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 stoxxx
    Only thing is last time when I bought people told me exactly same things and I am glad I didn't listen. Otherwise I would still be on the forum wishing for an RE crash.


    People will always say that but understand one thing...

    You bought because you could afford to buy AND were convinced that what you bought (house) was worth the money you spent.

    This needs to be an AND condition and as long as that can meet (its different from person to person), one can buy... folks on the forum will always present a lot of views from a lot of angles regarding the same situation.
    CommentQuote
  • Originally Posted by punerebuyer
    People will always say that but understand one thing...

    You bought because you could afford to buy AND were convinced that what you bought (house) was worth the money you spent.

    This needs to be an AND condition and as long as that can meet (its different from person to person), one can buy... folks on the forum will always present a lot of views from a lot of angles regarding the same situation.


    That's exactly my view buy if you can afford and if you feel if it is worth.

    Generally spreading bearish or bullish sentiments is pointless.
    CommentQuote
  • Simple ...

    Originally Posted by stoxxx
    What does a bear make money from RE correction? Can you please care to explain.

    'Timing' seems to have hurt someone.

    Anyway as I said personally my RE requirements are fulfilled so I don't care either way. Only thing is last time when I bought people told me exactly same things and I am glad I didn't listen. Otherwise I would still be on the forum wishing for an RE crash.



    A bull makes money because his sale price is greater than his purchase price.

    A bear makes money because his purchase price is lesser than his sale price!:D

    If this sounds stupid and disingenuous, its simply because people don't understand that the bear first sells, then he covers by buying!!!

    But to come to the point in case of RE, the successful bear "makes" money by avoiding spending the money in the first place. Here, "a penny saved is a penny earned" applies.

    In the case of a loan a bear saves (or earns) even more because he avoids paying the builder money while also avoids paying the banker money on the money borrowed (interest).

    Simply trying to clarify how bears make money!

    cheers
    CommentQuote
  • Originally Posted by wiseman
    A bull makes money because his sale price is greater than his purchase price.

    A bear makes money because his purchase price is lesser than his sale price!:D

    If this sounds stupid and disingenuous, its simply because people don't understand that the bear first sells, then he covers by buying!!!

    But to come to the point in case of RE, the successful bear "makes" money by avoiding spending the money in the first place. Here, "a penny saved is a penny earned" applies.

    In the case of a loan a bear saves (or earns) even more because he avoids paying the builder money while also avoids paying the banker money on the money borrowed (interest).

    Simply trying to clarify how bears make money!

    cheers


    LOL....the problem is these kind of 'do nothing' bears dont buy even at the 'correct' time....as they feel the prices could go down further very difficult to catch the bottom and secondly 'not doing' becomes second nature and they become comfortable with that.

    A typical common man has a goal in life for house. Once that house is affordable and they feel it is worth they go and buy without getting in to too much of analysis paralysis and comparing house prices with Huston, melbourne, Hong Kong, London or Dubai. And generally in long term it works.
    CommentQuote
  • Trying to fit bears into your impression of one!

    Originally Posted by stoxxx
    LOL....the problem is these kind of 'do nothing' bears dont buy even at the 'correct' time....as they feel the prices could go down further very difficult to catch the bottom and secondly 'not doing' becomes second nature and they become comfortable with that.

    A typical common man has a goal in life for house. Once that house is affordable and they feel it is worth they go and buy without getting in to too much of analysis paralysis and comparing house prices with Huston, melbourne, Hong Kong, London or Dubai. And generally in long term it works.



    Firstly, bears are not do nothing. They are doing something. Waiting. Only thing is, its not the kind of thing you are doing, buying. So you think, since they do not fit your model, they are doing nothing!

    Besides, by branding them as "do nothing" you are trying to create an impression that they are wastrels! Far from it! The urge to brand the "other guy" as no good generally does not reflect well on yourself - advertiseing industry has proven this long ago!

    Secondly, because something has not happened in the last 10-15 years is no indication that it will not happen in the next 5. If you have read and understood Taleb at all, the simple example of the Turkey ...

    which assumes after 999 days of regular feeding that it is guaranteed that on the 1000th day it will get fed at the appointed time; only to find too late that, on that fateful day, instead of feeding it the owner iswaiting with a sharp knife to feast upon it ...

    means you can never write off the fact that home prices can and eventually will revert to an affordable price (not made affordable by banking tricks but truly affordable).

