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 Sharpj

    I don't know if we will survive another 5 years of UPA.. UPA 3 under Rahulji


    Sir ji, i don't know if i could survive even current 5 years of UPA-II if inflation continues like this.... :bab (38):
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  • Originally Posted by bhuvang
    Sir ji, i don't know if i could survive even current 5 years of UPA-II if inflation continues like this.... :bab (38):



    Same is the condition of 98% of the people of india under UPA-2.
    CommentQuote
  • Originally Posted by mymarji
    Thanks for the link. I also visited the other link mentioned in the article "Is your child going to inherit your home loan?" Link: Is your child going to inherit your home loan? - Indian Express

    That is scary part. Looks like we will be like the typical filmy mazdoor/farmer who keeps repaying his grandfathers loan to Zamindars.


    Truely spot on...!!!

    I hope people understand the intensity of it, it is serious.
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  • Separate Thread for Politics

    I request the mods to split this thread and start a new thread on politics and what we can do about it.

    It will be a very interesting and fruitful discussion and will probably help avoid the dilution of the original thread.

    My 2c.

    Regards
    Rahul
    CommentQuote
  • Originally Posted by rahulms
    I request the mods to split this thread and start a new thread on politics and what we can do about it.

    It will be a very interesting and fruitful discussion and will probably help avoid the dilution of the original thread.

    My 2c.

    Regards
    Rahul


    and even close this particular thread as all the rants suggest that RE Bull theory proved right all along. All the while people just tried proving as why the bullish trend cannot be sustained with umpteen theories/data and wat not. RE elephant kept moving while crows kept cawing. Interesting to read the initial posts and reflect upon why predictions went wrong. Only akssenti posts seems logical on looking back. Think wise people do not hang out long on this forum :)

    However one of the initial point has remained true over the past few years for Pune prices
    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.

    So no use saying Pune has bad roads, no metro, , hence I will not pay anything more than 2 K/psf say for Baner .
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  • I disagree, this is the right time for this thread. ;)

    Originally Posted by compuwalah
    and even close this particular thread as all the rants suggest that RE Bull theory proved right all along. All the while people just tried proving as why the bullish trend cannot be sustained with umpteen theories/data and wat not. RE elephant kept moving while crows kept cawing. Interesting to read the initial posts and reflect upon why predictions went wrong. Only akssenti posts seems logical on looking back. Think wise people do not hang out long on this forum :)

    However one of the initial point has remained true over the past few years for Pune prices
    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.

    So no use saying Pune has bad roads, no metro, , hence I will not pay anything more than 2 K/psf say for Baner .
    CommentQuote
  • 1.) Buy today, houses always increase in value in the long run.
    You got it right. There may be small softening here and there like 2009, but all in all they increase in value.

    2.) Renting is just wastage of money.
    Right again. Man. I would better have paid EMI since 2009 (with rates of 2500) and based on present valuation the apt would have been free (present rate 5K).

    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.
    Left to indviduals. But younger a person is , more likelyto spend money (also more the frustrations more chances you will spend money).
    An EMI on your head always makes you think twice before splurging.

    4.) There are great tax advantages to owning a house.
    You are right.

    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.
    You are genius. Pune RE is defied all charts put together. :)

    6.) A rental house provides good income. So, you can rent if you have purchased as investment.
    Yup. A 100 % gain in 3 years is not a bad investement.

    7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
    Again you are right.

    8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
    Correct.

    9.) House prices never fall at least in Pune.
    Ok. I kinda agree to that :)

    10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
    True. They may fall 10-15% or so at best (on back of 100% increase).

    11.) Prices will soften gradually, won't crash immediately.
    Right. Small correction "will" to "may".

    12.) The bubble prices were driven by supply and demand alone.
    Maybe.

    13.) There is lack of land.
    Maybe.

    14.) If you don't own, you'll live in a cheap neighborhood later.
    Right. You will see effect in years to come.

    15.) There's always someone predicting a real estate crash.
    How TRUE, yet irrelevant. Like this thread.

    16.) Local incomes justify the high prices.
    If you say so.

    17.) You have to live somewhere.
    CORRECT.

