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 kingmanish
    Ever since the rupee started depreciating there has been increased activity by the non resident Indian ( NRI) buyers as they pay in dollars. The benefits of the rupee depreciation, if added to the discounts being offered by developers, makes new homes in India cheaper by almost 30% in dollar terms. At the Dubai show, 70 companies including Unitech, Hiranandani Group, Vatika, Nirmal Lifestyle, Ansal Housing and Ireo showcased their 200 projects from Mumbai, Pune, Gurgaon and Ahmedabad.

    Full story

    NRIs home in as falling rupee makes realty cheap - The Economic Times


    Its true that bcoz of currency devaluation, House Prices are similar to 2009 Lowest levels in terms of dollar for some .. (e.g. USD went from 44 to 53 , SGD from 30 to 40 and AUD from 34 to 53) NRIs must be definitely smiling looking at the poor state of INR but this does not mean people are silly enough to go ahead and buy in India's Real estate. For self use people will buy now but India is no more a great place for investment and business.
    NRIs have an option to invest in their own country of residence too !! Prices are falling everywhere except India and there is nothing really Holy about India which would prevent it from correction. An entire industry cannot survive only on handfull of NRIs and few corrupt politicians ..
    Cheers :bab (4):
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  • Originally Posted by rogern
    Its true that bcoz of currency devaluation, House Prices are similar to 2009 Lowest levels in terms of dollar for some .. (e.g. USD went from 44 to 53 , SGD from 30 to 40 and AUD from 34 to 53) NRIs must be definitely smiling looking at the poor state of INR but this does not mean people are silly enough to go ahead and buy in India's Real estate. For self use people will buy now but India is no more a great place for investment and business.
    NRIs have an option to invest in their own country of residence too !! Prices are falling everywhere except India and there is nothing really Holy about India which would prevent it from correction. An entire industry cannot survive only on handfull of NRIs and few corrupt politicians ..
    Cheers :bab (4):


    True, the may find more value in their country of residence now as compared to India. Bangalore and Jaipur already have shown that it is no longer a good investment. Other cities will follow sooner or later.
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  • Originally Posted by kingmanish
    Ever since the rupee started depreciating there has been increased activity by the non resident Indian ( NRI) buyers as they pay in dollars. The benefits of the rupee depreciation, if added to the discounts being offered by developers, makes new homes in India cheaper by almost 30% in dollar terms. At the Dubai show, 70 companies including Unitech, Hiranandani Group, Vatika, Nirmal Lifestyle, Ansal Housing and Ireo showcased their 200 projects from Mumbai, Pune, Gurgaon and Ahmedabad.

    Full story

    NRIs home in as falling rupee makes realty cheap - The Economic Times



    well as you see
    US Federal bill set to hit Indian BPO

    This bill if introduced will lead to higher Real estate prices in Pune ...


    Somehow I cannot get a logic to support this however I am pretty confident about PBAP .. :)



    US Federal bill set to hit Indian BPO - The Times of India
    CommentQuote
  • Originally Posted by kingmanish
    Ever since the rupee started depreciating there has been increased activity by the non resident Indian ( NRI) buyers as they pay in dollars. The benefits of the rupee depreciation, if added to the discounts being offered by developers, makes new homes in India cheaper by almost 30% in dollar terms. At the Dubai show, 70 companies including Unitech, Hiranandani Group, Vatika, Nirmal Lifestyle, Ansal Housing and Ireo showcased their 200 projects from Mumbai, Pune, Gurgaon and Ahmedabad.

    Full story

    NRIs home in as falling rupee makes realty cheap - The Economic Times


    NRIs are not fortune tellers who can predict movement of INR, most of them would have transferred money between 45 and 49 levels, very few lucky would have transferred it at 53. Also i doubt they have hundreds of dollars stashed away waiting to be transferred.
    CommentQuote
  • Great! While the government cannot publish correct export figures, we have data on increased activity by NRIs in the last 4 weeks! Awesome, lets help the Indian government to compile data so fast! :)
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  • Originally Posted by frugality
    well as you see
    US Federal bill set to hit Indian BPO

    This bill if introduced will lead to higher Real estate prices in Pune ...


    Somehow I cannot get a logic to support this however I am pretty confident about PBAP .. :)



    US Federal bill set to hit Indian BPO - The Times of India



    If passed it would lead to lower RE prices in pune...not higher.
    CommentQuote
  • Originally Posted by rohandm
    NRIs are not fortune tellers who can predict movement of INR, most of them would have transferred money between 45 and 49 levels, very few lucky would have transferred it at 53. Also i doubt they have hundreds of dollars stashed away waiting to be transferred.


