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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Kudos to Anna for Jana Lokpal Bill .
    What happened to the Real Estate Regulatory Bill that was supposed to be discussed in monsoon session of Parliament ?
    CommentQuote
  • India banks fear rising bad loans

    India banks fear rising bad loans - FT.com
    CommentQuote
  • I am surprised, Pune doesnot figure in this list. Is pune builders are fair in their agreement clauses or its just because of their clout not in limelight...As far as i know a lot builders are putting the caluse that they can use additional FSI, they will have the control over the common area. no carpet area, possession dates, delay fines are not mentioned...
    A number of times, while dealing with agents , I told them that they will have to give photocopies of all the documents, agreement copy, before i give them a single rupess.I was ready to pay for the xerox copies...Many a times the agents informed me that i was the first such customer who is demanding that ...I think looking at the kind cribbings post this site has, looks like the buyers who even didn't demand these things from the builder are at fault. They are not only harming themselves but also the future buyers...
    CommentQuote


  • I am surprised, Pune doesnot figure in this list. Is pune builders are fair in their agreement clauses or its just because of their clout not in limelight...As far as i know a lot builders are putting the caluse that they can use additional FSI, they will have the control over the common area. no carpet area, possession dates, delay fines are not mentioned...
    A number of times, while dealing with agents , I told them that they will have to give photocopies of all the documents, agreement copy, before i give them a single rupess.I was ready to pay for the xerox copies...Many a times the agents informed me that i was the first such customer who is demanding that ...I think looking at the kind cribbings post this site has, looks like the buyers who even didn't demand these things from the builder are at fault. They are not only harming themselves but also the future buyers...
    CommentQuote
  • Originally Posted by BlotJab
    Well... personal attacks, no problems....

    1) If I am stressed that it doesn't mean I am stressed due to RE sector. Yes I am stressed and I am honest to show my current status. - there you go, i just said u r stressed just as per your status, and wished well for you too!!!
    2) Don't be misunderstood that I am interested in RE sector. I don't invest in RE sector. - yeah these days its very expensive, out of reach of many.
    3) Recession and succession period is normal thing in economy, it is not like this that if people think recession is coming and it will come. It depends upon so many factors. Go get some basic economics books and read, you will get to know. - we all have your threads to read, they are full of knowledge....why to go and read some crap else where, when there are plenty of it here!!!!
    4) I don't know what do you show others about your current status, but by looking at your words I can say that you are afraid of recession. But my friend, economy works like this, had it not been the case then you would have never got job in India, no IT companies would have been started, America would have been untouched by global economy conditions, no outsourcing would have been happened. But it is not possible. - Yes I am, I am a very poor nri, even Obama is afraid of Recession, who in the earth would enjoy life without income, not even ramdev baba also.....

    5) What I said earlier that if majority of the money gets blocked with some few people then market gets short of money and this situation leads to recession. And this situations is bound to happen after every few years, that will not change whether people predict recession or not. - didnt understand this at all....money has been blocked by a few set of people from centuries...first mughals, then britishers, then gandhis, ambanis n tatas.....what does that has to do with recession....

    I hope you can understand the points, and you will think twice before making personal attacks.



    Yeah to baat baat mein bura maan jati hai yaar!!!
    :D
    CommentQuote
  • Originally Posted by fundoo158
    + to this.

    To much of negativity is also harmful. Back in 2009, even i got a bit biased becoz of this forum and missed a good deal.


    Such a big jolt to you and u still have time for this Forum....

    I wonderrrrrr ( Pehle kaun khareedega ......I wonder!!!:):))
    CommentQuote
  • Originally Posted by suryawork
    Kudos to Anna for Jana Lokpal Bill .
    What happened to the Real Estate Regulatory Bill that was supposed to be discussed in monsoon session of Parliament ?


    You yourself replied dude - SUPPOSED :D

    ye indian govt. hai mere bhai...
    CommentQuote
  • Originally Posted by rajtjrll
    Yeah to baat baat mein bura maan jati hai yaar!!!
    :D


    You are behaving like child...., commenting on my status, amateur comments at the end, personal attacking on my knowledge and you are just doing this because you don't agree with me on few points, especially related to economics. I could have made personal attacks on you (like I very well know what NRIs do, I have my batch mates from IIT who work outside India, but I don't want to go into this). Anyway, I thank you if you really wished that few things get changed in society so that I can come out of stressed state.
    CommentQuote
  • Hi Blotjab and rajtjrll,

    Enough guys.... cool down.... we are here to share our knowledge and views. Please don't go overboard and maintain the decorum of this forum.