    We may not be in this situation yet, but the US shows clearly that, in times of massive blow-off booms based on artificial catalysts, price levels revert back to the pre-boom levels on a nominal basis. So, a guy who held off buying in 2005 actually could probably buy anywhere from 50% to even 90% off after 6 years!!! Far more affordable than they ever imagined possible only 6 years ago! :)

    And if we do actually see a deep, protracted depression in Western countries lasting 5-7 years and a steep decline in trade coupled with crippling, widespread wars all over, you can be quite sure that RE prices could very easily come down 50% or more even here! Can you rule out this possibility, given that it is already under way?! After all, you yourself argued that big hot money flow from declining Western countries have made RE gains large in Asian countries. Remember, this is a double-edged sword. When this money returns back in a hurry - and in times of global crisis it always does - you will see all that rise evaporate away much faster than it rose!

    In addition if oil is to rise and stay up in the $150 to $200 range for 6 months to an year and you will see things getting much worse in the domestic economy than you can imagine!

    So the bears may yet prove your statement true. Get their homes at an "affordable" price! Don't rule them out yet, simply because the global crisis is only getting worse and not better.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Firstly, bears are not do nothing. They are doing something. Waiting. Only thing is, its not the kind of thing you are doing, buying. So you think, since they do not fit your model, they are doing nothing!

    Besides, by branding them as "do nothing" you are trying to create an impression that they are wastrels! Far from it! The urge to brand the "other guy" as no good generally does not reflect well on yourself - advertiseing industry has proven this long ago!

    Secondly, because something has not happened in the last 10-15 years is no indication that it will not happen in the next 5. If you have read and understood Taleb at all, the simple example of the Turkey ...

    which assumes after 999 days of regular feeding that it is guaranteed that on the 1000th day it will get fed at the appointed time; only to find too late that, on that fateful day, instead of feeding it the owner iswaiting with a sharp knife to feast upon it ...

    means you can never write off the fact that home prices can and eventually will revert to an affordable price (not made affordable by banking tricks but truly affordable).

    We may not be in this situation yet, but the US shows clearly that, in times of massive blow-off booms based on artificial catalysts, price levels revert back to the pre-boom levels on a nominal basis. So, a guy who held off buying in 2005 actually could probably buy anywhere from 50% to even 90% off after 6 years!!! Far more affordable than they ever imagined possible only 6 years ago! :)

    And if we do actually see a deep, protracted depression in Western countries lasting 5-7 years and a steep decline in trade coupled with crippling, widespread wars all over, you can be quite sure that RE prices could very easily come down 50% or more even here! Can you rule out this possibility, given that it is already under way?! After all, you yourself argued that big hot money flow from declining Western countries have made RE gains large in Asian countries. Remember, this is a double-edged sword. When this money returns back in a hurry - and in times of global crisis it always does - you will see all that rise evaporate away much faster than it rose!

    In addition if oil is to rise and stay up in the $150 to $200 range for 6 months to an year and you will see things getting much worse in the domestic economy than you can imagine!

    So the bears may yet prove your statement true. Get their homes at an "affordable" price! Don't rule them out yet, simply because the global crisis is only getting worse and not better.

    cheers



    Well said,wiseman.

    In the shipping industry where i work,we dot see any improvement in company's finances,salaries have not risen for past 2-3 years and with the recent increase in oil prices ,many shipowners are taking drastic measures.
    CommentQuote
  • Well, after today’s US unemployment report of 9.2% lot of economist has reduced the second half GDP forecast. In fact now white house has officially accepted the fragile recovery & unemployment situation. Euro zone is creating terror in global economy by sending shocking news of defaults. Are we in recession? NO(theoretically). But underlying weakness is still intact.

    Lot of analyst has reduced the IT companies’ earning estimates. If one has read the news carefully, another round of layoffs is going to start from Sept to March. We are not living in a isolated world today, the externalities can have catastrophic effect.
    CommentQuote
  • Pune consumer group accuses builder of fraud

    Published: Saturday, Jul 9, 2011, 0:02 IST
    | Place: Pune | Agency: 3dsyndication

    The city-based Akhil Bharathiya Grahak Panchayat (ABGP) will lead a group of aggrieved apartment buyers in a protest demonstration against local real estate developer, Trishul Builders, in Koregaon Park on July 10.

