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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  • What are the ingredients of a quality post on IREF?

    1.

    2. :D

    3. ;)

    4. :bab (59):
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  • Originally Posted by fatichar
    What are the ingredients of a quality post on IREF?

    1.

    2. :D

    3. ;)

    4. :bab (59):


    Agree with you completely..:D :D :D :D :D..sorry was just trying to improve the quality of my post as per the guidelines set by some senior moderators on the forum..:bab (59):
    CommentQuote
  • Originally Posted by amitgupta00
    It pains me to see that people who are devoid of even basic knowledge of economics and finance like realacres have been made senior mods and they keep joking and making fun of every argument which cannot see with there way of looking things.

    OK. Lets be practical.
    How many flats can you see in Pune which are 100 years old & is used by the original buyer ??

    We agree to disagree, not necessary that one should agree to all points. Thats the beauty of the forum.

    And man, why bring 'Senior Mod' stuff time & again ? You said it before when I mentioned about SBI plan & also proved how it is better than RE, still rather than contradicting the views, you are getting personal. :( Ever seen any posts by any so called bull getting deleted by me ?

    See the picture on the broader light & please don't categorize members as mods, bulls, bears, etc. Let everyone express their ideas & thoughts & others comment.

    We have the BJP & Congress, this doesn't mean that only BJP is right or Congress is right. There are 'Left' also.
    CommentQuote
  • Civic body may lose `300 crore in octroi

    All those who say that apart from IT, auto sector is responsible for RE price hikes, this news should be an eye opener for them :-

    Slowdown hits PCMC automobile sector

    Archana Dahiwal Pune

    The global economic slowdown is spreading worries in the echelons of the automobile hub of Pimpri-Chinchwad. In fact, the octroi department of the Pimpri Chinchwad Municipal Corporation (PCMC) has stated that it has seen a major dip in octroi collection from automobile majors.
    The civic officials fear they would not be able to meet the target of Rs1,300 crore set for octroi collection for 2012-13 and would incur a loss of Rs300 crore this year. The decline is attributed to a dip in octroi collection due to recession.
    PCMC octroi head and assistant commissioner Ashok Mundhe told DNA that the automobile sector was badly affected.

    Mundhe said, “The recession has badly affected the automobile sector that was the backbone of our industrial hub. We have no hope of completing the set target of Rs1,300 crore. We assume that we will suffer a loss of Rs300 crore this year.” In the last financial year ending March 31, 2011 the octroi collection was Rs1,225 crore, while the budgetary target for the octroi department was Rs1,119 crore. The collection exceeded the target by Rs106 crore. This year, the PCMC will be able to collect Rs784 crore octroi till the end of November 2012.

    Mundhe said, “The major decline of octroi collection was reported from automobile companies. According to civic officials, the recession started taking effect from November and it will affect more in the coming months.
    Pimpri-Chinchwad Small Industries Association (PCSIA) president Nitin Bankar told DNA, “Actually, the recession really started hitting the industries from November. If the government does not take any steps, the situation will go out of control.”

    Bankar, who is director of Gautami Engineering Works at Talwade, said, “Almost all the small units have stopped overtime by workers. The industrial units that normally shut at 8 pm have started downing shutters at 5 pm. The work orders of small units have gone down by 50%. The small units have reduced overtime hours of 1.75 lakh workers in the industrial area, while the giant industries have announced block closures. The big and medium industries halted recruitment and started the process of removing contract workers.” PCSIA members added that the big industries had reduced work orders by 50%, so there was no need for overtime. There are nearly 8,000 small units located in the Pimpri-Chinchwad industrial belt.
    PCSIA sources said other sectors were also affected by the slowdown and work schedules were cut by 50 to 70%.

    Source- 3dsyndication
    23, Dec 2012
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  • As for the 100 years argument, we are talking about property and not building construction. So a property can remain within the owner's family for generations while the building on it is demolished and rebuilt again and again.

    That is why the issue of "deemed conveyance" is a hot topic in areas of Peths, Erandwane and Kothrud.

    When conveyance is done, either by the builder or deemed, a reconstruction project can happen after 30 - 40 years where original residents get a brand new flat and everyone benefits. If conveyance is not done, the flat owner just owns the flat and not the land, which is a way of cheating by the builder.
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  • Originally Posted by realacres
    OK. Lets be practical.
    How many flats can you see in Pune which are 100 years old & is used by the original buyer ??

    We agree to disagree, not necessary that one should agree to all points. Thats the beauty of the forum.

