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?

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  • I am little hopeful of RE prices going *really* going down enough to help domestic buyers :(

    By 2011, RE guys *might have* made sales to answer banks knocking on their doors.

    Although whats happening in RE market today is sheer looting(IMO). Your project is under construction; you have nto laid pipe line for water yet, you don't show your customer (prospective buyer) site but show sample flat, your sales people just sit silent in front of prospective buyer expecting him/her to ask questions RATHER sales people proactively marketing project, non negotiable tone...I wish there was union of IT professionals like there is builder group who could collectively boycott these bullies.
  • ]

    One more Bank cutting Home loan till March'2010 no home loan rate hike would be expected from any of the Bank...similarly I think RE prices will remain firm till that time

    One more Bank cutting Home loan till March'2010 no home loan rate hike would be expected from any of the Bank...similarly I think RE prices will remain firm till that time
  • Low ROI for deposits, low deposits

    If the deposit rates have been cut, it means one thing:- Funds are going to get expensive for banks coz people will now invest in other options like bonds, post, NHAI etc. Low deposits means less amount for banks to lend, leading to further tightening of credit.
  • Originally Posted by realacres
    If the deposit rates have been cut, it means one thing:- Funds are going to get expensive for banks coz people will now invest in other options like bonds, post, NHAI etc. Low deposits means less amount for banks to lend, leading to further tightening of credit.

    I think Bank reduce deposit rate when they have lots of money lying in their kitty which will lead to high NPA for them, so once Deposit rate has gone down,so also credit rate as well both retail (Home loan, car loan & personal loan) & even institutional credit (SME loan etc)....Same has been seen in the mkt as well...Car loans are still available from Bank at meager 8-9% that was the reason for record sell in auto sector in last quat....

    So, I think otherwise...Loans rate will further going down or remain at the same rate for at least till march '2010 (same has been seen as most of the PSU banks announced their 8% loan scheme extended till march'2010 & even private banks Axis banks also offering home loan at around 8-8.5%)...I feel now senior ppls started misleading ppls with their so called financial knowledge....
  • Fixed deposite rates like to go up -

    However, =""]home loan borrowers may escape from the pressures of high borrowing costs as the RBI is understood to be looking at supporting the sector. There are reports that banks are likely to increase the allocation towards priority sector lending and property loans could =""]account for a bigger chunk. That could negate the ill effects of rising borrowing costs and should help the customer base in a big way.

    NRIs interested in the real estate sector -
  • No Blame

    Senioer folks on this forum shared their knowledges and feedback based on their observation. This might have somehow influenced the thinking of some buyers. But you also need to consider that, even they can not predict the situation and fate. Till Diwali eveyone was thinking that, they will be price drop as not much sell transaction happened.
    But banks came to resuce to provide breather to buyers by extending the cheap loan and breather in a way to builders( as they can also hold the price and buyers will definately come in next 4 month).

    My perspective on this complete scenario is that, As job scene is looking optimistic and so the salary, there will be increase in potential of buyers, now it depends what route(Rent/Own Home/Own Car) most of the buyers take. Banks is holding the cheap loan till March 10, it may of may not extend it beyond. If it extends the cheap loan beyond Mar10 then there won't be any price fall and by the time bank removes this cheap loan, there will not be any change in price.
    Currently banks are providing the cheap loans by compensating on deposit rates which they can easily continue till end of 2010. And there will not be situation like 2007 nor 2008 in coming years. Prices will be almost stagnant and even if there is price change, it will be based and limited to the locality and project.
    At the end of the day, It all depeneds on invidijual buyer who earns and spends for his purpose. He should be felt comfortable with rates, quality of home. Buyers also need to consider the new Tax Code which will remove the home loan premium component from exemption. It will affect us in muach larger extent.
  • Originally Posted by realacres
    If the deposit rates have been cut, it means one thing:- Funds are going to get expensive for banks coz people will now invest in other options like bonds, post, NHAI etc. Low deposits means less amount for banks to lend, leading to further tightening of credit.

    Have to say that this is the most ridiculous bit of economic reasoning I have ever heard!
  • Money where your mouth is!

    Come on guys, let's vote on this one:

    RE by end of 2010, a year from now:

    1. Razer: +20% :)
  • 2. Venkat

    2010 March +20% from today

    2010 Dec 0% to -10% from today
  • Originally Posted by realacres
    If the deposit rates have been cut, it means one thing:- Funds are going to get expensive for banks coz people will now invest in other options like bonds, post, NHAI etc. Low deposits means less amount for banks to lend, leading to further tightening of credit.

    Dont understand your post at all. Less home loan rate is favourable for RE market.
    Its different story that today affordability and risk of loosing the principal is what people are
    worried for more than what interest they pay.
  • Originally Posted by Venkytalks
    2. Venkat

    2010 March +20% from today

    2010 Dec 0% to -10% from today

    Agree Venkat,

    Difficult to put dates, but If asked, I would put the same.