    In a press conference held in the city on Thursday, ABGP advisor Vijay Sagar claimed that the developer had allegedly cheated hundreds of flat buyers and failed to deliver their houses at the Shalini Lakeview project in Undri, despite taking money from them.

    Sagar said that close to 500 customers had been denied possession of their flats in the developer’s Undri project. “These customers had paid down payments and have continued paying the EMIs with the belief that they will have the possession of their flats in March 2011, as per the promise made to them,” he said.

    The consumer forum plans to file a case against Trishul Builders before the national commission in New Delhi. Meanwhile, the flat buyers have formed an ad hoc committee.

    According to Sagar, the under construction building in Undri was demolished by the government authorities on December 25, 2010, as the land belonged to the Pune zilla parishad since 1978.

    One of the flat buyers, Razak Shaikh, told DNA that they had not been informed about the demolition by the builder. “We read about it in the newspaper. If the land had legal issues, then how can they sell apartments to us?” Shaikh said.

    The flat buyers also said that the police had not paid heed to their complaints. Vijay Shroff, who had booked a 2 BHK apartment said, “We went to the Abhiruchi police chowki, Haveli police station and Kondhwa police station and they did not register a first information report (FIR).”:o

    Some of the flat buyers who were present at the press conference also said that a few cheques paid by Trishul Builders had bounced. “Not only did the cheques bounce, the builder offered us flats in their new site, named Shalini Heights Phase 2, on NIBM Road,” Shaikh said.

    When contacted on tele, Trishul Builders owner Hemant Buddhiwant denied all the allegations and termed it a conspiracy by rivals and politically driven people.:D

    Buddhiwant said, “We are fighting a case in the high court regarding the Shalini Lake plot. The demolition came as a shock to us, as we had met with all the legalities before we purchased the plot.”

    He also denied that the flat purchasers had been kept in the dark. “Our clients were informed about all the proceedings. They are being misguided,” Buddhiwant said.

    According to Buddhiwant, the customers who had claimed their money had got it, while the rest had been asked to wait. “I have received only 15-20 complaints. Most of my clients have faith in us. The protestors have been influenced by our rivals,” he said.

    >> Btw, junk Sanjay Dutt:bab (45): is brand ambassador for this builder !!
    CommentQuote
  • More Exhibis

    In this month, 3 RE exhibis are being held, all showcasing East Pune properties.
    There are 2 exhibis by Times Of India/Magicbricks, while 1 is held by DNA featuring properties around NIBM road.

    Three exhibis in one month, all for East Pune. Any guesses why??
    CommentQuote
  • SBI hikes interest rates, home loan EMIs to go up

    As mentioned before, following on footsteps on several banks, SBI has also increased home loan interest rates by 0.25% w.e.f. 11 July, 2011. HDFC will now be next in line.

    NEW DELHI: Country's largest lender State Bank of India today increased lending rates by 25 basis points and raised deposit rates by up to 100 basis points, a move that will make home, auto and other loans more expensive, but will provide better returns to savers.

    Last week, besides ICICI Bank, other public sector lender Indian Overseas Bank, Corporation Bank and Dena Bank also hiked their base rate by 25 basis points each.

    While other banks have raised only the lending rates, SBI is the first bank to announce a hike in both lending and deposit rates.

    SBI hikes deposit rates by up to 1%, home loan EMIs to go up - Economic Times
    CommentQuote
  • Originally Posted by wiseman
    Firstly, bears are not do nothing. They are doing something. Waiting. Only thing is, its not the kind of thing you are doing, buying. So you think, since they do not fit your model, they are doing nothing!

    Besides, by branding them as "do nothing" you are trying to create an impression that they are wastrels! Far from it! The urge to brand the "other guy" as no good generally does not reflect well on yourself - advertiseing industry has proven this long ago!

    Secondly, because something has not happened in the last 10-15 years is no indication that it will not happen in the next 5. If you have read and understood Taleb at all, the simple example of the Turkey ...

    which assumes after 999 days of regular feeding that it is guaranteed that on the 1000th day it will get fed at the appointed time; only to find too late that, on that fateful day, instead of feeding it the owner iswaiting with a sharp knife to feast upon it ...

    means you can never write off the fact that home prices can and eventually will revert to an affordable price (not made affordable by banking tricks but truly affordable).

