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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  • A very well written piece..beautiful life..beautiful thoughts..beautiful words..

    ..amen!:)
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  • My post was more financially driven.

    Originally Posted by realacres

    First of all, I am not going to retire as long as I am fit irrespective of the age. You can keep contributing a lot later too or you can become an MLA/MP as that's the right age in politics & have fun.


    Agreed, I included that in the Hobby part.. hobby could include Social service.. teaching in village schools etc.:-))

    Originally Posted by realacres

    The faster you buy & utilise, the better as you sqeeze each & every rupee put in; be it car or house or GF
    This point is important.. but as you mention “If you can afford”.. A lot of us are squeezed into buying by not being able to afford later and so lets but today when it is not affordable. Since I find property prices going up again and become even more unaffordable to me. With the savings (I hope) even if I will not be able to afford something in the City I should be able to get a reasonable priced one on the outline of the city which I would like. (Other Factors being mentioned in my earlier post).
    The other points that you talk about risk and all makes sense… but when I look for a home I don’t look to sell it till I die.. So its not a Speculation there if consumption. Maybe not a good example but we can’t call a person filling up hill petrol tank today as a risk taking guy cause petrol prices might fluctuate (Hypothetical) as it is for consumption.
    No one knows how long anyone will live but if I die before my retirement then who cares of buying anyways.!!!! It is only for the old age we care and if I am not going to get old only.. then might as well enjoy now.. rather then get into EMI in the first place.. and if I get old.. then I know I might have saved enough to buy on the outskirts and live the life the way I want to live.
    Keep in mind if all of a sudden I land up with the money I will definitely buy if I find it affordable. I would still like to retire in a quite place and stay there and maybe keep the apartment as a backup or investment.;-) All this while.. I can easily be taken away from this world after which anything on this earth won’t matter. Wow this sounds so wonderful.. will this ever be fulfilled.

    GOD!!!! I don’t even know if I am thinking logical.

    BTW I totally agree with your last 2 points.

    VK

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  • Correct me if I am wrong or add points if any. Like to hear all of your thoughts.

    Have a beautiful life.

    * Beautiful life according to you & not according to the norms set by the society.


    I love the above sentence as I am of the same opinion :)

    P.s. real do you stay on rent or own a property & are looking to buy another one? Sorry if this is too personal
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  • Amazing

    Last few posts were amazing(stating from veeemkay's post), good food for thoughts for miniature like me!!!!
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  • Originally Posted by veeemkay

    Where would I like to retire?
    when I retire, I do not want to be in a huge Metro inhaling fumes, paying high prices for everything from Transportation to Food to general living....

    I would like to retire in a quite place where I can take a nice quite walk in the morning. Have like minded friends (hopefully someone like Realacres, Wisemen and various others on these forum
    VK


    Even I thought of retiring in my home town, away from metro, but atleast as of today(and not very optimistic of tomorrow as well), electricity is available only for few hours during day time. Water is supplied alternate days only for couple of hours and even worst in Summers.

    All in all, Life is not good in metros(because of high prices) and not good in rural areas as well. I plan to retire on moon or outside India :D:D:D
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  • my two pence worth..

    agree with real - buy today if affordable. That's what I did and would not regret if prices drop. At least I bought in a location which i wanted

    as for retirement.. i believe it is relationships built during your lifetime that would keep one alive and kicking - in old age or ice age.. houses and cars and what nots would just burn us out mentally..and not sure if that would give us satisfaction.. i guess we are so much into reaching the destination that we forget aobut enjoying the journey..

    the toughest part is to keep firm to your definition of beautiful life and stop comparing with others..because almost always our definition of success is as defined by the society..in terms of your material assets/earnings/status..my mantra is - dont be too complacent or too ambitious..the baseline defining 'too' differs for everyone though so define your own

    driving a Merc SLK today seems very enticing though ;-)
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  • interesting discussion. i am also in a dilemma. while i can afford it easily, i still think its overvalued. i tell myself that if i buy it, i will only be helping the seller. moreover, its very difficult to find a property that you are completely happy with. u have to compromise on something despite paying a huge amount. and the other thing is that, u will feel poor ( if you make a large down payment). so renting looks a better option.
    however i do agree that, owing a house gives a lot of satisfaction. usually during a conversation , if someone asks where do you live, then the next question would be is it a rented or own? :-)
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  • Originally Posted by RAJESHP
    Even I thought of retiring in my home town, away from metro, but atleast as of today(and not very optimistic of tomorrow as well), electricity is available only for few hours during day time. Water is supplied alternate days only for couple of hours and even worst in Summers.

    All in all, Life is not good in metros(because of high prices) and not good in rural areas as well. I plan to retire on moon or outside India :D:D:D


    Currently this point is absolutely right and thats is when i say after 20 years.

