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 rajtjrll
    Boltjab and Stoxx.....yaar paka diya tum dono ne milke....chaila...koi bhi thread kholo.....either bolt on stoxx....or stoxx on bolt....kitna chadhoge yaar ek dusre pe....get a life....
    stoxx ka to phir bhi thik hai...kabhi kabhi achhe post rahete hai....boltjab ne to hadd kar di hai ab....seems if in a month of so if builders didnt reduced the price....he may go norway style to exhaust the frustration....

    seems u both are out of job.:D

    aise posting karte karte yeah dono soon to become vetran members by posting as many as crap.....please stop this.....

    other can support me!!!!


    agree with you dude.... :bab (45):
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  • Originally Posted by bhuvang
    agree with you dude.... :bab (45):


    Nice, :). I too support you.
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  • Originally Posted by rajtjrll
    Boltjab and Stoxx.....yaar paka diya tum dono ne milke....chaila...koi bhi thread kholo.....either bolt on stoxx....or stoxx on bolt....kitna chadhoge yaar ek dusre pe....get a life....
    stoxx ka to phir bhi thik hai...kabhi kabhi achhe post rahete hai....boltjab ne to hadd kar di hai ab....seems if in a month of so if builders didnt reduced the price....he may go norway style to exhaust the frustration....

    seems u both are out of job.:D

    aise posting karte karte yeah dono soon to become vetran members by posting as many as crap.....please stop this.....

    other can support me!!!!


    stoxxx was ok till few days back. then we see a downward trend that bears hope to actually see in prop prices. Blot is more or less consistent.

    .... so if builders didnt reduced the price....he may go norway style :D :D
    can't stop laughing. :D
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  • Originally Posted by rajtjrll
    Boltjab and Stoxx.....yaar paka diya tum dono ne milke....chaila...koi bhi thread kholo.....either bolt on stoxx....or stoxx on bolt....kitna chadhoge yaar ek dusre pe....get a life....
    stoxx ka to phir bhi thik hai...kabhi kabhi achhe post rahete hai....boltjab ne to hadd kar di hai ab....seems if in a month of so if builders didnt reduced the price....he may go norway style to exhaust the frustration....

    seems u both are out of job.:D

    aise posting karte karte yeah dono soon to become vetran members by posting as many as crap.....please stop this.....

    other can support me!!!!


    Sorry :( . However do you think I am the only one who argues with "stoxxx"?
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  • Originally Posted by sunnyketkar
    25 lakhs house to 5 Cr. after 10 year means 35 % CAGR.
    It's highly impossible


    Hyper-inflation can make it possible.

    Dont rule out anything in this crazy situation - nobody can predict whether India becomes Zimbabwe or not.

    Unlikely, but not impossible
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  • Originally Posted by Venkytalks
    Hyper-inflation can make it possible.

    Dont rule out anything in this crazy situation - nobody can predict whether India becomes Zimbabwe or not.

    Unlikely, but not impossible


    Venky..

    If Hyperinflation ...then only real assets will be good..cash will become useless..

    Secondly..I would like to understand your views on Rs-$ equation. Few times you have mentioned that Rs will depriciate vs $ in long term. If US goes down...ideally Rs should appreciate vs $..but ur view is on contrary side..

    can u plz post ur argument over this?

    PS: Pardon my ignorance as I am just newbie in Economics
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  • Originally Posted by Venkytalks
    Hyper-inflation can make it possible.

    Dont rule out anything in this crazy situation - nobody can predict whether India becomes Zimbabwe or not.

    Unlikely, but not impossible


    Highly unlikely...
    Look at the current US debt situation....rupee is actually appreciating....gaining more value...
    and no sign of US $ improving....

    moreover EU concerns are alredy jolting the world economy....US goverment can be next Lehmen for 2011.....

    what will happen if rupee comes to 40 INR a $?
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  • Originally Posted by rajtjrll

    what will happen if rupee comes to 40 INR a $?


    nothing... this has happened already in 2007 when rupee was 38 for a dollar...
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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.


    Right Shashank, people believing in street-talk, hardly bother to check deal amount and registration.
    BTW Is this society in Daulat Nagar?

    I think Indian economy is heading towards, high-interests, appreciating Rupee and low growth.
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  • Originally Posted by punerebuyer
    nothing... this has happened already in 2007 when rupee was 38 for a dollar...


    Yuppss...and IT companies were shivering at tht point of time...Given IT has huge influence and acts as lubricant to the indian economy (folks full of "extra" money)...impact will be severe..

    But I am still looking for expected $-Rs equation in long term (2015, 2020, 2025) from veterans like Venky, Wisey, Sanjana, Rohit etc..
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  • Real estate – What does the future hold?

    Some interesting stuff here -

    BankBazaar | Real estate – What does the future hold?


    --cheers
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  • Originally Posted by compuwalah
    A good link for calculator tigers of buy vs rent

    Owning a property makes more sense than staying on rent - The Economic Times


    Why doesn't it surprise me that it appears on Economic Times pages (TOI-Let group.) The newspaper so profoundly pro-builder and rely heavily on full page advertising from the lobby. :)
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  • Originally Posted by compuwalah
    A good link for calculator tigers of buy vs rent

    Owning a property makes more sense than staying on rent - The Economic Times


    Anyway, excerpt from the link (self-contradicting):

    Thirdly, you need to watch out for artificially inflated real estate prices. If the real estate rates look artificially inflated, maybe you can wait for the market to cool before you go ahead and buy.

    And there, my friend lies the catch. Most of the real estate prices in Pune are artificially inflated, one way or the other.
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  • Originally Posted by monds
    Some interesting stuff here -

    BankBazaar | Real estate – What does the future hold?


    --cheers


    Good link monds.

    Gurgaon looks most badly hit. See the drop.
    Pune holding pretty good even now. Think it will improve in coming times.
    Chennai surprisingly going in positive direction.
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