    We may not be in this situation yet, but the US shows clearly that, in times of massive blow-off booms based on artificial catalysts, price levels revert back to the pre-boom levels on a nominal basis. So, a guy who held off buying in 2005 actually could probably buy anywhere from 50% to even 90% off after 6 years!!! Far more affordable than they ever imagined possible only 6 years ago! :)

    And if we do actually see a deep, protracted depression in Western countries lasting 5-7 years and a steep decline in trade coupled with crippling, widespread wars all over, you can be quite sure that RE prices could very easily come down 50% or more even here! Can you rule out this possibility, given that it is already under way?! After all, you yourself argued that big hot money flow from declining Western countries have made RE gains large in Asian countries. Remember, this is a double-edged sword. When this money returns back in a hurry - and in times of global crisis it always does - you will see all that rise evaporate away much faster than it rose!

    In addition if oil is to rise and stay up in the $150 to $200 range for 6 months to an year and you will see things getting much worse in the domestic economy than you can imagine!

    So the bears may yet prove your statement true. Get their homes at an "affordable" price! Don't rule them out yet, simply because the global crisis is only getting worse and not better.

    cheers



    I am all fine for that. As I have said before if prices indeed come down then personally I'll buy bigger or better as there is no end to it. But my life does not depend on prices going lower neither it depends on prices going higher.

    What if whatever you say does not happen and I indeed put all my money on one horse 'house price crash'. Prices may be out of reach now but they will be out of question then. We'll have a generation of renters (which in itself not necessarily bad) who will never be able to buy. And this has happened and still happens in developed countries.

    In UK there is a forum called 'House Price Crash' forum. Those guys have been saying all what you say for past 10 years but are still waiting. Now the guys have changed their tack and instead of fall in nominal terms they are talking of fall in real terms. But that is insane as how many of common men would have invested in gold and other investments and how much. Many in past 10 years gave up as they lacked conviction because it is not easy for most to stand by your conviction against the trend. People who bought within their means without trying (hoping) to second guess the market have been happy and content.

    IMO inflation including assets price inflation is major factor and I wont try to bet against that.

    In fact with the current environment QE3 in whatever form or shape is most likely. This will lead to hyperinflation. If someone is expecting falls in nominal terms then they are partly expecting INR to hold its value or even increase it.

    So unless one has a way of protecting your money against inflation and in fact have been getting good returns it may be very difficult to buy if prices only come down marginally or stay stagnant or worse keep up with inflation.
    Also when you take loan in today's worth the loan also diminishes due to inflation.

    As I said in my humble view diversification, buying within my means and not trying to time can help than betting on one horse as none of us can predict how Mr Market will work.
    CommentQuote
  • Here is an alternative way to protect against inflation

    Originally Posted by stoxxx
    I am all fine for that. As I have said before if prices indeed come down then personally I'll buy bigger or better as there is no end to it. But my life does not depend on prices going lower neither it depends on prices going higher.

    As I said in my humble view diversification, buying within my means and not trying to time can help than betting on one horse as none of us can predict how Mr Market will work.


    Stoxxx,

    I had posted a little while ago where I proved that, for a 1.5C home, whether you start with a 15 lakh down payment and 1L EMI on the one hand OR put the same money initially and every month into FDs, the end result after 10 years is almost the same.

    In fact, in the case of cash-based savings, you feel cash rich every second of the way (while in the case of your home, you are constantly under threat of running out of cash) and anytime along the way, you have the cash to take opportunity when it comes along!

    The problem is, when a person is not forced to buy a home at prohibitive rates, he/she does not have the motivation to put the equivalent EMI money aside into saving. And this leads to comparing appl.es with golis.

    That does NOT mean there is no other alternative to buying a home as soon as possible, even if prices are too high and you don't have enough to pay for it as well as live a comfortable life.

    There is definitely an alternative to buying a home at too high a price, prematurely and suffering for 20 long years - which is really the prime of your life, every month wondering how to pay the EMI and not being able to venture out to do more interesting things in your life. The home, literally, consumes your life away in worry and concern.

