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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  • Some encouraging sign of improving economy

    ]http://economictimes.indiatimes.com/markets/analysis/FIIs-raise-a-toast-to-India-infuse-16-bn-in-just-6-days/articleshow/5439092.cms

    ]http://economictimes.indiatimes.com/News/Economy/Finance/India-bank-loans-up-Rs-800-bn-in-2-weeks-to-Jan-1/articleshow/5441572.cms

    ]http://economictimes.indiatimes.com/news/economy/finance/Stimulus-may-be-pulled-out-in-two-phases/articleshow/5442398.cms (even slow moving govt feels that companies can self sustain now)

    Sen showing pleatue around 17K and prediction are rise towards 21K. At present bear bull balance each other.

    ]http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Homebuyers-will-lead-the-way-in-reviving-the-realty-market/articleshow/5426506.cms

    Renewed interest in RE across country. Prices increasing steadily over past few months and sales volume on rise.

    ]http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Real-Estate-Rising-demand-for-luxury-homes/articleshow/5442135.cms

    ]http://economictimes.indiatimes.com/infotech/hardware/Worldwide-PC-shipments-jump-158-in-Q4-IDC/articleshow/5442476.cms

    ]http://economictimes.indiatimes.com/Top-8-FMCG-companies-may-see-23-growth-in-net-profit/articleshow/5442584.cms
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  • Originally Posted by veeemkay


    In all this keep on saying only few flats left and hence increase rate by another 200-300 psf.


    Everytime you go talk to any realtor or even sales people at Unitech signature towers this is the theme. Price is soon to be revised in 2 to 3 days, so need to buy now.

    Last time I was at Unitech signature towers the salesman started using his MBA on me, not knowing who I am or where I come from. In the end I asked him where did you do your MBA. Then he asked me sarcastically if I knew what shorting means ? I asked him why Unitech was having so many finanical problems and he said it was because of people spreading rumours and trying to short its stock...I almost laughed ....What an Idiot...I asked him why don't then people do it to infosys too ?....
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  • There is always fantasy created by news papers that economy is impriving, the real fact is far away from this.


    All IT Companies have declared job losses in March-April, Less increments for 2010. Not sure abt other areas.

    Anyway, two Property exibition in less than 40 days shows the despiration of builders to sale thier scraps ( flats) . I wondered immeditely just after sakal exibition , there is new exibition coming up.

    people have now realised that there is always a bubble getting created in RE and it may anythine can come out of it.

    I am daam sure , there will be a news in newspaper after this coming exibition that all flats of Paranjpe got booked at higher rates due to so called "recovering economy" :D ..& new builders were left with very less options.:D
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  • Please read.

    http://economictimes.indiatimes.com/news/international-business/2010-double-dip-is-big-risk-US-economist-Feldstein/articleshow/5445763.cms

    But will not affect India RE right? Tons of Black money, Huge Population, and land is no more manufactured, bla bla...
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  • Veemkay, I totally enjoyed your write up. LOL

    ]http://www.indianrealtynews.com/real-estate-developers/boom-in-sale-of-luxurious-housing.html
    Builders are back to their usual evil ways once again. It is as if 2009 never happened.

    Again they will book half the project, then sales will stall and there will be liquidity crisis and delay in building.

    This time it will probably happen sooner than later. Caveat Emptor.
    Builders are back to their usual evil ways once again. It is as if 2009 never happened.

    Again they will book half the project, then sales will stall and there will be liquidity crisis and delay in building.

    This time it will probably happen sooner than later. Caveat Emptor.
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  • Originally Posted by Venkytalks
    Veemkay, I totally enjoyed your write up. LOL

    ]http://www.indianrealtynews.com/real-estate-developers/boom-in-sale-of-luxurious-housing.html
    Builders are back to their usual evil ways once again. It is as if 2009 never happened.

    Again they will book half the project, then sales will stall and there will be liquidity crisis and delay in building.

    This time it will probably happen sooner than later. Caveat Emptor.

    Man these stories make me look like a pauper. 25cr? want 10% discount? I'll get my entire apartment in 10% discount.

    Man these stories make me look like a pauper. 25cr? want 10% discount? I'll get my entire apartment in 10% discount.

    Man these stories make me look like a pauper. 25cr? want 10% discount? I'll get my entire apartment in 10% discount.