    18.) It's not a house, it's a home.
    Whatever you call it, as long as it make you happy :)

    19.) If you don't buy now, you'll never get another chance.
    WRONG. You will always get the chance to buy, but at different price level.

    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%.
    RIGHT. As seen in past few years, nothing has been seen bucking the trend. Would be interesting to see watch to Diwali.
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  • 14.) If you don't own, you'll live in a cheap neighborhood later.
    Right. You will see effect in years to come.


    oh really? if u have money enough to buy in good neighborhood where u r not worried abt inflation and interest rate while u r buying a house u can always buy in good neighborhood (resale or new one); this will hold true for all times. but if one is buying with stretched financial condition paying large emi and minimal savings then perhaps one is living 'cheap' life even though living in upscale neighborhood(even though its upscale only because property prices not becoz of bank balance :D)

    and this thread hold more relevance now than it had in 2009 especially for people who want to put 20% self contri and 80% loan:(
    CommentQuote
  • Originally Posted by compuwalah
    1.) Buy today, houses always increase in value in the long run.
    You got it right. There may be small softening here and there like 2009, but all in all they increase in value.
    ..................................
    .


    Good analysis for last 3 years of this thread.
    CommentQuote
  • I think the point is largely missed here. No one is suggesting to NEVER buy at any cost. If someone is suggesting that, I would ignore them and move on. What some people (termed as bears by some err... bulls) are suggesting is:

    1) Do you feel that that it is justified to put (invest is an incorrect word for the house bought for self use) your hard earned 50-70L into a flat where either or some of these are true:

    A. Quality of construction is not up to the satisfactory level (i.e. tiles/ fittings / paint / materials used are poor).
    B. Drinking water is not assured (Tankers/other means provided by builder)
    C. Roads/Approach roads are not complete, Area gets water logged every monsoon.
    D. No Street lights / Safety issues
    E. Location is in middle of nowhere, you spend a lot of time commuting for little things like grocery shopping
    F. No good schools in proximity

    This is a very personal decision, however, if one feels spending 50L+ on a place where one or most of the above factors are true is justified, they, by all means, should go ahead and buy it. It is your money, after all.

    The dilemma is, you can find a better place to live at a nominal rent in Pune, why would you go live in a area on the hope that things will be better in 5-10 years? (prime 5-10 years of your life if you are between 25-35 age group, I might add).

    To conclude the anti-rant, in a nutshell, if your finances are in order, if you feel that you are capable of buying a better place than you are currently renting, just go ahead and buy.

    Do not bet on future appreciations of your current property unless you are in business of buying and selling properties. When you climb the property ladder, the next property would be equally appreciated as your current one, and you won't really see any real life appreciations.
    CommentQuote
  • are we going the US way?

    Originally Posted by mymarji
    Thanks for the link. I also visited the other link mentioned in the article "Is your child going to inherit your home loan?" Link: Is your child going to inherit your home loan? - Indian Express

    That is scary part. Looks like we will be like the typical filmy mazdoor/farmer who keeps repaying his grandfathers loan to Zamindars.



    Even though RE is a conventional alternative investment, it used to be plots etc that people would invest in and that too for really long term of 7-15 years.

    Nowadays it has become the herd mentality to buy in underconstruction property and then sell it of within 6-8 months...irrespective of what rate you are buying at.

    my friends, cousins, aunties, my family doctor, doctor's son...everybody wants to churn money in underconstruction properties

    This is similar to the RE boom of the US...are we going in that direction too? if yes, then how long will this wave last? 2 years...5 years...10 years?
    CommentQuote
  • Events are bringing us to a turning point ...

    Originally Posted by rembrants
    Even though RE is a conventional alternative investment, it used to be plots etc that people would invest in and that too for really long term of 7-15 years.

    Nowadays it has become the herd mentality to buy in underconstruction property and then sell it of within 6-8 months...irrespective of what rate you are buying at.

    my friends, cousins, aunties, my family doctor, doctor's son...everybody wants to churn money in underconstruction properties

    This is similar to the RE boom of the US...are we going in that direction too? if yes, then how long will this wave last? 2 years...5 years...10 years?



