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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  • India is a functioning anarchy

    Maybe a little off topic but we discuss politics anyway...

    Here's a short para I read today from an interesting article.

    ---
    If you are an avid fan of Bollywood movies then you would understand the 'Mumbai dream'. The protagonist comes to the city to try and make a better living. And it certainly was and probably is the land of opportunities for many. But when you enter the city now, the lack of infrastructure in the form of potholed roads, inadequate civic supplies, etc hits you in the face. This is unfortunately the tale for most of the major cities in the country. A probable exception to this would be Delhi which is the centre for political power. But let us concentrate on the larger picture for now.

    The country's state of infrastructure is pathetic. There are expressways in some places. But no roads at all in other. There are skyscrapers that are perpetually glittering with lights but no electricity at all in most parts of the country. Clean water. Sanitation. Medical benefits. These things are not even heard of in a large part of the country. Despite all this the country has had a rocking economic growth till recent times. Even with the slowdown, it is still amongst the fastest growing economies in the world. This has led a leading daily to question if India is a functioning anarchy?

    For those who may not understand, anarchy is defined as the absence of the government and absolute freedom of the individual. If we look at the state of affairs in the country, things that are managed or controlled by the government are the ones that usually do not function. Or if they do function then the pace is abysmally slow. On the other hand the private counterparts have done very well. They have expanded operations, gone beyond the boundaries of the country. In short, steered the growth for India. Though the government has done something in terms of reforms but it has been grossly inadequate. Most of the times the government policies take years to get implemented. By the time they do get i mplemented the need has grown mu ltifold requiring much more than what is being delivered.

    And this is the story of how things have been in the country. The government takes the backseat and watches how things progress. Most of its agenda is focused on pleasing the masses so that they can secure their political seats during the next elections. Whenever there is a social stirring like the stuff we have been seeing in recent times, it wakes up from its inertia and does execute something. However most of it is inadequate. With citizens constantly getting deprived of good governance and losing faith in the political system there is a need to save India from 'anarchy'. And that would be to have more educated, professionally experienced, ethical and motivated individuals take onu s of India's political leadershi p. The people of the country have done their job and are continuing to do so. Now the political leaders have to wake up and do theirs. Otherwise India will become nothing but a 'functioning anarchy'.

    Do you think that India is a functioning anarchy?
    ---
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  • Excellent one... could not stop laughing...

    Sorry for posting here but not sure where to post this. This is a commantary on Rahul becoming the VP.

    ---
    Veg Jaypuri
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  • Originally Posted by punerebuyer
    Excellent one... could not stop laughing...

    Sorry for posting here but not sure where to post this. This is a commantary on Rahul becoming the VP.

    ---
    Veg Jaypuri



    let me get it straight,. You post some irrelevant stuff and that follows by a post by yourself saying its excellent :)
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  • compuwalah: I am sure he meant his comments for the link below in the same post, and not the post above! Else how can one say ' could not stop laughing...' to his own serious post :D
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  • Actually, thats how things should be and I dont mean the bad governance part, but the government taking a back seat part.

    At the time of independence, India was very poor. The private enterpreneurs did not have the resources to take up huge projects. So industries which require giant size investments were being taken by the government. Hence railways, Air India, Mining, Steel, Banks and to a large extent education was taken up by the Government.

    Obviously , since profit was not the motto, but providing utilities was the only intent, these organisations were inefficient. They were only focused on providing employment to lakhs of countrymen. hence all the PSus were overstaffed and ineffcient.

    Gradually, once the kite started flying high the father gives the "manja" to the son. The Government gradually backed out and as the country got more capital, both internal accruals as wellas FDI, privatisation began. Heavy industries, power, oil etc started seeing private enterpreneurs. With them came the profit maximisation, employees were evaluated on merit and efficiency, not age (unlike PSUs) and hence we saw better services.

    The government is for governance. It should actually focus more on welfare and less on business. It cant run businesses.

