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 realacres
    Yes, this is what we (so called bears) were saying from earlier.
    It will be now atleast 12-12.25% floating rates & 14.5-15% fixed rates for home loans with 25-30% downpayment.

    Calculate the savings/month & the total amount paid for the flat at the end of the loan tenure. One will easily end up paying over a crore for a flat worth 50L whose real value is not over 25L !!


    I totally agree, but will IT guys with 10+ year experience (or NRIs or IT couples coming back from onsite) understand this fact? When will they understand that society should be balanced, otherwise the rich people will suffer most because of the crime. I know many IT people, who get shocked if their house maid increases the salary by 100 Rs/month and they expect atleast 10% hike from the company. But they will be ready to pay 50L to builder so that builder can buy BMW car but house maid doesn't get 100 Rs extra for food for her children.
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  • Culture clash

    Originally Posted by BlotJab
    I totally agree, but will IT guys with 10+ year experience (or NRIs or IT couples coming back from onsite) understand this fact? When will they understand that society should be balanced, otherwise the rich people will suffer most because of the crime. I know many IT people, who get shocked if their house maid increases the salary by 100 Rs/month and they expect atleast 10% hike from the company. But they will be ready to pay 50L to builder so that builder can buy BMW car but house maid doesn't get 100 Rs extra for food for her children.



    When 50-year old Kanjoosi sot Indian outlook (not raising maid by Rs 100 even) is fused with American outlook, the result will be current IT/NRI outlook!

    cheers
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  • Originally Posted by realacres
    Yes, this is what we (so called bears) were saying from earlier.
    It will be now atleast 12-12.25% floating rates & 14.5-15% fixed rates for home loans with 25-30% downpayment.

    Calculate the savings/month & the total amount paid for the flat at the end of the loan tenure. One will easily end up paying over a crore for a flat worth 50L whose real value is not over 25L !!





    Why RBI is so frantic in hiking interest rates UP!!
    Naive souls will see this as to cool down inflation to help AAM AADMI,but then this line of thought has been originated by media!!!
    I think RBI is very very nervous about something which it is unable to rectify ,even after spending most of its gunpowder in form of high interest rates!!!
    Situation looks similar to me when in USA (around 2004-2006) greenspan hiked interest rates to stave off a growing bubble in almost everything,but even then could not do anything about it......
    Looks like RBI has realized ,rather late that bubble has grown out of there fighting capability and they are now frantically shooting there peashooter to bring down the goliath...............
    however i think Goliath while going down ,will take with itself indian banks and indian economy.

    Let's wait and watch all the while being in safe FD'S!!!!!
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  • Originally Posted by realacres
    C'mon man, don't give that lame duck logic everytime. Time & again we have shown how the sales have dipped, stamp duty reduced by over 70% in one year & still you say demand vs logic. If this is the case, the prices should have dipped by 50% already !!

    You forget everytime that the real reason why builders were able to hike rates post 2009 is due to the TEASER RATES of the banks, who were hand-in-glove with the builders. Now, as the banks too can't do anything, they are staring at large scale NPAs in RE sector. It is this reason why no banker is publicly telling their exposure to RE sector.


    all your narratives are good....looking at your posts for past howsoever many years I can see you have said it all along.....meanwhile RE just keep growing...


    I'll believe the correction when I see it....for now I can see people (whether end users or black money hoarders) still booking...
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  • Originally Posted by realacres
    Yes, this is what we (so called bears) were saying from earlier.
    It will be now atleast 12-12.25% floating rates & 14.5-15% fixed rates for home loans with 25-30% downpayment.

    Calculate the savings/month & the total amount paid for the flat at the end of the loan tenure. One will easily end up paying over a crore for a flat worth 50L whose real value is not over 25L !!


    If we just our perspective a little then what's the value of Rupee....RBI and our politicians have let the inflation run too far too fast and so it is not the value of RE going up but the intrinsic value of Re going down as well....
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  • Credai view on rate Hike

    CREDAI on Tuesday said the RBI's decision to hike key policy rates will hurt both home buyers and developers badly, as the cost of borrowing will go up, leading to an increase in housing prices.

    The Confederation ofReal Estate Developers' Association ofIndia (Credai) said the RBI's move to tighten liquidity to control inflation was "not appropriate" and the apex bank should rather take measures to address supply side constraints.

    "The move has come as a surprise to us. We were expecting a moderate hike of 25 basis points, but hiking rates by 50 basis points is going to dampen the growth," CREDAI ChairmanPradeep Jain said. He is also Chairman ofParsvnath Developers.

    Property prices bound to go up after RBI rate hike: CREDAI - The Economic Times
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  • Dumb, dumber and CREDAI

    Originally Posted by mamol
    CREDAI on Tuesday said the RBI's decision to hike key policy rates will hurt both home buyers and developers badly, as the cost of borrowing will go up, leading to an increase in housing prices.

    The Confederation ofReal Estate Developers' Association ofIndia (Credai) said the RBI's move to tighten liquidity to control inflation was "not appropriate" and the apex bank should rather take measures to address supply side constraints.

    "The move has come as a surprise to us. We were expecting a moderate hike of 25 basis points, but hiking rates by 50 basis points is going to dampen the growth," CREDAI ChairmanPradeep Jain said. He is also Chairman ofParsvnath Developers.

    Property prices bound to go up after RBI rate hike: CREDAI - The Economic Times



    CREDAI is telling us what everyone knows!

    But the thing to ponder about is, why was not CREDAI telling the builders NOT to raise prices, which is the biggest issue in all this!? :D

    cheers
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  • Originally Posted by mamol

    "The move has come as a surprise to us. We were expecting a moderate hike of 25 basis points, but hiking rates by 50 basis points is going to dampen the growth," CREDAI ChairmanPradeep Jain said.


