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 :
  • India Appalled At S&P Junk Credit Suggestion

    Originally Posted by RealHunter1
    Worse thing for Indian economy. Definitely not a good time for buying a property (at least for investment).

    NEW DELHI: In a fresh blow to India........ to 'negative' from 'stable'.

    One more news stating similar issues :-

    Prime Minister Manmohan Singh's government has blamed much of the economic slowdown on outside factors such as Europe's economic crisis :D

    Minister of State for Planning Ashwani Kumar defended India on Thursday, saying its expected growth rates and projects to boost internal trade and development do not warrant a junk status credit rating.

    On Monday, Standard & Poor's warned that India could become the first so-called BRIC economy to lose its investment-grade credit rating citing slowing economic growth and policy inaction for instituting economic reforms.

    It is not only S&P that has said India is not firing on all cylinders. On June 11, the Paris-based Organisation for Economic Co-operation and Development said India's economy was showing signs of faltering.

    The OECD said its composite leading indicator for India dropped below the average for the 33 nations assessed.

    India Appalled At S&P Junk Credit Suggestion | Businessworld
    CommentQuote
  • Retail inflation at 10.36% in May

    For the second straight month this fiscal, retail inflation remained at double-digit level in May. This may have prompted the RBI to leave policy rates unchanged on Monday, say economy watchers.

    NO ROOM FOR RATE CUT

    With the divergence between the two indices persisting, there was little room for the RBI to look at any aggressive rate cut, say economy watchers.

    Business Line : Industry & Economy / Economy : Retail inflation at 10.36% in May
    CommentQuote
  • How many of us are home buyers? And how many vegetable buyers?

    Originally Posted by herohiralal
    Yes agree with this. RBI should have gone and done a 50-75 bps cut. RBI was behind the curve while raising interest rates and this time as well its behind the curve in reducing rates.


    With rains getting alarmingly delayed, the already stubbornly high inflation would have run away out of control.

    Our businesses have always thrived on easy money rather than real performance. When the going gets tough the corporates get crying! :D

    They should be aware of the severe damage a runaway inflation will have on their businesses. Compared to slowing sales now it will be collapsing sales then.

    They should be careful what they ask for, even if they exhibit extreme stupidity in the face of self-induced challenging business environment!

    cheers
    CommentQuote
  • Externalization!

    Originally Posted by realacres
    One more news stating similar issues :-

    Prime Minister Manmohan Singh's government has blamed much of the economic slowdown on outside factors such as Europe's economic crisis :D

    Minister of State for Planning Ashwani Kumar defended India on Thursday, saying its expected growth rates and projects to boost internal trade and development do not warrant a junk status credit rating.

    On Monday, Standard & Poor's warned that India could become the first so-called BRIC economy to lose its investment-grade credit rating citing slowing economic growth and policy inaction for instituting economic reforms.

    It is not only S&P that has said India is not firing on all cylinders. On June 11, the Paris-based Organisation for Economic Co-operation and Development said India's economy was showing signs of faltering.

    The OECD said its composite leading indicator for India dropped below the average for the 33 nations assessed.

    India Appalled At S&P Junk Credit Suggestion | Businessworld



    When we boomed because of easy-money policy and high liquidity from the West, it was because of Indian ingenuity.

    When we slumped because of tight-money situation and vanishing liquidity from the West, it has to be because of Western economic collapse, no?

    cheers
    CommentQuote
  • @realacres,

    60% drop in sales in last quarter. Is your observation based on any of the following links.

    Home sales more than halve in NCR, Mumbai: PropEquity report

    Home sales halve in NCR, Mumbai: Study - Indian Express

    Both these links have similar information. Data is mostly for NCR, Mumbai and Bangalore.
    Nothing about Pune as such.

    If the data is correct, lots of R.E bulls will go into hiding.

    Arun
    CommentQuote
  • Originally Posted by realarun
    @realacres,

    60% drop in sales in last quarter. Is your observation based on any of the following links.

    Home sales more than halve in NCR, Mumbai: PropEquity report

    Home sales halve in NCR, Mumbai: Study - Indian Express

    Both these links have similar information. Data is mostly for NCR, Mumbai and Bangalore.
    Nothing about Pune as such.

    If the data is correct, lots of R.E bulls will go into hiding.

    Arun

    NCR is the largest residential market - Economic Times

    And

    Real estate recovering from the bottom

    Conflicting data from the same source. In markets bulls make money and bears make money but people who sit on the sidelines end up on forums :)
    CommentQuote
  • Originally Posted by realacres
    For the second straight month this fiscal, retail inflation remained at double-digit level in May. This may have prompted the RBI to leave policy rates unchanged on Monday, say economy watchers.

    NO ROOM FOR RATE CUT

    With the divergence between the two indices persisting, there was little room for the RBI to look at any aggressive rate cut, say economy watchers.