    But then came 2004...and the Mummy...and she said "go hell with welfare..I only want the power...to hold on to the chair till my son takes over". And so her only interest was to keep those politicians happy who would bring her vote banks.

    The cabinet took the country back to the license raj and in the name of Pulic Private Participation took the corruptions levels to the stratosphere. Madam/ Mummy and her team fully exploited the private enterpreneurs and cripled the economy!
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  • More RE Probs

    > Luxury housing market has fallen by about 50% in past 2 years. This fact has been acknowledged by Amit Bhosle, ED ABIL whose company is one of the major luxury RE developer in the city,

    > Nanded City (NC) township guys informed that no new residential development will come up at NC atleast for another 2-3 years as current stock is yet to be absorbed,

    > Sweet water villas at Amanora, Getaway towers got poor response. Maybe savvy_v can give us some nos,

    > Hardly any new bookings are seen at Aloma County, Sereno. Pride Platinum too faces similar issues,

    > Several projects at Ravet, Moshi, Chikhali, Ambegaon have come to standstill, people who booked here are now stuck,

    > Also came to know Kumar/KUL is offering discounts on its project, 45 Nirvana.

    Some more insider updates will follow.
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  • Luxury housing market has fallen by about 50% in past 2 years.


    - I don't know anything generic, but the realty company results are looking good on the stock markets. Considering how much they hate declaring profits and keep all the money themselves, my guess is that the white sales were so good that they had not choice but to declare profits.
    - Again, don't know generic, but In the last 1 month, Blue ridge has sold over 30 flats in the latest towers, all at rates of 5100+ floor rises + all the extra loot (1 cr+ flats). They might have sold more in the other towers.

    The fact is that even if we accept the news on face value .. that the market has fallen 50%, the point is that the profitability of the builders has gone up by 100%!
    Eg. The same flat that was available for Rs 3000 2 years back and builder had to spend 1500 to construct it .. now sells for over 5000, and the builder has to spend 2000 in the worst case scenario. So his profits have risen from 1500 to 3000 per flat sold ... so even with 50% sales, and all paper appreciation, they would be more than happy to keep holding the flats for ever!
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  • personally I see reduction in new supply as a very healthy & postive development...

    it will reduce any tail risk of crash

    we were building for too many flats

    reduced supply = rationale pricing = sustainable long term trends = less risk of one caught in a wrong deal at very inflated price
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  • Originally Posted by compuwalah
    let me get it straight,. You post some irrelevant stuff and that follows by a post by yourself saying its excellent :)


    actually I was expecting a comment from you but not so early... I was expecting it to come after 3 years :bab (59):
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  • Originally Posted by punerebuyer
    actually I was expecting a comment from you but not so early... I was expecting it to come after 3 years :bab (59):

    Right punerebuyer. I apologise to all people who have based their decisions on the negetive threads as I feel that could have acted early by exposing them than wait for some time to pass before taking action.

    But I was going by fact that "do not speak if you are doubly sure of things". Additionally I was fazed by some "I command the world" kind of posts and was happy that we have some gems on the forum. But it took me some time to realize how empty some vessels have been. You should see responses from the members when their prediction has completely been shredded to pieces , still they have some magic with the words to drive attention from the main point or give some explanation which even donkey cannot digest.

    But as you see I have tried to be faster now a days on this aspect.

    punerebuyer. Thanks for your constructive criticism. btw are you person holding guiness record of longest tounge ? :) man if I keep the milk plate used for my cat in front of you, my cat surely gonan go hungry
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  • Originally Posted by compuwalah
    give some explanation which even donkey cannot digest.


    Why do I sense some desperation in the above comments. Don't feel bad, for those who have waited, their time will certainly come.

