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 :
  • Hmm good informative thread. Seems now RE will really pickup it seems. Just to illustrate as per the latest advertisement 3BHK in prabhat road was pegged at 2.5 crores and 3600 sq feet for plot in nav sahaydri was for sale at 4.5 crores. Going as per the latest trend read RE bulls, brokers and builders in coming 2 yrs even if there is 50% appreciation they will cost 3.75 crores and 6.75 crores respectively. Those who want to reap benefits better hurry and book asap!!!
    CommentQuote
  • This is very confusing times indeed for many buyers who have to take hefty loans to procure their first home...Whether RE has a rally or not, one has to pay back the loan he has taken...so they should be carefull about the amount they are leveraging...

    Recently I read, car companies are offering heavy discount on their models, after admitting that sales are considerably down...

    Also not to forget about the gold, the sales have been down with just a couple of thousands raise in price...Indians love for gold is as old as time itself and everlasting...still slowdown in demand...if price rise is affecting cars and gold...then why not RE...this is a question thats boggling me...cars and gold are also necessity ( not of topmost priority but necessity nevertheless)...

    It seems to me that everything is hit by absurd price rise sooner or later, RE seems at the far end of the line...
    CommentQuote
  • Originally Posted by Ninja_Chacha
    This is very confusing times indeed for many buyers who have to take hefty loans to procure their first home...Whether RE has a rally or not, one has to pay back the loan he has taken...so they should be carefull about the amount they are leveraging...

    Recently I read, car companies are offering heavy discount on their models, after admitting that sales are considerably down...

    Also not to forget about the gold, the sales have been down with just a couple of thousands raise in price...Indians love for gold is as old as time itself and everlasting...still slowdown in demand...if price rise is affecting cars and gold...then why not RE...this is a question thats boggling me...cars and gold are also necessity ( not of topmost priority but necessity nevertheless)...

    It seems to me that everything is hit by absurd price rise sooner or later, RE seems at the far end of the line...



    Tu chahata hai RE prices ko karna NiCha
    lagta hai tabhi tera forum id hai NinjaChacha
    tujhe badhti prices kaa samajh nahi aata locha
    tu sochtaa hai yeh hai kuch builder/politico ka ghocha
    price girega jordar aise bearon ne thaa sochaa
    teen saal se ees predicition ka ho raha hai khopchaa
    roj khake ke chane phutane from khomchaa
    tu samajh nahi pata kaise uthega EMI ka badhtaa bojhaa
    teen saal phele ghar khareed liya agar jaata
    unhe aaj aa raha hoga majaa hee majaa
    ab sujhaav deta hun tujhe mein sajhaa
    current price mein tu ghar khareed jaa
    shayad rahega RE prices kaa jhanda aage bhee ooncha
    bata rahan hun yeh sab halaankee tune nahi poocha
    likh diya kavita mein jo mujhko thaa soojha :)
    CommentQuote
  • baat to nahin ki thi tumse...
    fir bhi tumne adanga daala...

    Mann me tha sawaal, to poochh daala...
    ab bataon kya gunaah kar diya huzure aala...

    Jawab to ek bhi nahin diya...
    apne mann ka aakrosh tumne ugal daala...

    nahin maangi thi tumse muft ki samjhaiish...
    fir bhi tune thaali me saja kar saamne patak daala...

    jab baant raha tha ek achche listener ke gunn uparwalah...
    aap kaun ki bearish thread dhoond rahe the compuwalah...
    CommentQuote
  • wah wah hujur-e-aala
    aapka shaayaraan andaz bhee hai nirala :)
    CommentQuote
  • Wah Wah !! Wah wah !!( Very good very Good !! etc)
    In Marathi
    Wah cha Wah !! Wah cha Wah!! ( Please save me from all this !! Marathi Equvalent of Bachao ! bachao!!)
    CommentQuote
  • A little clarity ...

    Originally Posted by Ninja_Chacha
    This is very confusing times indeed for many buyers who have to take hefty loans to procure their first home...Whether RE has a rally or not, one has to pay back the loan he has taken...so they should be carefull about the amount they are leveraging...

    Recently I read, car companies are offering heavy discount on their models, after admitting that sales are considerably down...

    Also not to forget about the gold, the sales have been down with just a couple of thousands raise in price...Indians love for gold is as old as time itself and everlasting...still slowdown in demand...if price rise is affecting cars and gold...then why not RE...this is a question thats boggling me...cars and gold are also necessity ( not of topmost priority but necessity nevertheless)...

    It seems to me that everything is hit by absurd price rise sooner or later, RE seems at the far end of the line...



    Ninja,

    Don't get confused. Here is what I see through the confusion.

    People were getting panicky with economic growth rate becoming negative (9% to 5.5%) and Govt doing nothing about it.

    But really this Govt (like all other Govts outside the country) cannot really do anything about it because what we are seeing is a natural progression of what these Govts have already done past 25 years - inflate via unsustainable debt.