    The problem is, our brainwashing in our younger years by family and later on by the marketing environment, places many of us into this hole and the only way to feel good about it is to believe that we did the best thing possible by going in for that too-expensive home.

    This is probably the only reason why, even at these exceptionally high and fairly unaffordable price levels, builders are still successful in enticing enough buyers to continue buying with the belief that prices never come down.

    I also suspect that most of the people touting homes even at these ridiculous rates have bought some time ago at lower prices and are much more comfortable with lower EMIs and a price cushion on their homes. People who have bought in the last 3 years will see very small equity in their homes because interest takes away over 90% of their EMIs. So, they will be far more vulnerable in a downturn when even a 10-15% decline will see their equity technically wiped out. If, like the stock market, banks call margin money when equity is wiped out due to declines, most home owners (called home debtors elsewhere) will be in a precarious position. Never underestimate the dangers of debt, especially massive debt of the home type! :)

    I am willing to wait another 5-7 years to prove this to myself one way or another. I might remind you that I made an extraordinary amount of money in the 1985-2007 period being an out-and-out bull. Now, seeing how a massive and long-drawn economic contraction coming up ahead globally, it only makes sense to not assume we are the only country going to be super-bullish in a bearish world. And therefore not get into large debt positions with the double danger of interest rate hikes as well as loss in income possibilities creating a potentially very dangerous personal economic situation for me.

    If home prices move up further, so be it, since I would have also got a larger amount in cash to pay down. If, on the other hand, they do go down, I can, theoretically pay down even 100% of the home and feel much safer and cash rich too! Win-win both ways! And in today's dangerous economic climate, cash is king and being cash rich and temporarily putting off debt is being very prudent!

    Meanwhile, I'm not sitting on my hands. I'm putting effort to make my savings work at extraordinary rates of return to be prepared to buy RE whenever it gives me an extraordinary opportunity!

    From mid-2006 this has been my Mantra ...
    Eliminate Debt ... Stash the Cash ... Buy Gold

    Then ... Home Loan rates were 7.5% floating, Gold was $590 per ounce

    Now ... Home Loan rates are 11%(?) floating, Gold is $1545 per ounce

    ... enough said (as Stoxxx would say :))

    I have been correct so far. Now for the final thing to go my way ... RE prices to either stagnate and find a bottom OR dip in the coming 3-5 years, while Gold rises to higher levels. Then, I would think we are in the right position again for a switch!!!

    But thats only me and I don't expect most people to break tradition and try out something new! :D

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Stoxxx,

    I had posted a little while ago where I proved that, for a 1.5C home, whether you start with a 15 lakh down payment and 1L EMI on the one hand OR put the same money initially and every month into FDs, the end result after 10 years is almost the same.

    In fact, in the case of cash-based savings, you feel cash rich every second of the way (while in the case of your home, you are constantly under threat of running out of cash) and anytime along the way, you have the cash to take opportunity when it comes along!

    The problem is, when a person is not forced to buy a home at prohibitive rates, he/she does not have the motivation to put the equivalent EMI money aside into saving. And this leads to comparing appl.es with golis.

    That does NOT mean there is no other alternative to buying a home as soon as possible, even if prices are too high and you don't have enough to pay for it as well as live a comfortable life.

    There is definitely an alternative to buying a home at too high a price, prematurely and suffering for 20 long years - which is really the prime of your life, every month wondering how to pay the EMI and not being able to venture out to do more interesting things in your life. The home, literally, consumes your life away in worry and concern.

    The problem is, our brainwashing in our younger years by family and later on by the marketing environment, places many of us into this hole and the only way to feel good about it is to believe that we did the best thing possible by going in for that too-expensive home.

    This is probably the only reason why, even at these exceptionally high and fairly unaffordable price levels, builders are still successful in enticing enough buyers to continue buying with the belief that prices never come down.