    I have stopped worrying about buying, instead looking forward to book tickets for my next international vacation. My kid wants to visit Disneyland/Universal Studios very soon....loan ki khisht ke baarein sochne ke liya phursat kahan hai, jab loan hi nahi hai. :)

    People who bought at these high rates, should enjoy their hard earned homes and loan chukane ka majha. :D
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  • guess I went bit overboard over there :) . I do not deny the fact that there is always a possibility that prices will soften slightly (but one may as well forget price levels of 2009) but have objection to the fact that when 10 things are positive and only 2 negetive (happened during boom times), people project that those two factor will dominate the rest. Not only that sometime people create a news out of thin air (without any basis) and project end of the world theories. No problem with that either as its a democracy. However expect people to be responsible and then at least accept the fact that they were not correct with many assumptions that to cover up with some further funny explanation and further equally wierd predictions.

    Again as you said, RE is not everything in life and even if one cannot buy one there is always alternate of renting one. People who have eneterd at high time , if they having paying capacity/plan in place , then not to worry. People who overleverage do carry the risk which many on this forum has always adviced against.
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  • Originally Posted by compuwalah

    You should see responses from the members when their prediction has completely been shredded to pieces , still they have some magic with the words to drive attention from the main point or give some explanation which even donkey cannot digest.

    But as you see I have tried to be faster now a days on this aspect.

    punerebuyer. Thanks for your constructive criticism. btw are you person holding guiness record of longest tounge ? :) man if I keep the milk plate used for my cat in front of you, my cat surely gonan go hungry


    Why do you resort to criticism on the personal level? This demeans the entire forum, when we are trying to have a constructive debate here. If you are a bull, keep buying real estate or keep advocating that it is a right investment. But why to trash other people and their opinions?

    I am a bear and will always encourage people to postpone their purchase till rent:price ratio comes down to 1:200. I will try to support my arguments in various ways, but personal attacks will never be one of them.
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  • Originally Posted by abeerbagul
    Why do you resort to criticism on the personal level? This demeans the entire forum, when we are trying to have a constructive debate here. If you are a bull, keep buying real estate or keep advocating that it is a right investment. But why to trash other people and their opinions?

    I am a bear and will always encourage people to postpone their purchase till rent:price ratio comes down to 1:200. I will try to support my arguments in various ways, but personal attacks will never be one of them.


    At any cost no should do personal attack this forum.
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  • Originally Posted by rembrants

    At the time of independence, India was very poor. The private enterpreneurs did not have the resources to take up huge projects. So industries which require giant size investments were being taken by the government. Hence railways, Air India, Mining, Steel, Banks and to a large extent education was taken up by the Government.
    Sorry but this is the version of history taught in schools :) actual facts are quite different. The govt policy was to control all means of productions and distribution cause everything remotely resembling capitalism and free market was frowned upon and the citizens are paying the prices of that decision till this day.


    Obviously , since profit was not the motto, but providing utilities was the only intent, these organisations were inefficient. They were only focused on providing employment to lakhs of countrymen. hence all the PSus were overstaffed and ineffcient.


    They are still very inefficient and need to be divested soon.


    Gradually, once the kite started flying high the father gives the "manja" to the son. The Government gradually backed out and as the country got more capital, both internal accruals as wellas FDI, privatisation began. Heavy industries, power, oil etc started seeing private enterpreneurs. With them came the profit maximisation, employees were evaluated on merit and efficiency, not age (unlike PSUs) and hence we saw better services.
    No kite was flying high. India had to beg for a bailout from the IMF and in return had to open up the economy. PM might have got credit for opening up the economy but it wasnt a proactive move. It was an reactive move.


    But then came 2004...and the Mummy...and she said "go hell with welfare..I only want the power...to hold on to the chair till my son takes over". And so her only interest was to keep those politicians happy who would bring her vote banks.

    Welfare means health and education or what does welfare mean? Unemployment benefit or child benefit or what exactly?


    The cabinet took the country back to the license raj and in the name of Pulic Private Participation took the corruptions levels to the stratosphere. Madam/ Mummy and her team fully exploited the private enterpreneurs and cripled the economy!


    The people elect the govt and so one gets what one deserves :)
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