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 :
  • I think Pune's rates didn't fall as much as I thought they would.

    In actual fact, Mumbai's rates fell hard, really hard. And from Nov 08 to May 09, Mumbai went through a really bad patch. But it recovered quickly after June, and since then I can say that Mumbai has safely seen a 15% rise in prices from the bottom. And I know many projects now in Mumbai that are near sold out, and there is some sort of supply-demand reconciliation.

    Pune? Not sure, prices never fell. Despite more supply and inventory around, actual rates at the builder's office were solid. Sure, there were plenty of investors who liquidated, and I know personally a couple who had a tough time selling, and sold at near or no profit during the last 6 or so months.

    But the rates haven't gone up as well, so Pune is sort of stuck at 5% below 2008 prices.
    CommentQuote
  • Originally Posted by realacres

    Go on a nice vacation man, go crusing on carribean, buy supercars & private jets, get a nice yatch at Miami:). What's the use of only investments if you don't enjoy?


    Why buy? You can always rent that SLK. And you can go on a cruise without owning the boat :-)

    Renting a car when needed makes even more sense than renting a house. Expensive cars are notorious money wasters.

    As for buying a vacation home - renting a hotel room is anyday better and a lot less expensive!

    Couldnt agree more on enjoying ones money - spending takes a lot of thinking and effort as well - equally as enjoyable as investing.

    And yes, having a lot of money and two flats when I am old and half dead is not very appealing. I would rather have one flat that I need and blow up the money now - if only I had enough!!!!

    This IT people's idea of having multiple flats in 3 cities doesnt sound like a good idea - seems more like they are people who have money but dont know what to do with it.
    CommentQuote
  • real- Thanks for sharing the details :)

    On the current discussion, while we have seen some serious or noticeable drops in prices in Bangalore & Mumbai, somehow we didnt see this happening in Pune. Is the Builder Lobby Strong here?

    Talking about Builder Lobby, any idea on what made them change from PBAP to CREDAI?

    This IT people's idea of having multiple flats in 3 cities doesnt sound like a good idea - seems more like they are people who have money but dont know what to do with it.


    Yeah the enarlier Gen IT folks suddenly got too much money & didnt know what to do & went bereserk in RE shopping the results of which are for all to see today.

    The Irony is that IT is not just another Field with Earnings & hikes coming down to other industries levels.
    CommentQuote
  • Trend

    Saw this somewhere. This is an example where asset bubbles could not last long and eventually they get bust.

    Link>]http://www.oftwominds.com/blogaug06/post-bubble-symmetry.html
    CommentQuote
  • Originally Posted by bloger
    Saw this somewhere. This is an example where asset bubbles could not last long and eventually they get bust.

    Link>]http://www.oftwominds.com/blogaug06/post-bubble-symmetry.html

    Great analysis of bull mindset. Shall we term bubble as an irrational-exuberance?
    In spite of high inventories, recession, stagnant (irrationally high) price, Pune's RE-bull (read builders) still trying to make us believe that it's best time to invest. May be their feet are stuck in RE.

    It would be interesting to see how market re-acts once central banks start raising interest-rates.

    Great analysis of bull mindset. Shall we term bubble as an irrational-exuberance?
    In spite of high inventories, recession, stagnant (irrationally high) price, Pune's RE-bull (read builders) still trying to make us believe that it's best time to invest. May be their feet are stuck in RE.

    It would be interesting to see how market re-acts once central banks start raising interest-rates.

    Great analysis of bull mindset. Shall we term bubble as an irrational-exuberance?
    In spite of high inventories, recession, stagnant (irrationally high) price, Pune's RE-bull (read builders) still trying to make us believe that it's best time to invest. May be their feet are stuck in RE.

    It would be interesting to see how market re-acts once central banks start raising interest-rates.

    Great analysis of bull mindset. Shall we term bubble as an irrational-exuberance?
    In spite of high inventories, recession, stagnant (irrationally high) price, Pune's RE-bull (read builders) still trying to make us believe that it's best time to invest. May be their feet are stuck in RE.

    It would be interesting to see how market re-acts once central banks start raising interest-rates.
    CommentQuote
  • Originally Posted by Technocrat
    Talking about Builder Lobby, any idea on what made them change from PBAP to CREDAI?

