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 mamol
    defeat in khadakwasala is bcoz congress internally never supported NCP candidate, the loss is khadakwasala will force AP (Deputy CM) to make compro and will force to have alias with congress in pune and PCMC elections.

    The new BJP MLA, Tapkir does have some RE interest in this area. The Preyeja City off Sinhagad road has his stake. He also had relations with Sable builder too.

    Btw, the farmers from whom land was forcefully acquired by Pawar & Co. for Nanded City are supporters of Shiv Sena. Now having a MLA who is not in favor of Supriya bai sule (local MP as this area falls in Baramati constituency), is not good for Nanded City. In coming PMC elections, if NCP looses (which is of high probability), & Nanded City area comes in PMC area, then Nanded City chaps had it :D.

    All in all, Tapkir as BJP MLA is not good more Nanded City.

    * PS:- Several NCP candidates who were in fray for tickets like Kumar Gosavi, Vikas Dangat, Bartakke were sad that they didn't get the ticket. The supporters of several NCP corporators in this area didn't work & Congress didn't participate either (though there strength is negligible in this area).

    Btw, for these elections, Tapkir was roaming around in Black Tata Aria alongwith a white scorpio. In his election affidavit though, he has mentioned that he owns a black accent only :D :bab (34):.
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  • Some Updates

    After credit rating agency downgraded SBI, Govt is going to infuse INR 5,000-8,000 Cr !! This had made me think how big the NPA portfolio of SBI must be. Just 2 yrs ago, SBI had cash surplus of over INR 30,000 Cr. Now where has this all gone ?? Hope something similar to US banks doesn't happen with SBI.

    ----------------------------------------

    In other Pune RE news, Paranajpe Schemes has modified their project of Forest Trails, Bhugaon. Earlier there were only bungalows/twin bungalows. Now they have added apartments too !! Imagine what the chap who bought at Forest Trails must be thinking after hearing news of apartment right near his bungalow !! The buyers already spent around INR 1.2 Cr to buy a house which is not in livable area of now & add to it they now have flats too.

    Now I wonder how the buyers here would be able to enjoy stuff like horse riding & all as it maybe shared by flat owners too, making less horses & more houses :D.

    Earlier Blue Ridge & now Forest Trails...............Paranjape has become Goel Ganga Phase 2 :D.
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  • Reserve Bank of India warns of another global financial crisis

    Reserve Bank of India (RBI) has warned of another financial crisis brewing, as global liquidity becomes a concern amidst central banks pegging their lending rates at near zero levels, leaving scope for another asset bubble to take down the global financial system.

    "There is, thus, incontrovertible evidence that there is yet again a huge under-pricing of risks in the financial system and, therefore, it is not a question of if, but when, the generic asset bubble caused by manifold increases in balance sheets of central banks will burst," said RBI, executive director, VK Sharma in his address in Singapore on 'Identifying Systemic Risks in the Global Markets - Lessons Learnt from the Crisis'.

    Source : - Reserve Bank of India warns of another global financial crisis - The Economic Times
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  • Originally Posted by realacres
    After credit rating agency downgraded SBI, Govt is going to infuse INR 5,000-8,000 Cr !! This had made me think how big the NPA portfolio of SBI must be. Just 2 yrs ago, SBI had cash surplus of over INR 30,000 Cr. Now where has this all gone ?? Hope something similar to US banks doesn't happen with SBI.
    .


    Why the hell Govt has to give money to SBI and why not SBI asks the builders to pay their money back

    Firstly the builders suck our blood by charging high rates and Govt does nothing to control the market.

    Secondly isstead of asking these parasites to retrun the money they give the tax payers money to these goons!!

    All in all the common man takes the beating over and over

    Can anyone explain??
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  • No one can explain buddy.
    You are perfectly true.
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  • SBI hikes home loan tenure to 30 years

    There is some good news for home loan borrowers, with the State Bank of India increasing loan tenures by 10 more years.
    Other banks are expected to follow suit.
    Banks normally keep the equated monthly instalment on home loans intact and extend tenure to pass on the rate increase.
    SBI has allowed stretching the loan repayment tenure to a maximum of 30 years as interest rates have risen by 250-300 basis points in the past year and a half.



    SBI hikes home loan tenure to 30 years - Rediff.com Business
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  • Whats the point ? The interest component will recalculated and it will be more burden for the loan takers.
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  • This will work in favor of banks only. Customer will be hardly benefited. For 20 year tenure we pay interest equal to our loan amount for 30 years you can imagine the ratio for principle: interest. If banks are so concerned about the home buyers burden ask to payback builders their loan first.
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  • Originally Posted by Dipti
    This will work in favor of banks only. Customer will be hardly benefited. For 20 year tenure we pay interest equal to our loan amount for 30 years you can imagine the ratio for principle: interest. If banks are so concerned about the home buyers burden ask to payback builders their loan first.


