a large part of the city. Over past couple of months I have noticed that that there are increasingly commercial properties that have shut shop and not getting re occupied and the number of empty ones are increasing by day. And then there are many more that are being completed and ready to occupy but not filling in. It was pretty similar to 2007 when the price of property was increasing without co relation.

    Would be helpful to know what others see around them and what this can mean in coming months


    I dont think this has anything to do with real estate. Its just realization of the businessmen that the area might not be very lucrative.
    CommentQuote
  • useless

    this is the trend everywhere.......
    i stay in delhi-ncr and there are 2 malls neraby my house (angel mega mall and one other) which are fully built from last 1 year but occupancy rate is only 20%.

    i remember in 2007 end i was in dubai for 3 months with my wife and whenever we go shopping to any mall , i always comment to her about deserted looking shops and how they are managing to stay afloat!!!!
    after one and half years ,dubai property crash happened!!!!!
    CommentQuote
  • Pre Launch Offer !!!!!!!!!!!!!

    Most real estate developers in the region are now launching their projects through dealers appointed by them. Even before the project is formally launched by the company, most of these dealers, manage to ‘sell’ the project, by hype and word-of mouth promotion. This ensures that the cost of each plot/ apartment/ house is also increased substantially, thereby creating an artificial boom in the market.

    By the time the real estate developer formally launches the project, prices rise 20- 30 per cent

    The Tribune, Chandigarh, India - Business
    CommentQuote
  • Long time no hear ...

    Originally Posted by harshalx
    I dont think this has anything to do with real estate. Its just realization of the businessmen that the area might not be very lucrative.


    Harsha,

    Long time since you posted! :)

    You are right about no direct bearing of declining business confidence on RE. But how about this ..

    Reduced occupancy (maybe) due to poor business could lead to reduced rentals, leading eventually to reduced property prices (if owners of commercial properties are over-leveraged and cannot support the gap between low occupancy incomes to high EMI payouts)?

    I think this is the basis for the ongoing commercial RE crashes in US, Dubai, etc. And may well be the reason for high prices to decline when economy goes for a small tumble?

    cheers
    CommentQuote
  • Originally Posted by vatsalbajpai
    u i always comment to her about deserted looking shops and how they are managing to stay afloat!!!!
    after one and half years ,dubai property crash happened!!!!!


    A depressed commercial real estate market & closure of businesses is the leading indicator of real estate slump. It’s not only RE slump but economic recession or correction. If there are no new businesses there will be no jobs, if there are no jobs, there will be less demand.

    Normally, the builder lease out the shops in mall. In 2008 DLF faced an issue, where the shop operators demanded 50% reduction in lease & many more vacated the shops. Just google out & you may get the old news.
    CommentQuote
  • Look at the ambience mall in gurgaon.

    The number of closed shops have increased there as well.......
    CommentQuote
  • this is not the phenomenon only in gurgaon or NCR
    this is happening throughout india......most of the places shops in shopping malls are not being run profitably however i am excepting kirana stores in the malls..................

    however peoples having shops in malls are carrying on with very less profit
    because of hope that things will turn tide in near future....which is slowly turning worse.....just a couple of gap-downs in the stock market/ congress losing in upcoming elections will lead to a substantial reduction in the hopes of people.......
    CommentQuote