    Man these stories make me look like a pauper. 25cr? want 10% discount? I'll get my entire apartment in 10% discount.
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  • Hey VT/Razer ... do you guy sleep in night or with eyes wide open keep dreaming about great RE fall :D .. just kidding since saw you post in such wee hours of morning.
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  • Originally Posted by compuwalah
    Hey VT/Razer ... do you guy sleep in night or with eyes wide open keep dreaming about great RE fall :D .. just kidding since saw you post in such wee hours of morning.


    Different timezone dude. :)
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  • Originally Posted by RAJESHP
    Please read.

    ]http://economictimes.indiatimes.com/news/international-business/2010-double-dip-is-big-risk-US-economist-Feldstein/articleshow/5445763.cms

    But will not affect India RE right? Tons of Black money, Huge Population, and land is no more manufactured, bla bla...


    These all just predictions. But the links that I posted , majority of them are happening things. Peole are seeing a banks doing major loan disbursal, FII pumping in money, Sen climbing up, interest in RE reviving. Even I can post such links predicting things which show more rosy picture than the facts I posted. things. Peole are seeing a banks doing major loan disbursal, FII pumping in money, Sen climbing up, interest in RE reviving. Even I can post such links predicting things which show more rosy picture than the facts I posted. things. Peole are seeing a banks doing major loan disbursal, FII pumping in money, Sen climbing up, interest in RE reviving. Even I can post such links predicting things which show more rosy picture than the facts I posted. things. Peole are seeing a banks doing major loan disbursal, FII pumping in money, Sen climbing up, interest in RE reviving. Even I can post such links predicting things which show more rosy picture than the facts I posted.
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  • Satish Shetty, an RTI activist, who was brutally murdered, allegedly by RE lobby ...

    See ]http://www.merinews.com/article/satish-shetty-murder-a-good-citizen-is-dead/15794254.shtm
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  • by the way Unrelated post but Burj Khalifa in Dubai costed 10 Billion dollors ....
    45 thousand crores ! that translates to 90,000 2BHK flats can be built each costing 45 lakhs ....
    Do we have that much flats in Pune made in last 10 years?
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  • Exactly frug. Even under this situation Dubai will revive again sooner or later. Here we just post doomday prediction when there is inventory of just 45000 sq mtr unsold residential places in Pune and that too in a country which beats Dubai with left hand on cost front ,population front, industrial growth front, natural resources front.
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  • Originally Posted by frugality
    by the way Unrelated post but Burj Khalifa in Dubai costed 10 Billion dollors ....
    45 thousand crores ! that translates to 90,000 2BHK flats can be built each costing 45 lakhs ....
    Do we have that much flats in Pune made in last 10 years?


    Dude, where did you get that figure from?

    The total cost for the Burj Khalifa project was about US$1.5 billion; and for the entire new "Downtown Dubai", US$20 billion.

    Source: Wikipedia

    And please let's not compare app.les (hahaha!, forum ghost doesn't like seb) and oranges again. Some guy here compares US infra and rates, and then you have some guy comparing Dubai rates and infra. And then you have another guy comparing the Jap RE history to ours...

    India, ummm...is not shining, but is a whole bloody different place. :D
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  • Originally Posted by frugality
    by the way Unrelated post but Burj Khalifa in Dubai costed 10 Billion dollors ....
    45 thousand crores ! that translates to 90,000 2BHK flats can be built each costing 45 lakhs ....
    Do we have that much flats in Pune made in last 10 years?


    Dubai also has the most perfectly-paved-roads-without-potholes/kilometer than the whole of India. :D

    And one of the highest rate of deaths on road by accident per capita.

    Check the number of fatalities per 100,000 here:

    http://en.wikipedia.org/wiki/List_of_countries_by_traffic-related_death_rate

    The point I'm trying to make is with first-world infrastructure you can still have third-world mortality rates for road safety.

    Imagine with one magic swooosh, India fixed all its roads, and had all National highways at 16-laners dual carriageways. And you could buy a 200hp average sedan for under 7L. :D

    We'd be racing up that list so fast, we wouldn't need to build a rocket to go to the moon, just stack up the dead bodies and we'll get there pronto.

    Oh! And with so much speed and space on our perfect roads, where'd our bullock carts, dying live stock, dogs, beggars on signals go?

    I'd much rather encounter these obstacles at 10km/h. :D
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