    I will take it further.

    End of 2011 I expect -50% min. of todays rate.
    again, Irrespective where is stock market and home loan rates at that time.
  • Originally Posted by realacres
    If the deposit rates have been cut, it means one thing:- Funds are going to get expensive for banks coz people will now invest in other options like bonds, post, NHAI etc. Low deposits means less amount for banks to lend, leading to further tightening of credit.

    The point that I understand is that the bank might have excess liquidity i.e. they have more funds than they can give out and so do not need deposits. Hence the decrease in deposit rates. Once the liquidity is drained (could be because of any reason) then the rate would be increased again.

    So in a way the bank is trying to manage the liquidity themselves. I might be missing some more points here. Does anyone agree or disagree with the above? BTW where is the article that states that Deposit rates have been cut?
    And also since last year deposit rates have gone down almost 2 percent points.....

    The article below states that deposit rates might go up.



  • Originally Posted by tpshere
    I can surely say, its most infomative forum about the new RE developements in Pune. A genuine buyer, can get tips for locations, rates, builder reputation, alternate opportunities, negotiated rates etc. Great job guys!! Thanks to 'Senior Members'...

    Its OK to be speculative for 'investors', but for Genuine Buyers it is most confusing thing.

    Agreed I too use this forum from getting useful information about Builders manipulative ways that i need to be aware of. Opinions about properties and quality of constructions. Good Areas and problems in those areas.

    As long as buying is concerned I look at what people have to say but the decision will completely depend on what I feel about the market.

    From your post it seems you badly need a house for personal use. In that case you are the best judge of your situation (This is completely a personal choice and depends on every individual).

    If I had the resources I would negotiate a good deal and then settle in without considering if the prices are going to go up or down as it is for my personal end use. Even I want to buy an apartment but I will not take a huge loan for that. But if it is for investing / speculation I would not buy at this point in time. :)

    BTW I do not regard myself as senior member!! ;)

    I have taken an Education loan before and i know an outstanding loan remains in you mind all the time. Personally the feeling is not good. People are different and some people are perfectly fine with a loan. Just because there are 70 people out of 100 who are "HAPPY" taking loans and buying houses... I will not ne pushed to take a huge loan (i mention huge loan.. a small loan is still fine) to buy a house. As i know FOR ME the Mental agony of having a huge Loan on my head is worse that the Mental satisfaction of owning a house. So even if the prices are going to go up it does not make sense for me. Till that time i am RENTALLY and MENTALLY satisfied. :p

    Just my 2 paise. :D

  • I suppose this forum can be used as reference, as sometimes people do provide constructive feedback. Sometimes you will find builders agent starting thread and creating false +/- points and stressing +ve out of -ves. The way we do in interview when interviewer asks us to identify -ve points about ourselves.
    Some how I think usually people who got good deal they may not come back and take pain of writing their opinion.

    If I am really looking for house for living purpose then I would just go ahead and buy it instead of timing market. Only thing is instead of taking huge loans I would take minimal risk. As there will be another opportunites as overall market is volatile.

    About economic reasoning i dont thing anyone is wrong coz thats what everyone does, nobody can be for sure predict future. Otherwise we would have predicted 2000 and 08 falls. Those economic cycles are resultant of numerous factors.

    Let me share classice example. Peter Schiff is hedge fund guy he was predicting correctly in 2007 that US mortgage/subprime market is going to crash. And he was shouting on all major news channels. Everyone was writing him off on CNBC and FOX news. And he was not ignored by just TV analyst but people like Arthur Laffer (Economic advisor to Regan). You can find these clips on youtube. BUT ironically same guy was down more than 60% IN 08-09, he did beat market but in wrong way. Becuase he knew what is going to happen but he did not find way out, he was just bullish on commodities.

    So reasoning given by people should not be blamed as that could be one of the factor who knows.
    Dont underestimate economics its not 1+1=2, it can be 3 also.

    Disclaimer: Mine will be lowest IQ on economics :D. Coz most of my investments have gone sour.
  • More of my vague predictions continuing from above (Rajesh, my long term view is different from yours. But I also believe that nobody can predict the future and nobody should take a call on the market for more than 6 months and if you are wise, not even that)

    2. Venkat

    2010 March +20% from today

    2010 Dec 0% to -10% from today

    2011 Dec 0 to +10% from today

    2012 Dec +30% from today

    2015 Dec +200% from today

    2020 Dec +astronomical figure from today

    Basically I am predicting runaway essentials inflation, luxury deflation, a repeat of Depression for USA and a repeat of 1980s for India when Delhi RE buyers made a killing.

    I am also predicting long term rental inflation of enormous proportions.

    I would buy multiple small 2BHK (essential) than big 3-4 BHK (luxury). Nobody will have money for luxury in tough times.

    Housing still is a necessity at some levels after all. At lower price points, there will be price inelasticity.

    Those who have to rent 10 years from now and who are retired are going to cry, they will have to leave the metros.