    This week, I really saw the effect of inflation. Usually buying vegetables on a daily basis, I went as usual and bought the daily quota that would come to, say, 50-60 bucks. The price yesterday was over 100 bucks. And this was not for fruits (which is at stratospheric levels) but vegetables.

    If a middle-class family spends well over 100 bucks for vegetables alone on a daily basis, our inflation rate is far, far above the 11% Govt is talking about.

    While most of the world is slumping down into what will turn out to be the worst depression we will see in out lifetime, inflation is completely killing the value of our money. Stagflation!

    Anecdotal evidence (Hong Kong, which had one of the very few growing RE market saw a 50% drop in sales last month and is slipping into recession. The Shipping Index is leading for a new low, lower than 2008 lows) is telling is that this time, not only will the slowdown be very steep, it will also last longer.

    Upto a point RE will go up as people get desperate and keep buying at ever higher rates thinking RE is the only hedge against inflation.

    But when job losses, salary cuts and interest rate hikes dramatically reduce the surplus in one's pocket, the EMIs become impossible to pay, especially when home prices start stagnating and sales decline sharply.

    This should happen sometime in the next 1-2 quarters. And when this happens the speculators who are churning homes will be finally stuck with all their "profits" locked into the last purchase heading into an illiquid market with no ability to pay up.

    This happened in 1995-98 and when the crash got going seriously, bubble areas saw declines of 50% to 80%. I was there and saw it happening.

    I expect similar trend this time too.

    Gold/Silver seems to have come back quickly to center stage (yesterday 28900) and seems poised to cross previous peak due to much worse global economic climate - one step away from economic collapse with no higher power to perform bailouts. This SIP averaging under all conditions is working very well indeed! :)

    cheers
    CommentQuote
  • Originally Posted by shahkushan
    I think the point is largely missed here. No one is suggesting to NEVER buy at any cost. If someone is suggesting that, I would ignore them and move on. What some people (termed as bears by some err... bulls) are suggesting is:

    1) Do you feel that that it is justified to put (invest is an incorrect word for the house bought for self use) your hard earned 50-70L into a flat where either or some of these are true:

    A. Quality of construction is not up to the satisfactory level (i.e. tiles/ fittings / paint / materials used are poor).
    B. Drinking water is not assured (Tankers/other means provided by builder)
    C. Roads/Approach roads are not complete, Area gets water logged every monsoon.
    D. No Street lights / Safety issues
    E. Location is in middle of nowhere, you spend a lot of time commuting for little things like grocery shopping
    F. No good schools in proximity

    This is a very personal decision, however, if one feels spending 50L+ on a place where one or most of the above factors are true is justified, they, by all means, should go ahead and buy it. It is your money, after all.

    The dilemma is, you can find a better place to live at a nominal rent in Pune, why would you go live in a area on the hope that things will be better in 5-10 years? (prime 5-10 years of your life if you are between 25-35 age group, I might add).

    To conclude the anti-rant, in a nutshell, if your finances are in order, if you feel that you are capable of buying a better place than you are currently renting, just go ahead and buy.

    Do not bet on future appreciations of your current property unless you are in business of buying and selling properties. When you climb the property ladder, the next property would be equally appreciated as your current one, and you won't really see any real life appreciations.



    Very well said..This is exactly how we should be thinking instead of just obsessing and going with the herd mentality of just owning a property at no matter what cost.The monthly cost associated with owning your own house should not be so high that you are always stressed out worrying about repaying installments and do away with your vacations for next 5 years.Add to that the increasing food inflation, every day cost of living and other sundry expenses.Also one should never assume your home of primary residence as investment coz no matter how much the value of the house increases you will never sell it but will definitely be paying very high installments for long years ahead.
    CommentQuote
  • Originally Posted by wiseman
    This week, I really saw the effect of inflation. Usually buying vegetables on a daily basis, I went as usual and bought the daily quota that would come to, say, 50-60 bucks. The price yesterday was over 100 bucks. And this was not for fruits (which is at stratospheric levels) but vegetables.

    If a middle-class family spends well over 100 bucks for vegetables alone on a daily basis, our inflation rate is far, far above the 11% Govt is talking about.