    The reason is simple:- PBAP was losing its clout & was limited only to Pune. Credai on other hand is a national body. Hence, PBAP thought why not hold tail of Credai:D. They call it Pune chapter of Credai or Credai Pune, but PBAP is still shown on their logos etc.:D
    Originally Posted by bloger
    Saw this somewhere. This is an example where asset bubbles could not last long and eventually they get bust.

    Link>]http://www.oftwominds.com/blogaug06/post-bubble-symmetry.html
    Good link man. Thanks.:)
    Good link man. Thanks.:)
    Good link man. Thanks.:)
    Good link man. Thanks.:)
    CommentQuote
  • Originally Posted by hitmady
    Great analysis of RE-bull mindset. Shall we term bubble as an irrational-exuberance?
    In spite of high inventories, recession, stagnant (irrationally high) price, Pune's RE-bull (read builders) still trying to make us believe that it's best time to invest. May be their feet are stuck in RE.


    Yes and only way these builders can make us believe that its best time to invest is periodically raise prices. I fail to understand why so many people are fooled by this, and actually buy. No doubt correction takes lot of time.
    CommentQuote
  • Originally Posted by RAJESHP
    Yes and only way these builders can make us believe that its best time to invest is periodically raise prices. I fail to understand why so many people are fooled by this, and actually buy. No doubt correction takes lot of time.

    Man as said before:- Heart overtakes the brain. Seems Pune RE buyers have multiple hearts....maybe they have many GFs compared to other cities:D.
    CommentQuote
  • Originally Posted by RAJESHP
    why so many people are fooled by this, and actually buy.


    This is how it happens:
    1. Buyer (middle-income) goes to a builder's office.
    2. Builder normally, quotes very high rate.
    3. Buyer complains it to be unaffordable and negotiates.
    4. Builder reduces price by few percents.
    5. Buyer throws his towel, considering it his victory (saving couple of lacs Rs) :D
    6. Buyer starts paying EMI >= 4X Rent
    7. Buyer now, becomes RE-bull (due to point-6):D, tells friends/enemies about his feat of buying RE & its growth prospects.
    CommentQuote
  • Originally Posted by hitmady
    Buyers throws his towel, considering it his victory (saving couple of lacs Rs).:D

    But they should atleast confirm whether they have anything under the towel at first place:D.
    CommentQuote
  • Its public forum thats vat u said real.
    CommentQuote
  • What is the inventory status now? Have been reading some articles that state sales have increased.

    Know of a friend who is going to buy seems like the builders trick does work for a few. Even if one person is pushed to buy at high rate it is worth playing the tactic.

    VK
    CommentQuote
  • Originally Posted by realacres
    But they should atleast confirm whether they have anything under the towel at first place:D.


    If nothing is under 'RE Towel' break;
    else continune;

    Actually if a buyer becomes a RE bull then there should be a DO loop

    While (!Doomed) DO
    Explore
    Negotiate and Buy (after seeing under the RE Towel)
    Sell (if possible)
    end while
    CommentQuote
  • Originally Posted by enduser

    Actually if a buyer becomes a RE bull then there should be a DO loop

    While (!Doomed) DO
    Explore
    Negotiate and Buy (after seeing under the RE Towel)
    Sell (if possible)
    end while


    Hey I like the while loop, exit condition is perfect.:D:D
    CommentQuote
  • Increase in Prices Of Essential Commodities


      Just got this report:- the petrol prices are going to be hiked by INR 2.5-3/litre:( as govt is deciding to de-regulate petrol prices,
      The inflation is expected to zoom more than expected when the figs will be out tomorrow,
      China has unexpectedly hiked the reverese repo by 50bp,
      Economists are worried about low home loan interest rates offered by banks to lure customers, say it's not sustainable,
      Inflation of about 7%, growth rate of 7% doesn't command so low interest rates; & strong possibilty of hike in reverse repo & CRR in short term exists,
      The unemployment figs in India has increased though no one is officially admitting it,
      The fiscal deficit is set to touch whopping 10% & divesting PSUs is not going to be enough,
      Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.Man, things are not looking good on these factors in 2010. My fund managers have already advised me not to invest in markets, MF, bonds or even in gold till Aug 2010 as the situation is volatile. So, best thing to do is to have cash:). The savings of FD returns may not be good w.r.t. inflation but atleast you will be assured of your money in this case.

      Keeping fingers crossed till the budget takes place next month.
    CommentQuote