    Now, they have taken "action" and the rich (who have probably struck a deal with political parties) are celebrating since they have been pulled out of the fire (through too much debt they have taken and sales declining means they were being pushed from the pan into the fire).

    Today's ET reports that Corporate Debt raised from abroad has RISEN 59% from last year (1.5 Lakh Crores to 2.24 lakh crores). This is evidence of Corporates getting into a Debt Trap and doing a Bernanke/Draghi to keep the music playing, hoping somehow the economic engine will start by itself again!

    It won't because we are burdened by too much debt and jobs are dwindling in numbers and wage levels while costs are soaring, killing any appetite for taking on more risk by aam janta!

    See the reality now? All the Govt has done is to ease Capital Controls (allow even more liquidity into the country to bailout debt-ridden Corporates) when other BRIC countries like Brazil are doing exactly the opposite (restricting Capital flows into their country).

    But is this going to jump-start consumption - which is really what is going to raise economic growth? Nope, because we the consumers are NOT going to get much of this money into our pockets. This will jump up economic growth through Capital Expenditure in many wrong areas which will eventually turn into MAL-investment and create even more bad debt.

    This will result in even more inflation (especially if RBI cuts), mal-investment in areas which are already over-invested in and are seeing declining demand and economy looking like strengthening but becoming weaker structurally. Oil will rise, inflation will soar and deficits will go out of control. This looks like a solution to you? :)

    So the Govt knows very well this is going to happen. But then, to bail themselves out of a tight corner due to all round criticism and corruption they have done this.

    The effect on RE will not change much. Prices will remain too high for a while more because people will still refrain from buying but builders will be able to borrow yet more to keep themselves afloat for some more time in the hope buying will come back. From where?!

    So, eventually, when even this money runs out and debts of builders become larger and even more of it becomes BAD debt, they will arrive at an even higher panicky situation.

    At that time Real will announce that the same builder who offered 20% discount if you can buy with own cash (not black) will then offer perhaps 30% or even 40% as they will be in even more dire straights.

    What are ou going to do now? I know what I'm going to be doing! :D Getting into Debt-free capital assets like PMs, which will outshine all other assets in the next few years and then cash-out and get into RE which should then take off when it is stripped of the structural impediments it currently faces.

    cheers
    CommentQuote
  • Gaur farmaayiein janaab:

    Ghar kharidunga agle saal, abhi prices mein bahut hi locha hai..
    Ghar kharidunga agle saal, abhi prices mein bahut hi locha hai....


    (wah .. wah)

    Dil ko behlaane ke liye, Ghalib ye khayaal achcha hai!
    :D
    CommentQuote
  • Originally Posted by lovepune


    Don't worry, the builder will be selling those "already sold" units again after 6 months when he is desperate for cash......the cycle continues. When people cannot afford at current rates, only a fool can expect them to shell out more by 5%, no thank you. I will better wait, as my patience has no limits and I don't have anything to lose.

    Be optimist my friend....rates going down is not pessimism, it is quite opposite.

    Don't worry, the builder will be selling those "already sold" units again after 6 months when he is desperate for cash......the cycle continues. When people cannot afford at current rates, only a fool can expect them to shell out more by 5%, no thank you. I will better wait, as my patience has no limits and I don't have anything to lose.

    Be optimist my friend....rates going down is not pessimism, it is quite opposite.
    CommentQuote
  • Originally Posted by vhaldavnekar
    Hmm good informative thread. Seems now RE will really pickup it seems. Just to illustrate as per the latest advertisement 3BHK in prabhat road was pegged at 2.5 crores and 3600 sq feet for plot in nav sahaydri was for sale at 4.5 crores. Going as per the latest trend read RE bulls, brokers and builders in coming 2 yrs even if there is 50% appreciation they will cost 3.75 crores and 6.75 crores respectively. Those who want to reap benefits better hurry and book asap!!!



    :) .....

    :D ........

    :bab (59):
    CommentQuote
  • RBI cuts CRR; home, auto loans set to become cheaper
    Sep 18, 2012, 01.03AM IST TNN

    Home and auto loans will gradually become cheaper over the next few months with the Reserve Bank of India announcing a cut in the cash reserve ratio.
    MUMBAI: Home and auto loans will gradually become cheaper over the next few months with the Reserve Bank of India announcing a cut in the cash reserve ratio (CRR) by a quarter of a percentage point (25 basis points) to 4.5% in its policy review meeting on Monday. The central bank, however disappointed industry by leaving its key policy rates —repo and reverse repo —unchanged, mainly because of a sudden spike in the rate of inflation for August.

    Now read the real news :-

    Banks not passing benefits of rate cut to borrowers: RBI

    New Delhi: Banks are not passing on the benefit of a cut in policy rates to the borrowers, Reserve Bank Deputy Governor K C Chakrabarty said today while asking lenders to undertake reforms and bring down their operation costs.

    He regretted that the lending rates of banks have not come down in tandem with reduction in the CRR and SLR. On the other hand they have gone up, he added.