    Just a request...:o
    CommentQuote
  • Guys be ready for more RE price rise ;)

    Outlook for tech spending getting darker



    FROM BAD TO WORSE
    Gartner also projects that IT spending will grow about 3 percent next year, below the current forecast for 5 percent growth, said Gartner analyst Richard Gordon.


    U.S. Navy shocked technology executives last month by quietly announcing it planned to cut its IT budget by a whopping 25 percent over five years.

    Outlook for tech spending getting darker - Yahoo! India Finance
    CommentQuote
  • Originally Posted by frugality
    Guys be ready for more RE price rise ;)

    Outlook for tech spending getting darker



    FROM BAD TO WORSE
    Gartner also projects that IT spending will grow about 3 percent next year, below the current forecast for 5 percent growth, said Gartner analyst Richard Gordon.


    U.S. Navy shocked technology executives last month by quietly announcing it planned to cut its IT budget by a whopping 25 percent over five years.

    Outlook for tech spending getting darker - Yahoo! India Finance



    Are you talking about IT folks who will be coming to market under stress with a price tag 25% above current market rates? :D

    Hope this bombshell by the Navy has more effect than the conventional bombs they keep dropping all the time in various parts of the world!

    Apotheker of HP looked at the future and saw such a bleak one that he is now selling all his existing businesses (not printers, etc) and buying up "cloud search" capability at ridiculous premiums. His mind is getting clouded over and he seems to really be in search of a way to get himself out of a mess that is HP!:D

    cheers
    CommentQuote
  • Originally Posted by plan2011
    If there is a strong lokapal bill, realty sector is worried....

    Read following news:

    Anti-corruption campaigns: Flow of unaccounted money from politicians, businessmen may get disrupted - The Economic Times



    I think realty sector has to enjoy, as few weeks back I was reading an article which says that a builder has to get lot of sanction before he can start the construction and have to pay bribe to many babus and that is 30%+ cost of the construction. So I think Jan Lokpal is also benefiting builders

    These are my views, Please comment.

    --Vivek
    CommentQuote
  • Originally Posted by vivek.cap
    I think realty sector has to enjoy, as few weeks back I was reading an article which says that a builder has to get lot of sanction before he can start the construction and have to pay bribe to many babus and that is 30%+ cost of the construction. So I think Jan Lokpal is also benefiting builders

    These are my views, Please comment.

    --Vivek


    Not just the babus but mainly the political power......the muscle power and then bribing all the way not only this increases cost but this also reduces cost in terms of getting building material without paying octroi, getting sand illegally at much lower price......etc......

    all in all huge profit margins:bab (35)::bab (35):
    CommentQuote
  • Originally Posted by wiseman


    Apotheker of HP looked at the future and saw such a bleak one that he is now selling all his existing businesses (not printers, etc) and buying up "cloud search" capability at ridiculous premiums. His mind is getting clouded over and he seems to really be in search of a way to get himself out of a mess that is HP!:D

    cheers


    Apotheker ran SAP's business to ground and then moved to HP. In the hindsight, it was a bad decision for HP to on board him instead of Todd Bradley who was the next in line. Apotheker understands a little about & services business. While at SAP, He tried to maximize profits by increasing maintenance fees to 22% and it hurt SAP a lot.

    HP had a good hardware market (the clearance sell of the touch pads has broken all records recently). It is just that they could not handle the after sales support well and decided to do away with it. Sad as they made some good server class products - along with some poor desktop class products.
    CommentQuote
  • Pre-Diwali real-estate launches dip by 50%

    Pre-Diwali real-estate launches dip by 50% - The Economic Times

    "The market situation is very different to that which existed at the same time last year. There are no buyers in the market. We have decided not to make any fresh launches as we do not see the situation improving in the next three months," said NK Patel, managing director of Sun Builders.

    "Mumbai and Kolkata will have the least new launches, followed by Hyderabad, Chennai and Pune. More launches are expected in NCR (National Capital Region) and Bangalore," says Limaye who is the head of research and real-estate intelligence services, of Jones Lang LaSalle (JLL), a property consulting firm that has a global presence.


    A Mumbai-based developer Usha Breco Realty, which witnessed a good pre-diwali season last year has just one project scheduled to be launched during September-October. "There is a lull expected in the demand for residential properties as compared to last year. Unsold inventory, hike in interest rates on lending to real-estate developers, rising home loan rates and increasing input costs are some of the main reasons for the lack of consumer confidence in this sector," says Uday Dharmadhikari, CEO, of the company.
    CommentQuote