    What that translates is "We aren't getting enough suckers at already high prices, and this will make us charge exorbitant prices for the utter crap buildings we have built at crappiest of locations."

    Only growth it is going to dampen is the builders. I am glad no body of significance (i.e. RBI) takes them seriously.
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  • you expect headline news that we are in recession

    Originally Posted by stoxxx
    If we just our perspective a little then what's the value of Rupee....RBI and our politicians have let the inflation run too far too fast and so it is not the value of RE going up but the intrinsic value of Re going down as well....


    you expect headline news that we are in recession , that is not going to happen , we are in recession and there are very good deals to be had if you go after them , this is what I am getting

    1) Borivali (e) 800 sqft carpet area older building (1996) 80 lacs easily beat him down to 76 lacs .. ( 1600 rs maintenance) but building Secretary told me that 2 yrs down the line they are going into redevelopment , so i had to walk away ,

    2) Charkop , kandivali (w) 820 built up , new building 5 yrs old , 70 lacs negotiable , lady was leaving for UK (atleast that is what she said) loan with ICICI bank , just made her an offer 60 lacs she counter offered 62 lacs , now with the rbi news i can renegotiate my offer but it is on the 7th floor so i am not interested and this is mumbai i am talking about , nobody is going to say that prices have come down it will happen in the background and before you know prices will start going up:bab (6):
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  • Originally Posted by shashankgujjar
    you expect headline news that we are in recession , that is not going to happen , we are in recession and there are very good deals to be had if you go after them , this is what I am getting

    1) Borivali (e) 800 sqft carpet area older building (1996) 80 lacs easily beat him down to 76 lacs .. ( 1600 rs maintenance) but building Secretary told me that 2 yrs down the line they are going into redevelopment , so i had to walk away ,

    2) Charkop , kandivali (w) 820 built up , new building 5 yrs old , 70 lacs negotiable , lady was leaving for UK (atleast that is what she said) loan with ICICI bank , just made her an offer 60 lacs she counter offered 62 lacs , now with the rbi news i can renegotiate my offer but it is on the 7th floor so i am not interested and this is mumbai i am talking about , nobody is going to say that prices have come down it will happen in the background and before you know prices will start going up:bab (6):


    I have to say that I agree completely with your comments.
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  • Originally Posted by BlotJab
    I totally agree, but will IT guys with 10+ year experience (or NRIs or IT couples coming back from onsite) understand this fact? When will they understand that society should be balanced, otherwise the rich people will suffer most because of the crime. I know many IT people, who get shocked if their house maid increases the salary by 100 Rs/month and they expect atleast 10% hike from the company. But they will be ready to pay 50L to builder so that builder can buy BMW car but house maid doesn't get 100 Rs extra for food for her children.

    Yes. We people bargain with maid, vegetable seller, many street-side sellers for 5 to 10 Rs. but favor builders and do not bother to pay much much more than the project deserve.
    Because the sales person there are wearing suit and tie and speak fluent english and empties your pocket even before you know it. And we still have smile on our face. :bab (59):
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  • Originally Posted by wiseman
    CREDAI is telling us what everyone knows!

    But the thing to ponder about is, why was not CREDAI telling the builders NOT to raise prices, which is the biggest issue in all this!? :D

    cheers


    What!! Say that again!!! CREDAI is made up of builders, so why will they tell the builders to not raise prices. Instead they are the ones who told the builders to raise the prices and decrease the quality of materials.
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  • kalpataru gardens II

    Originally Posted by amolsw
    Yes. We people bargain with maid, vegetable seller, many street-side sellers for 5 to 10 Rs. but favor builders and do not bother to pay much much more than the project deserve.
    Because the sales person there are wearing suit and tie and speak fluent english and empties your pocket even before you know it. And we still have smile on our face. :bab (59):


    I called Kalpataru sales office after news of it being in dispute and the sales guy cooly said " We will take care of it " pls do not worry about that problem and i am thinking to myself sales people will stoop to very low level to get a sale and he knows that once the sale is done nothing can be done by the buyer and also Kalpataru increased the rate to 9800/sqft

    Hiranandani heritage jan 2009 -- 9 K -- Jan 2010 -- 11k and now 16.5 k
    and i think are there enuff suckers out there , or am i the only sucker:bab (38):
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  • Originally Posted by amolsw
    Yes. We people bargain with maid, vegetable seller, many street-side sellers for 5 to 10 Rs. but favor builders and do not bother to pay much much more than the project deserve.
    Because the sales person there are wearing suit and tie and speak fluent english and empties your pocket even before you know it. And we still have smile on our face. :bab (59):


    demand v supply.......in Mumbai maid will not turn up next day if you even hint bargaining for 10 Rs etc....

    We bargain everywhere....it is a matter of what markets we operate in....when RE markets are down I remember builders and their people calling and making offers to offload their properties....
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  • bargaining is not for weak-heart -- jigar chiye

    Originally Posted by stoxxx
    demand v supply.......in Mumbai maid will not turn up next day if you even hint bargaining for 10 Rs etc....

    We bargain everywhere....it is a matter of what markets we operate in....when RE markets are down I remember builders and their people calling and making offers to offload their properties....


    bargaining is not for weak-heart -- jigar chiye boss .. even if the maid does not turn up .. you should be able to pick up the pocha and clean house , hey what is wrong in that , with technology for washing clothes you dont need a maid , for cleaning the floors it can be a week end chore one should spend money on services which one cannot perform , like if the spark plug or the water pump is broken ( car) the pay the mechanic again each to himself , but that is what i think and always be ready to walk away from a deal be it maid , car or house
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