    While most of the world is slumping down into what will turn out to be the worst depression we will see in out lifetime, inflation is completely killing the value of our money. Stagflation!

    Anecdotal evidence (Hong Kong, which had one of the very few growing RE market saw a 50% drop in sales last month and is slipping into recession. The Shipping Index is leading for a new low, lower than 2008 lows) is telling is that this time, not only will the slowdown be very steep, it will also last longer.

    Upto a point RE will go up as people get desperate and keep buying at ever higher rates thinking RE is the only hedge against inflation.

    But when job losses, salary cuts and interest rate hikes dramatically reduce the surplus in one's pocket, the EMIs become impossible to pay, especially when home prices start stagnating and sales decline sharply.

    This should happen sometime in the next 1-2 quarters. And when this happens the speculators who are churning homes will be finally stuck with all their "profits" locked into the last purchase heading into an illiquid market with no ability to pay up.

    This happened in 1995-98 and when the crash got going seriously, bubble areas saw declines of 50% to 80%. I was there and saw it happening.

    I expect similar trend this time too.

    Gold/Silver seems to have come back quickly to center stage (yesterday 28900) and seems poised to cross previous peak due to much worse global economic climate - one step away from economic collapse with no higher power to perform bailouts. This SIP averaging under all conditions is working very well indeed! :)

    cheers

    As Usual, wise thoughts by wiseman. I wish you could enlighten the Gurgaon and NCR forum members.

    Investors in NCR seems to have lost all touch with reality and have turned into petty speculators playing booking game.

    Just visit any Gurgaon and Noida forum, people are still betting and speculating on projects that may not be livable for another 6-7 years.

    Everyone hopes to exit after doubling their money and pass on the this greedy batton to another gullible investor.

    Most of the real estate investors lock their entire capital into properties often supplementing it with leverage. A dangerous situation indeed.

    The property prices in Metros are beyond reach of most of target customers like IT/MNC crowd. So the majority of sale/resale is happening between speculators only.

    Some observations.
    Many colleagues in my company(A German Giant in Gurgaon) working at Lead/Architect role booked flats in Noida Extension.
    So even working in Gurgaon they were forced to buy in Noida that too in a area which would take another 6-7 years to be in-habitable.

    This speaks a lot about affordability of homes in Tier-1 City.
    CommentQuote
  • Originally Posted by wiseman
    This week, I really saw the effect of inflation. Usually buying vegetables on a daily basis, I went as usual and bought the daily quota that would come to, say, 50-60 bucks. The price yesterday was over 100 bucks. And this was not for fruits (which is at stratospheric levels) but vegetables.

    If a middle-class family spends well over 100 bucks for vegetables alone on a daily basis, our inflation rate is far, far above the 11% Govt is talking about.

    While most of the world is slumping down into what will turn out to be the worst depression we will see in out lifetime, inflation is completely killing the value of our money. Stagflation!

    Anecdotal evidence (Hong Kong, which had one of the very few growing RE market saw a 50% drop in sales last month and is slipping into recession. The Shipping Index is leading for a new low, lower than 2008 lows) is telling is that this time, not only will the slowdown be very steep, it will also last longer.

    Upto a point RE will go up as people get desperate and keep buying at ever higher rates thinking RE is the only hedge against inflation.

    But when job losses, salary cuts and interest rate hikes dramatically reduce the surplus in one's pocket, the EMIs become impossible to pay, especially when home prices start stagnating and sales decline sharply.

    This should happen sometime in the next 1-2 quarters. And when this happens the speculators who are churning homes will be finally stuck with all their "profits" locked into the last purchase heading into an illiquid market with no ability to pay up.

    This happened in 1995-98 and when the crash got going seriously, bubble areas saw declines of 50% to 80%. I was there and saw it happening.

    I expect similar trend this time too.

    Gold/Silver seems to have come back quickly to center stage (yesterday 28900) and seems poised to cross previous peak due to much worse global economic climate - one step away from economic collapse with no higher power to perform bailouts. This SIP averaging under all conditions is working very well indeed! :)

    cheers

    +1 on this

    Real estate over long term(20-25 years) can never give good returns
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