    I agree, i know few of them were waiting to transfer and transferred at max 48 level. No one can predict currency mkt. Also what if NRI invest today at 52 and in a year NRI falls to 60,
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  • Originally Posted by vatsalbajpai
    If passed it would lead to lower RE prices in pune...not higher.


    thats what a rational person would think...

    but you are forgetting that we are talking about PBAP (CREDAI) here... for them any event in the world (or for that matter even in universe) is a good enough reason for increasing property prices... :D
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  • NRI's investing in under construction profit will benefit if rupee hits 60. Right now put 20% down, and then average the payments over the next 3 years at better exchange rate. The US has unofficially closed its doors and regardless of where NRI's live they want an apt in India. I am seeing many of my NRI's friends enquiring to buy. In the 90's I remember the Mumbai market was dominated by Gulf buyers as locals were priced out of the market. Now it appears that Pune has reached that stage where NRI's are sought out by builders and the cascading effect is that Mumbai investors now looking at Pune as the demand has shifted there
    CommentQuote
  • Originally Posted by rohandm
    NRIs are not fortune tellers who can predict movement of INR, most of them would have transferred money between 45 and 49 levels, very few lucky would have transferred it at 53. Also i doubt they have hundreds of dollars stashed away waiting to be transferred.



    I completely agree, in fact NRI's are becoming more informed & cautious now than ever before and they are playing a wait and watch game as most of them find the current rates in mumbai/Pune to be high.Also NRI's who have been outside for just 4-5 years are being extremely cautious because of the uncertainty in the Job market and as said above they need to have substantial savings in dollars just to be able to make a decent down payment .Though there will be definitely some who would want to make the most of this fall in Rupee, but I feel the most benefiting are the one's who are already paying EMI's in dollars.And this drastic fall in Rupee has been in last 1-2 mths and I feel buying a house is a big decision, you need to have all documents in place get the loans approved etc etc it is not like doing online shopping.So maybe if rupee continues at this level then in the next 6-8 mths there maybe more purchases by NRI but not now.
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  • Originally Posted by rogern
    Its true that bcoz of currency devaluation, House Prices are similar to 2009 Lowest levels in terms of dollar for some .. (e.g. USD went from 44 to 53 , SGD from 30 to 40 and AUD from 34 to 53) NRIs must be definitely smiling looking at the poor state of INR but this does not mean people are silly enough to go ahead and buy in India's Real estate. For self use people will buy now but India is no more a great place for investment and business.
    NRIs have an option to invest in their own country of residence too !! Prices are falling everywhere except India and there is nothing really Holy about India which would prevent it from correction. An entire industry cannot survive only on handfull of NRIs and few corrupt politicians ..
    Cheers :bab (4):


    In fact a few of my NRI acquaintances have bought second homes in the US due to the drastic fall in home prices there...
    CommentQuote
  • Originally Posted by vatsalbajpai
    If passed it would lead to lower RE prices in pune...not higher.


    Agree
    CommentQuote
  • Originally Posted by vivek.cap
    I agree, i know few of them were waiting to transfer and transferred at max 48 level. No one can predict currency mkt. Also what if NRI invest today at 52 and in a year NRI falls to 60,


    Very few convert their entire chunk in one go.

    Most do so in small packages seeing how the dollar is behaving.:bab (35):
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  • Originally Posted by rohandm
    NRIs are not fortune tellers who can predict movement of INR, most of them would have transferred money between 45 and 49 levels, very few lucky would have transferred it at 53. Also i doubt they have hundreds of dollars stashed away waiting to be transferred.


    BTW this was from my experience, i transferred a lot of money when the rate was around 46, now i am stuck with all holiday bills and will not have money to transfer for at least for next couple of months. Assuming that many others will also be in similar situation, the value of rupee has to stay at this level for at least 6 months or more to see any investment from them. Even then they probably won't invest until rates are significantly down as they also follow the crowd mentality which currently expects a RE correction.
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  • Realty thugs on prowl in Noida, NRIs soft target

    GREATER NOIDA/NOIDA: Even as more and more people are moving towards the twin townships in search of affordable homes, the numbers of property frauds have also been increasing. Police records show that nearly 200 property fraud cases were registered in Noida and Greater Noida this year with miscreants targeting NRIs and non-residents.


    ha ha this is the counter view :)
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