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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  • Is its better following US istyle ??

    More confusion for New RE buyer :)

    To practice caution is always wiser .... not in small decisions or risks but huge ones like buying a house.....
    And what I found most of the senior members are just saying that.

    But generally we ignore and hate such approaches like adolescent who resists his parents and well wishers advices.

    Thats perfectly fine as thats the phase of life .. we being adolescent in RE.

    Lets compare a matured market to a childish market in Financial and credit approach.

    For Everything we are following US culture RIGHT...
    Levis to Mac Donald to KFC.....
    Even most of us work for US firm.
    Then why not follow US culture in RE????????
    In US the Bank Norm....as below

    Year------ Avg. Home Price Rate------ Interest Payment as % of income
    2006------ 1.06Cr------ 6.58------ 23.2
    2007------ 1.04CR------ 6.52------ 21.6
    2008------ 94.3Lakh------ 6.15------ 18.5
    2009------ 83.9Lakh------ 5.24------ 15.4

    And now Home Price to Income ratio stands at 3.
    So they can buy a house 3 times their annual salary :(



    Those who wish to open the excel
    ]http://www.realtor.org/wps/wcm/connect/437c9f80401b12f7aa2eff205f470b6e/REL0909A.XLS?MOD=AJPERES&CACHEID=437c9f80401b12f7aa2eff205f470b6e


    Now why are we going ahead by buying a 30L house which is almost 7 to 8 times average income considering 4L as average income?????

    Heard of bonded laborers in History??? Isn't it that in making?


    Now why are we going ahead by buying a 30L house which is almost 7 to 8 times average income considering 4L as average income?????

    Heard of bonded laborers in History??? Isn't it that in making?
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  • Originally Posted by Venkytalks
    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.

    Venkat


    Worked everything else out in my head. Couldn't figure out how rental inflation starts running away? We've never had a rental yield over an average 6% ever, haven't we? Are you suggesting rental yield will climb to 10+%?
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  • Originally Posted by frugality

    Heard of bonded laborers in History??? Isn't it that in making?


    There is a difference the Zamindars and Munims are nowdays called Corporates and Financial Institutions (Builders and Banks) :D

    The GUNDAS are nowdays called Recovery Agents. :p

    The BAKRA remains the same. ;)

    Vk
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  • Originally Posted by veeemkay
    There is a difference the Munims are nowdays called Corporates and Financial Institutions (Banks and Builders) :D

    The GUNDAS are nowdays called Recovery Agents. :p

    The BAKRA remains the same. ;)

    Vk


    ha ha....too good....3 good...4 good :D Very true !
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  • Originally Posted by aaj123
    Have to say that this is the most ridiculous bit of economic reasoning I have ever heard!

    Well, are you the same RE bull aaj of R2i? Anyways, let me clarify:-

    1.) The low ROI for home loans is extended upto Mar 10. What you need to see that this is a clear indication that post Mar 10, ROI will go up. These low ROI is valid for only 2-3 years after which you need to pay current ROIs prevailing at that time. If we consider that the loan duration is 10-15 years, you need to calculate the implications for another 7-12 years too.

    2.) Banks could afford low ROI due to large liquidity. If deposit rates goes down, people would withdraw money from banks & invest elsewhere. This means less funds for bank meaning that the banks can't lend with ease. This is what is access to credit being blocked.

    GO through history, & you will find that the moment deposit rates have dropped, so have the total deposits.

    The logic is simple:- The more you have, more can you give else, it's 'than than gopal!':D

    Originally Posted by veeemkay
    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. :)

    Agree with you. The only thing which people should know is that whether they are spending for their own or for the builder or due to peer pressure. People become happy when the price of their assets go up (though it doesn't make much difference in actual) & unhappy when assets price go down.
    Some of my friends have already bought property in Bangalore, Ahmedabad & Nagpur as the property prices really came down to logical levels.

    What one needs to understand is whether he is paying is indeed VFM & does the buyer has financial muscle to sustain EMIs for not 2-3 years but for entire tenure of the loan. What we are doing is simple:- Just expose the builders' lies & tricks. Now, whether to fall for it or not is individuals decision.
    Till then, keep shortlisting & if you do get good deal (less price & ready poss/completion guarantee) then go ahead like those of my friends who did in other cities:). However, I am still -ve about Pune RE is general.
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  • Originally Posted by veeemkay
    There is a difference the Zamindars and Munims are nowdays called Corporates and Financial Institutions (Builders and Banks) :D

    The GUNDAS are nowdays called Recovery Agents. :p

    The BAKRA remains the same. ;)

    Vk

    LoL:D:DToo good man.
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  • LOL, good one buddy

    :)

    Originally Posted by veeemkay
    There is a difference the Zamindars and Munims are nowdays called Corporates and Financial Institutions (Builders and Banks) :D

    The GUNDAS are nowdays called Recovery Agents. :p

    The BAKRA remains the same. ;)

    Vk
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  • Originally Posted by realacres
    ]http://www.indianexpress.com/news/regulating-realty/538312/0


    The article states

    Says Kumar Gera, chairman of Credai: “Today, when states are liberalising their policies, this Bill will take the real estate sector back to the licensing raj. More regulation will lead to operational delays and cost escalations that will make real estate more expensive for home buyers. The Bill might prove detrimental for the development of the country’s already-overregulated realty sector.”

    ha ha ha ha ha LOL..:D:D "overregulated realty sector." ha ha ha
    Maybe true but who follows these regulations.... e.g. Parking is not supposed to be sold... but every builder is selling car parking.

    "overregulated realty sector." my foot.

    VK
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  • Shoe treatment required

    Originally Posted by veeemkay

    "overregulated realty sector."


    Mr Gera needs Shoe treatment like Mr George Bush and PC.
    :D:D
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  • No bubble in the housing sector, says Assocham

    ]http://business.rediff.com/report/2009/nov/10/no-bubble-in-the-housing-sector-says-assocham.htm
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  • Regulation

    Everybody knows most builders inflate built up area, sell parking. But, what is written in agreement is only carpet area. Isn't it a big failure if it was already over-regulated as being claimed?

    Anyway, if regulation has loop holes which can be used by feeding to officials, then its purpose is defeated.

    Regulation rules should be for compulsory showing complete truth, not to encourage license raj.

    I wish some day flats should be sold online like shares trading. And specifications checklist, inventory should become available online there.
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  • Originally Posted by amit3011
    Mr Gera needs Shoe treatment like Mr George Bush and PC.
    :D:D



    Couldnt agree more. The bloody builders are trying every trick in the book to stymie the regulation bill.
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  • Originally Posted by amit3011
    Mr Gera needs Shoe treatment like Mr George Bush and PC.
    :D:D

    These builders' have hippos skin, shoe won't make much difference to them & hence he should be fired by Canon:D. Better he complete his projects at Baner & Kharadi & IT projects at Vimanagar. Anyways, relax, this is a sign of frustration of the builders. They will bark, bark, bark & later say they 'shoe'd away a thief:p, like lallu jain did post repeal of ULCA.
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