    I also suspect that most of the people touting homes even at these ridiculous rates have bought some time ago at lower prices and are much more comfortable with lower EMIs and a price cushion on their homes. People who have bought in the last 3 years will see very small equity in their homes because interest takes away over 90% of their EMIs. So, they will be far more vulnerable in a downturn when even a 10-15% decline will see their equity technically wiped out. If, like the stock market, banks call margin money when equity is wiped out due to declines, most home owners (called home debtors elsewhere) will be in a precarious position. Never underestimate the dangers of debt, especially massive debt of the home type! :)

    I am willing to wait another 5-7 years to prove this to myself one way or another. I might remind you that I made an extraordinary amount of money in the 1985-2007 period being an out-and-out bull. Now, seeing how a massive and long-drawn economic contraction coming up ahead globally, it only makes sense to not assume we are the only country going to be super-bullish in a bearish world. And therefore not get into large debt positions with the double danger of interest rate hikes as well as loss in income possibilities creating a potentially very dangerous personal economic situation for me.

    If home prices move up further, so be it, since I would have also got a larger amount in cash to pay down. If, on the other hand, they do go down, I can, theoretically pay down even 100% of the home and feel much safer and cash rich too! Win-win both ways! And in today's dangerous economic climate, cash is king and being cash rich and temporarily putting off debt is being very prudent!

    Meanwhile, I'm not sitting on my hands. I'm putting effort to make my savings work at extraordinary rates of return to be prepared to buy RE whenever it gives me an extraordinary opportunity!

    From mid-2006 this has been my Mantra ...
    Eliminate Debt ... Stash the Cash ... Buy Gold

    Then ... Home Loan rates were 7.5% floating, Gold was $590 per ounce

    Now ... Home Loan rates are 11%(?) floating, Gold is $1545 per ounce

    ... enough said (as Stoxxx would say :))

    I have been correct so far. Now for the final thing to go my way ... RE prices to either stagnate and find a bottom OR dip in the coming 3-5 years, while Gold rises to higher levels. Then, I would think we are in the right position again for a switch!!!

    But thats only me and I don't expect most people to break tradition and try out something new! :D

    cheers


    For most part we are saying the same thing.

    You have enough probably far far more than enough dosh for you to really matter the prices going one way or other.

    Many others are not in that situation. With the steps you have taken, for you the RE prices are already falling in real terms. This would not be the case for common man (not trying to underestimate anyone).

    And these people get caught in the whirlwind of reading selective text and misleading themselves about impending price collapse. As you said most would not have the discipline to put aside and invest EMI equivalent into something that would provide enough returns and build requisite capital.
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  • I think it makes sense to anticipate an EMI much before one's RE purchase and save that regularly. That will help in two ways:
    a) It will help you in deciding how much of EMI is affordable, without affecting your standard of living.
    b) It will build a corpus fund, which will help in down payment for your RE purchase.

    I have started recently to do the above. It helps in thinking even if I purchase a RE property, I will not get a pinch later on from EMI.
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  • Originally Posted by wiseman
    Stoxxx,

    The problem is, when a person is not forced to buy a home at prohibitive rates, he/she does not have the motivation to put the equivalent EMI money aside into saving.


    The problem is, our brainwashing in our younger years by family and later on by the marketing environment, places many of us into this hole and the only way to feel good about it is to believe that we did the best thing possible by going in for that too-expensive home.


    cheers


    Actually the elders and society which pressures youngters to buy a flat early, in the 20s and 30s are doing them a favour.

    The best way to force a person to save is to cut an EMI from his paycheck. Otherwise youngsters will blow up the money. I have seen it repeatedly. Happens to me too - the more money you have in the bank, the less you save.

    10 years ago, I was frenetically active in stock market chasing the smallest of return with my tiny capital. Now I have much more capital but the eagerness to squeeze out a return is just not there. Bank interest chalega is the attitude. And then the temptations to blow up money come.

    Having 10L sitting in the bank is the best way to ensure that you buy that LED TV for 60,000 or an i-pad/p-hone/mac/air/whatever for 40,000 each. Youngsters today have many more avenues to blow up money.

    The best way to make them save is by appealing to their greed - tell them " you will double your money in 3 years with a flat booking" and it awakens their greed and they plonk down their money - and then are trapped into saving by building home equity through an EMI for the next 15 years.

    Without this, almost all will blow up their money. Including me.

    If a person is going to be totally rational and logical and systematic and rule following - then and only then is my own prescription of "buy at 40 years with 50% downpayment and <25% salary take home as EMI" applicable.

    For an unmarried youngster, a flat booking is the best way to tie down his big paycheck before he blows it up on gadgets or foreign trips or cars or bikes - all deptreciating assets - especially foreign trip which depreciates to zero in a few days.
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