    Business Line : Industry & Economy / Economy : Retail inflation at 10.36% in May


    India has a supply side problem which is resulting in shortages and hence high prices which get reflected in high retail prices. People don't buy food and clothes on credit cards so why punish industry with high rates which results in low investment and productive capacity?

    Lower rates and decrease LTV for home loans if RBI is worried about lower interest rates resulting in higher RE prices
    CommentQuote
  • Originally Posted by herohiralal
    NCR is the largest residential market - Economic Times

    And

    Real estate recovering from the bottom

    Conflicting data from the same source. In markets bulls make money and bears make money but people who sit on the sidelines end up on forums :)



    Yah,exactly people like you .....;)
    CommentQuote
  • Originally Posted by realarun
    @realacres,

    60% drop in sales in last quarter. Is your observation based on any of the following links.

    Home sales more than halve in NCR, Mumbai: PropEquity report

    Home sales halve in NCR, Mumbai: Study - Indian Express

    Both these links have similar information. Data is mostly for NCR, Mumbai and Bangalore.
    Nothing about Pune as such.

    If the data is correct, lots of R.E bulls will go into hiding.

    Arun

    Yes, I was ref to BS link above. And the reason why Delhi & Mumbai markets are considered as they are the ones who set the trend pan India. Also, most of the listed RE players on BSE are in NCR & Mumbai, which makes their sales report far more transparent than Pune.

    But if Mumbai, NCR is down by 60%, I am sure Pune must be more than this as the only people who can now buy in Pune are ITGs & my friends who are ITGs have gone into saving mode in past 3 months. Don't know if some IT cos are offering pay hike/increment of 25-30% now.
    CommentQuote
  • Originally Posted by realacres
    Yes, I was ref to BS link above. And the reason why Delhi & Mumbai markets are considered as they are the ones who set the trend pan India. Also, most of the listed RE players on BSE are in NCR & Mumbai, which makes their sales report far more transparent than Pune.

    But if Mumbai, NCR is down by 60%, I am sure Pune must be more than this as the only people who can now buy in Pune are ITGs & my friends who are ITGs have gone into saving mode in past 3 months. Don't know if some IT cos are offering pay hike/increment of 25-30% now.


    no company offers 30% hike unless you're fresher and have joined on very low salary
    CommentQuote
  • Originally Posted by puser
    no company offers 30% hike unless you're fresher and have joined on very low salary


    For getting that much hike or more ... you need to keep hopping jobs. However even that option is a bit risky now given the uncertainties in the market ;)
    CommentQuote
  • Free EMIs are back

    Mont Vert is now offering the scheme, "No EMI till Possession".
    This reminds me of 2008-09 when they had started the same for their projects in Wakad. They even launched something like 2 BR for 29L in Wakad. The rate offered was 2150/sq ft !

    * PS:- There are lot of T & C in such schemes & it is best to fall for these schemes as the onus of paying EMIs is on buyer & not builder. So if builder defaults, you get hanged !! Remember this. Ask for price discount than such funny offers.
    CommentQuote
  • I'm waiting for this!

    Originally Posted by realacres
    Mont Vert is now offering the scheme, "No EMI till Possession".
    This reminds me of 2008-09 when they had started the same for their projects in Wakad. They even launched something like 2 BR for 29L in Wakad. The rate offered was 2150/sq ft !

    * PS:- There are lot of T & C in such schemes & it is best to fall for these schemes as the onus of paying EMIs is on buyer & not builder. So if builder defaults, you get hanged !! Remember this. Ask for price discount than such funny offers.


    I'm waiting for the day I get an offer saying ...

    " No EMI till your buyer takes possession!" :D

    cheers
    CommentQuote
  • Originally Posted by herohiralal
    NCR is the largest residential market - Economic Times

    And

    Real estate recovering from the bottom

    Conflicting data from the same source. In markets bulls make money and bears make money but people who sit on the sidelines end up on forums :)


    Hero,

    At-least people on sidelines have their money safe. Pagdi gai toh kya hua chaddi toh salamat hai!

    For some to make money there has to be someone else to lose. Why become the loser? especially if you have the brains.





    Originally Posted by wiseman
    I'm waiting for the day I get an offer saying ...

    " No EMI till your buyer takes possession!" :D

    cheers


    :bab (56):

    This is next weeks' ET headlines. Pvt banks offering new scheme to help Indian economy or help people get their dream home. as if they are doing a social service!
    CommentQuote
  • Originally Posted by StraightDriv
    Hero,

    At-least people on sidelines have their money safe. Pagdi gai toh kya hua chaddi toh salamat hai!

    For some to make money there has to be someone else to lose. Why become the loser? especially if you have the brains.





    If people who are so -ve on RE prices had brains then they should have gone short DLF, Unitech and other RE companies. The could have gone long ITC (people smoke in all environments) instead of keeping of money in FD where the rate does not even cover the inflation.

    Chaddi salamat hai but chaddi shrink ho gai hai due to inflation :)
    CommentQuote