    Banks not passing benefits of rate cut to borrowers: RBI - NDTVProfit.com

    Apart from this, RBI has declared RE as high risk sector & now home buyer needs to make not less than 30% of amount as downpayment.

    Apart from this, banks are just lending 9.6% of their total deposit amounts fearing rise in NPAs. Always show complete picture man. :)
    CommentQuote
  • Bangalore real estate market starts feeling the heat

    After Mumbai & NCR, RE in Bangalore too is going down. In Pune it has started, look for schemes now from builders under the name of "Festive Offers"....for limited period only. :D

    Due to a slowdown in demand and rising cost of funds, many projects showed little progress in construction

    The real estate market in Bangalore which has been to an extent insulated from the weak demand uptick across in India, is starting the feel the heat. According to real estate advisory firm CBRE, Bangalore witnessed a decrease in sales of residential property in H1, 2012.

    Due to a slowdown in demand and rising cost of funds, many projects showed little progress in construction.

    Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia Pvt. Ltd said, “Demand for residential properties has fallen, while that for rental properties has increased as end users deferred purchase decisions, anticipating a change in the prevailing economic environment and reduced interest rates in the coming months.

    Bangalore real estate market starts feeling the heat

    Btw, this is what happens when one buys based on DP/PROPOSED :-

    https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/6715-sun-planet-mittal-builder/page6?t=8790&page=6

    Please read posts # 57,58 & 59.
    CommentQuote
  • Happy Ganesh Chathurthi!

    SBI reduces base rate by 25 bps

    Sep 19, 2012, 05.21AM IST TNN

    MUMBAI: There is good news for home owners, car buyers and all other borrowers. A day after RBI reduced cash reserve ratio (CRR) by a quarter of a percentage point (25 basis points) State Bank of India (SBI), the country's biggest lender, cut its base rate by an equal amount.
    Effective September 22, SBI's base rate will be 9.75% per annum, from 10% now, a release from the bank said. Back of the envelop calculation shows that a 25 basis points reduction in home loan rate of 20 years tenure, can reduce the EMI by about Rs 17 for every Rs 1 lakh loan. So if a homeowner has a Rs 30 lakh loan of 20 years tenure, the annual savings work out to about Rs 6,100.
    "All loans linked to our base rate will benefit from this cut in interest rate," a SBI spokesperson said. "All the existing as well as new customers for home loans, car loans and all other loans which are not fixed, will benefit from this cut," the spokesperson said. Post this cut, SBI's base rate is now the lowest among all Indian banks.
    Base rate is the rate of interest below which banks cannot lend to its customers, except under special situations. All regular borrowers of a bank pay rates of interest usually a few percentage points higher than the bank's base rate. For example, on home loans of up to Rs 30 lakh, SBI charged 25 basis points above its base rate, which is 10.25% now. Effective Thursday, this will come down to 10%.
    The rate cut decision by SBI also came within a fortnight of it deciding to cut deposit rates, which was followed by several other banks. Industry players said the cut in deposit rates was mainly because of low pace of credit offtake, which in turn left large sums of money with the banks.
    Market players believe that since SBI is the biggest player in the banking sector and is also a very competitive lender, there would be pressure on every other bank in the country to reduce their rates. A clearer picture would emerge on Thursday, when banks reopen for business after Wednesday's holiday for Ganesh chaturthi, they said.

    Cheaper loans

    A 25 basis points reduction in home loan rates of 20 years can reduce the EMI by about 17 for every 1 lakh loan. So, if an owner has a 30 lakh loan of 20 years tenure, the annual savings work out to about 6,100 All the existing as well as new customers for home loans, car loans and all other loans which are not fixed, will benefit from this reduction



    SBI reduces base rate by 25 bps - TOI Mobile | The Times of India Mobile Site
    CommentQuote
  • Originally Posted by realacres
    Now read the real news :-

    Apart from this, RBI has declared RE as high risk sector & now home buyer needs to make not less than 30% of amount as downpayment.



    NPAs indeed are on the rise, however I did not come across the 30% downpayment news, can we get the source of this news?

    If its true then it is a commendable move indeed and will reduce participants willing to over leverage themselves
    CommentQuote
  • Originally Posted by lovepune
    SBI reduces base rate by 25 bps

    Sep 19, 2012, 05.21AM IST TNN

    Cheaper loans

    A 25 basis points reduction in home loan rates of 20 years can reduce the EMI by about 17 for every 1 lakh loan. So, if an owner has a 30 lakh loan of 20 years tenure, the annual savings work out to about 6,100 All the existing as well as new customers for home loans, car loans and all other loans which are not fixed, will benefit from this reduction
    SBI reduces base rate by 25 bps - TOI | The Times of India Site


    What!!! Should we rejoice for saving 6K, when we are getting ripped by thousands more. Doesn't sound right logic to me....

    Hey lovepune, where is the party for saving 6K annually?
    CommentQuote