    And man, why bring 'Senior Mod' stuff time & again ? You said it before when I mentioned about SBI plan & also proved how it is better than RE, still rather than contradicting the views, you are getting personal. :( Ever seen any posts by any so called bull getting deleted by me ?

    See the picture on the broader light & please don't categorize members as mods, bulls, bears, etc. Let everyone express their ideas & thoughts & others comment.

    We have the BJP & Congress, this doesn't mean that only BJP is right or Congress is right. There are 'Left' also.



    Real acres you appear to be in the bear camp.
    (Even I am in the same camp as any sensible person should be).

    But I have a feeling that people with strong views should not be moderators.

    So leave all this moderator-ship business and let us counter these countless bulls collectively.
    CommentQuote
  • A few other misconceptions ...

    Originally Posted by realacres
    OK. Lets be practical.
    How many flats can you see in Pune which are 100 years old & is used by the original buyer ??

    We agree to disagree, not necessary that one should agree to all points. Thats the beauty of the forum.

    And man, why bring 'Senior Mod' stuff time & again ? You said it before when I mentioned about SBI plan & also proved how it is better than RE, still rather than contradicting the views, you are getting personal. :( Ever seen any posts by any so called bull getting deleted by me ?

    See the picture on the broader light & please don't categorize members as mods, bulls, bears, etc. Let everyone express their ideas & thoughts & others comment.

    We have the BJP & Congress, this doesn't mean that only BJP is right or Congress is right. There are 'Left' also.



    I don't understand 2 things ...

    Does one have to be an economics Prof to post on trends in RE (on the ground) as they see / hear about it?

    Does one have to be an economics Prof to be a Mod?

    Does being a Mod prohibit one from being an ordinary member and post his/her own opinions?

    Would it not be imperative for people commenting on other's credentials also FIRST place their own credentials (for example are you an Eco Prof amitgupta00?) so that they are taken seriously?

    Amit, you will have to bear with the pain for quite a while into the future, I think! :)

    Btw, I politely refused being a Mod (precisely for this reason, besides having pther commitments), so that I could merrily continue to be a realist (at this point, a bear! :))

    cheers
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  • Originally Posted by abc111
    Real acres you appear to be in the bear camp.
    (Even I am in the same camp as any sensible person should be).

    But I have a feeling that people with strong views should not be moderators.

    So leave all this moderator-ship business and let us counter these countless bulls collectively.


    The part in bold reflects a closed mind.
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  • Originally Posted by realacres
    CREDAI has asked its members to cut prices & reduce inventory overhang (in reality reduce debt). This was conveyed by CREDAI to all it's members.

    Now here is the inside story :-

    As you all know, members of CREDAI are bound to obey the diktat of CREDAI. Several builders across the country complained that they no longer can hold the inventory & facing severe liquidity crunch. When the voices of such builders grew louder, CREDAI had no option but let loose. Expect individual correction in prices very soon & as seen, Mumbai has already started witnessing fall in RE prices.:)

    Apart from this, NDTV reported this week how builders have taken money from buyers in launch & pre-launch stage and builders are not constructing anything. The buyers are being threatened that incase they cancel the booking, few lacs will be deducted. The situation is severe in Bangalore & Delhi-NCR. A long list was put up for the same.

    In reality, builders are taking money from buyers even in Pune & using it to pay off debts rather than to complete the project. Hence, it is now best to buy ready possession flats to be on safer side & having 60% investors in market, makes things even more easier for buyers, what one needs is some ground-work.

    Apart from this, BoB or Bank Of Baroda has stated that it will not give loan to builder or buyer (home loan) for entire area of Greater Noida due to legal issues & poor track records of the builder. Bankers say that similar policy will come up across the country where loans in future will not be sanctioned for projects having some or the other issues, which is now on rise even in cities like Pune.

    And last but not the least, just speak with your banker, you will be shocked to see the fall in home loans. My bankers informed that in their branch, not a single home loan was taken in this month & overall the fall is over 80% !!


    Good News - Good News !!!

    The Property Exhibition comes to Pune on Jan 4 thru Jan 6th, 2013 @Hotel VITS....so i think this is the opportunity to get that "reduction in proce" CREDAI has mandated...
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  • Originally Posted by fatichar
    The part in bold reflects a closed mind.


    Real estate bears are in minority among common public.
    People just don't accept that real estate prices can come down.

    I don't understand whose mind is closed.

    Just today I talked to some of my economics professors;even they are apprehensive about this bubble and fear that people will loose their entire life savings whenever it bursts.