    IF what Media and Builders and various other people keep on saying INDIA PROGRESSING.. i believe and i hope i am not wrong water and electricity problems should have been sorted out by then.

    IF problems are not handeled i would not say India shining simply because infra did not follow growth and growth on a global cannot be sustained for a long time without infra. So in that case INDIA will not be as shining...as thought of... i just hope at that time with my savings i will be able to afford something.

    Agreed with GSAs point about relationships that are developed during the course of the life are most important. Hope i find a city with some friends settled there.

    VK

    PS: This is completely personal choice and as suggested by a few it is best to check what one wants from life.
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  • Dear Friends,


    Could any one tell me a brief about the differences between America VS indian real estate.


    My question here is there is a huge differences in pricing a building in both these countries......

    Request the experts to help clarify this.


    Regards
    Ravi
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  • I've posted on that thread ...

    Originally Posted by itsforyouravi
    Dear Friends,


    Could any one tell me a brief about the differences between America VS indian real estate.


    My question here is there is a huge differences in pricing a building in both these countries......

    Request the experts to help clarify this.


    Regards
    Ravi



    Ravi,

    Can you clarify about what you meant when you said, "difference in pricing a building"?

    cheers
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  • Originally Posted by Technocrat
    P.s. real do you stay on rent or own a property & are looking to buy another one? Sorry if this is too personal

    Hey, this is nothing personal, you all are my friends:). Now let me tell you that I have been scouting for house from early 07 post my crash landing here;).

    However, I have done proper investments within & outside India which can help me buy a new house in Pune or for that matter any major city in India. However, as the RE sector in India is highly un-regulated, didn't want to see a Mickey Mouse when I stood in front of mirror:D. Hence, went in depth to study RE.

    I am looking for buying a flat for self use & don't have any residential property in Pune. Currently staying on rent (my rent is just more than 1/4th of what owner pays to the bank as EMIs:p). Frankly, I wanted to buy land & build on my own. Even searched for plots but the plan flopped as the cash component was very high, 50-60%+. As all the money was already converted to white at the time of investments, I couldn't buy land:(. Seems, I should now start accumulating B-money for the same.
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  • Real Story

    Originally Posted by gsa177
    i guess we are so much into reaching the destination that we forget aobut enjoying the journey..

    Agree 100%. Here is my modified version of a kg2 story:-

    The Hare & Tortoise 2010

    I prefer being the hare in the Hare & Tortoise Story; where moral is slow & steady wins the race:D. The hare enjoyed the race, enjoyed the scenary/view & relaxed & was happy in real life. On other hand though the tortoise won, he couldn't enjoy anything & was pushing himself hard 24*7 forgetting that there is much to achieve than winning this race. He forgot that his strength lies in water & land is not his front.

    In real life the hare won coz you know what? The hare managed the event manager & got the finish line modified at place where he slept:D.


    In real life 2 things matter:-

      Ability to manipulate,
      Competing with rival based not only on self-strength but also opponents' weakness.
      Had the tortoise asked Hare to have swimming race, he would have won easily & this is the real moral of the story & not slow & steady wins the race.

      the toughest part is to keep firm to your definition of beautiful life and stop comparing with others..because almost always our definition of success is as defined by the society..in terms of your material assets/earnings/status..my mantra is - dont be too complacent or too ambitious..the baseline defining 'too' differs for everyone though so define your own

      Yes, one should compete with oneself. The problem is we see only the better things of others, completely forgetting our strengths which others lack. As said above, hare & tortoise have different qualities, one is good on land, other in water.

      The problem is people focus too much on OUTER-SCORECARD rather than INNER-SCORECARD.

      Money is important no doubt, but money should chase you & not the other way. Models which may look good on ramp may not turn out to be good wives.

      I maybe wrong, but this is my personal experience.
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  • Well, Value for money (VFM) in India may be hard to get.

    But just have a look at the Interiors of BURJ KHALIFA in Dubai, where some Indians have booked property.

    May not be excatly VFM, but I guess it is at least near to it, in comparision with Mumbi RE Prices...

    ]http://www.stills4u.com/2010/01/interior-of-burj-khalifa.html
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  • Photos shown in this link are the interiors of hotel 'Burj al arab'
    (Google burj al arab interior u will see these pics )


    Originally Posted by enduser
    Well, Value for money (VFM) in India may be hard to get.

    But just have a look at the Interiors of BURJ KHALIFA in Dubai, where some Indians have booked property.

    May not be excatly VFM, but I guess it is at least near to it, in comparision with Mumbi RE Prices...

    ]http://www.stills4u.com/2010/01/interior-of-burj-khalifa.html
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