    30 year loan means principal to interest ratio will be around 30:70 and 1st quarter of loan amount will be paid off in 17-18 years. One should not go for this big loan tenure, 10-15 yr loan is ideal.
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  • Originally Posted by UncleScrooge
    30 year loan means principal to interest ratio will be around 30:70 and 1st quarter of loan amount will be paid off in 17-18 years. One should not go for this big loan tenure, 10-15 yr loan is ideal.


    this is simply to catch new bakaras... now builders will not ask the question non what is your budget? instead they will ask, *how much you can afford monthly"? and then on paper will show that the EMI falls in your budget .. :bab (34):

    Nobody will care to explain the overall picture.. we need to see it ourselves...

    JAAGO GRAHAK JAAGO
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  • Japan had 90 and 100 year loans at one point, so there's a lot of scope for growth here.
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  • Originally Posted by amitjj
    Japan had 90 and 100 year loans at one point, so there's a lot of scope for growth here.


    :)..good one...but Japanese people have a longer life expectancy than us. So.....does that mean my next 2 generations will end up paying for my loan....
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  • U.S. rating likely to be downgraded again: Merrill

    By Walter Brandimarte | Reuters – 11 hrs ago



    NEW YORK (Reuters) - The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.
    The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.
    A second downgrade -- either from Moody's or Fitch -- would follow Standard & Poor's downgrade in August on concerns about the government's budget deficit and rising debt burden. A second loss of the country's top credit rating would be an additional blow to the sluggish U.S. economy, Merrill said.


    http://news.yahoo.com/u-rating-likely-downgraded-again-merrill-165346478.html
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  • Another rbi rate hike

    Originally Posted by punerebuyer
    this is simply to catch new bakaras... now builders will not ask the question non what is your budget? instead they will ask, *how much you can afford monthly"? and then on paper will show that the EMI falls in your budget .. :bab (34):

    Nobody will care to explain the overall picture.. we need to see it ourselves...

    JAAGO GRAHAK JAAGO


    OOOps -another rate hike rom RBI due -in the news today. Cant imagine the EMis ????
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  • RBI hikes repo rate by 25 bps to 8.50%

    Originally Posted by kumarm77
    OOOps -another rate hike rom RBI due -in the news today. Cant imagine the EMis ????


    The Reserve Bank of India (RBI) has raised the benchmark interest rates by quarter of a percent point on Tuesday, while keeping cash reserve ratio (CRR) rate unchanged at 6%.

    Meanwhile, the adjusted reverse repo now stands at 7.5%.

    The rate hike was not taken too well by the market, giving up thier early morning gains.
    The RBI has also revised down its growth forecast for the fiscal year ending in March to 7.6% from 8% with a downside bias earlier, while sticking with its forecast that headline wholesale price index inflation will ease to 7% at the end of the fiscal year.
    The likelihood of a rate move at its December review is "relatively low," the RBI said in a statement.

    "Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted," it said.

    The RBI under Governor Duvvuri Subbarao has been one of the most aggressive central banks anywhere and has continued to take its fight to inflation even as its global counterparts like Brazil, China, Malaysia and Philippines have refocused monetary policy towards promoting growth.

    It has also deregulated savings bank interest rates with immediate effect. Savings bank account rate will be linked with the policy rate at which the central bank lends short-term funds to commercial banks.

    Accordingly, each bank will offer uniform rate on savings bank upto Rs 1 lakh. Banks may provide differential rates on savings bank over Rs 1 lakh.

    RBI's policy rate hikes at a glance:

    Date
    Reverse Repo
    Repo
    October 25, 2011
    25 (7.50)
    25 (8.50)
    September 16, 2011
    25 (7.25)
    25 (8.25)
    July 26, 2011
    50 (7.00)
    50 (8.00)
    June 16, 2011
    25 (6.50)
    25 (7.50)
    May 03, 2011
    50 (6.25)
    50 (7.25)
    March 17, 2011
    25 (5.75)*
    25 (6.75)
    January 25, 2011
    25 (5.50)
    25 (6.50)
    November 02, 2010
    25 (5.25)
    25 (6.25)
    September 02, 2010
    50 (4.75)
    25 (6.00)
    August 27, 2010
    50 (4.25)
    25 (5.75)
    August 02, 2010
    25 (4.00)
    25 (5.50)
    April 20, 2010
    25 (3.75)
    25 (5.25)
    March 19, 2010
    25 (3.50)
    25 (5.00)

    *The bracketed figures show Reverse repo and repo in percentage term.
    Moreover, to increase secondary market liquidity in the government bond market and interest rate derivative market (interest rate swaps or IRS), RBI has decided to set up a working committee comprising various stakeholders to enhance liquidity.
    This measure would help make those debt instruments more attractive and banks could trade in a bigger way in those markets, which are still not so active in India.

    Source - Credit Policy: RBI hikes repo rate by 25 bps to 8.50%
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