    People are just not ready to understand what can be the devastating impact of a de-leveraging cycle.

    Europeans have gone from riches to rags in a span of just 4 years.

    High Inflation and stagnant salaries in the coming years is going to cause a lot of pain.

    We live in a globalized world and are tightly coupled.
    Indians just can't remain immune from what is happening in the world.
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  • Originally Posted by simsagar
    Good News - Good News !!!

    The Property Exhibition comes to Pune on Jan 4 thru Jan 6th, 2013 @Hotel VITS....so i think this is the opportunity to get that "reduction in proce" CREDAI has mandated...


    Full hawa hai...kuch kam nahi honewala.
    CommentQuote
  • Originally Posted by abc111
    Real estate bears are in minority among common public.
    People just don't accept that real estate prices can come down.

    I don't understand whose mind is closed.

    Just today I talked to some of my economics professors;even they are apprehensive about this bubble and fear that people will loose their entire life savings whenever it bursts.

    People are just not ready to understand what can be the devastating impact of a de-leveraging cycle.

    Europeans have gone from riches to rags in a span of just 4 years.

    High Inflation and stagnant salaries in the coming years is going to cause a lot of pain.

    We live in a globalized world and are tightly coupled.
    Indians just can't remain immune from what is happening in the world.


    I am more worried about rupee collapsing. 90 ruppes to dollar can mean havok

    Strangely re will protect you from this havoc though gold would be best
    CommentQuote
  • Originally Posted by abc111
    Real estate bears are in minority among common public.
    People just don't accept that real estate prices can come down.

    I don't understand whose mind is closed.

    Just today I talked to some of my economics professors;even they are apprehensive about this bubble and fear that people will loose their entire life savings whenever it bursts.

    People are just not ready to understand what can be the devastating impact of a de-leveraging cycle.

    Europeans have gone from riches to rags in a span of just 4 years.

    High Inflation and stagnant salaries in the coming years is going to cause a lot of pain.

    We live in a globalized world and are tightly coupled.
    Indians just can't remain immune from what is happening in the world.

    You and me are staring at a coin from opposite directions. Me saying that the coin has head is not a closed mind. You saying that the coin has tail is not a closed mind.
    Saying that "any sensible person will see only tail" is a closed mind.

    Can't clarify more.
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  • Market always takes the maximum number to the cleaners!

    Originally Posted by abc111
    Real estate bears are in minority among common public.
    People just don't accept that real estate prices can come down.

    I don't understand whose mind is closed.

    Just today I talked to some of my economics professors;even they are apprehensive about this bubble and fear that people will loose their entire life savings whenever it bursts.

    People are just not ready to understand what can be the devastating impact of a de-leveraging cycle.

    Europeans have gone from riches to rags in a span of just 4 years.

    High Inflation and stagnant salaries in the coming years is going to cause a lot of pain.

    We live in a globalized world and are tightly coupled.
    Indians just can't remain immune from what is happening in the world.



    I had a friend who had his main business in Spain. Warned him seriously around as late as 12-18 months back to get out asap. He assured me that things were quite okay. Today, his business is closed.

    You are correct. Bear phases jump out of the window. They occur so quickly that the majority (by now highly complacent about prices going up forever - remember USA in 2005/06?) move too slowly and by the time they finally come around to thinking of selling, price is below their purchase price + interest and then fear and confusion grips them.

    Finally its when prices are near bottom that most people sell in distress and swear never to get in again.

    The 2 things to be apprehensive about today is Rupee going to 90 (to the dollar, with dollar also falling against real assets like PMs) and the fact most people think 18L salary is middle-class. Are we living in an alternate reality? How many families have 18L as income level compared to the total?

    And if at 18L one can only save 2.5L, we are close to the tipping pont. These levels of salaries cannot be sustained in a global economy, especially when many other populations are in desperate situations.

    Please note that in a recent advert for 300 attendant positions by Delta in the US, 10000 applications came in during the first week alone. Back in 2010, for 1000 positions, 100,000 applied.

    Not being able to sustain our competitiveness globally, salary cuts are definitely coming. And with inflation (hyper-inflation?) coming up rather quickly, its going to get rather difficult to make ends meet, leave alone cover giant and rapidly increasing debt servicing needs.

    Think a little longer term when it comes to such large debts and you will be surprised how little we have as debt cover.

    cheers
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  • Originally Posted by abhayd
    Full hawa hai...kuch kam nahi honewala.


    Log to jaroor kum honge....guaranteed. :D
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