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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  • I agree with your analysis. The current Kamal-phool agitation against Mr Where-is-my-mouth-Shinde is precisely to galvanize its workers and gear up to the 2014 elections.

    Why I am saying "Mr Where-is-my-mouth Shinde" is becoz there seems to be 2 mile distance between his brain and mouth. If you have seen him during his speech, it seems he is thinking something else and talking something else. Search for "frank caliendo george bush" in you..tube for what I am intending.

    One good thing about Kamal-phool is that there are many in its party who seem to have a clean image than Hand-symbol and other parties. Ofcourse there are bad apples in each party, but what matters is their quantity. The only issue is that when they were given a chance, they screwed it up. Same goes for Tiger party.

    Yesterday again some CAG report came regarding scam in the Farm Loan Waiver scheme of UPA. Man, there are so many scams in last few years than there has been in the last 60+ years. Looks like the Hand-symbol party has made all the money it needed for next 200 years.

    Originally Posted by Sharpj
    What do you think will happen...
    BJP is confused and a in a mess
    Left front has no spine to stand on its own.. will prop up Mayawati as their PM and people will run scurrying..
    Congress will use the direct cash transfer scheme.. as a bribe.. and people will vote them back... Even if they do not get 200+ they will get enough to buy off all these fence sitters off..

    I don't see any hope for the country..
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  • It was me you refer to ...

    Originally Posted by compuwalah
    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.



    Whenever you use the "I command the World" phrase I'm sure you are referring to me! No problem ...

    From 2006 I have been singing the same tune. Whenever things look bad in the media, people like to listen. When they are sounding good what I say becomes "impossible".

    That is simply due to a mismatch about our respective timeframes for this thing to end. Possibly its also because more and more people are suffering to an increasing degree gradually, inflation, loss of income, job prospects looking bleaker and so on, and they are getting vexed about it.

    Let us be clear about one thing ...

    This Crisis is all about blowing of debt bubble starting from 1954. This was the year the DOW crossed the peak reached in Oct 1929 - it took 25 YEARS for the nominal DOW to cross back over the previous peak. Some argue that the only reason it was so quick was because WWII came in and re-started the world's shattered economies, without which it might have taken even longer.

    Another thing. In 1954 the US started the steep climb in debt issuance, which culminated in the events of 2008. Normally, it takes nearly as much time for this debt to collapse and reduce and then the next cycle starts.

    To complicate matters, instead of reducing debt from 2008 and putting the criminals in jail for life, those who made this happen, they were rewarded with even more debt being created and out into the very same hands to play Giant Russian Roulette with the world.

    Whether you like it or not, out very own "too-high" RE bubble is partly at least a result of what I've stated above. If we did not have the IT boom (being part of this boom from 1985, I had a bird's eye view of exactly how much it has changed India) we woul not even be talking prices a quarter of what it is now!

    This debt crisis seems to be near its very peak right about now. With Japan announcing essentially limitless printing of new debt, others will be forced to follow. We will effectively be jumping from the pan into a roaring and increasing fire (fueled by the Ghee - debt - being poured in enormous quantities even now).

    The aftermath when this whole thing implodes will be too bad to envision. People from UK and US who told me I was blowing it too much out of proporton back in 2006/07 when I quit the software export market and set up shop in the Indian market (to be safer) are now seriously coming back asking me where this is all going. No one knows, but one can guess that it will be much worse than anyone anticipates.

    Compu, all this is to set the basis for mo next statement ...

    If you think prices will only "soften a bit" you might just be too soft on the decline. This will be a longer exercise than most people think (its already 5 years in the running since the crash started on 18 Jan 2008) and the real decline will only start a little later when the debt starts reducing.

    The IT business has not really had it hard until now since their source of income comes mainly from the BFSI sector (which is the main beneficiary of the debt super-bubble). Ben is talking about shutting off QE later this year (I don't think he can). If he does (or even if the cuts in spending in the US starts otherwise), you will see REAL cutting of business from the US. That is when REAL pain starts in our IT sector.

    Thats is when REAL RE investor panic will start and the 60% of investor inventory in Pune REAL is talking about will start coming into the market in increasing distress. At that time there will be no buyer situation with only sellers. Have you ever been in the stock market when there is a no-buyer situation?

    Back in 2008 Feb we saw days when such a situation occurred. On those days I have seen 2000+ intraday fall in Sensx and 800 point falls in Nifty. Stock market has transparency and an efficient price discovery mechanism. Think what would be the situation in RE with total opacity and very poor price discovery.

    Just for you to mull over. Give it some time to start happening.

    And Gold should go to the stratosphere given that it will be the ONLY asset worth trusting (silver too).

    cheers
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  • RE Updates - Vidarbha

    Few days back i reported about stagnation in rates in Vidarbha region. The rates have started falling now! So, coupled with Marathwada, now Vidarbha too is falling.

    In Mumbai, builders have started offering discounts. I wonder how long Pune will sustain.
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  • I think, what I heard last week that Real estate is getting shape in Nagpur region. Even revenue from registration and deed has been excellent for Nagpur division.
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  • Originally Posted by realacres
    I give 6 months PDC. :)

    guideus & mymarji,

    Thanks a lot for bringing up this Disney Land. You reignited my spirit to take some break, think I made right decision last week by dropping couple of mails. Last time I went on vacation was 2007/08. Though I traveled lot later, all was for work. I seriously planning to get some time for myself now, I have dropped mail to Thomas Cook & SOTC last week. Lets see. Being single, I think I will prefer sincity than disney land ;).

    Btw, how is Disney Land, Hong Kong ?? Anyone knows details about it ?

    And Punerebuyer/PRB rightly raised the issue about infra. My friend was here (Mumbai) last month to get married :D, came from US, married & left. He showed some pics of his neigborhood & man, his place puts KP to shame !!

    Most importantly, issue is not just buy,rent etc. but infra & quality of life is also what matters. Pune, unfortunately has crumbled in past 2-2.5 yrs. Places where I used to travel in 20 mins earlier now require about 30 mins. :( Water situation too is bad. This year, water will be BIG ISSUE for PMC for sure. But Baramati is getting water with high pressure, at the cost of Pune.

    * PS:- Air India was started by one of my most respected person - JRD Tata :)
    It was Indira Gandhi who took it away from Tata & said pvt players need not do such business. Tata also faced issues from Govt as they were not paying bribes to Congress
    Now see where is Air India :D.


    Ocean park hong kong is better for adults.

    Dont forget to visit Macau !
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  • Any tips on South Africa?

    Originally Posted by Venkytalks
    Ocean park hong kong is better for adults.

    Dont forget to visit Macau !


    Wondered if anyone knows much about SA. I'm doing a 8-day trip to Kruger and CapeTown and anyone with some tips can help me make a better trip out of it.

    Out of action next week. I'm sure a lot of people will heave a sigh of relief! :)

    My quote of the week ... If prices are too high, you just have to Bear it! :)

    cheers
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  • Posting from another thread. Price correction starts in Mumbai!

    Buying a house in Mumbai? Now is the right time - NDTVProfit.com
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  • Originally Posted by wiseman
    Wondered if anyone knows much about SA. I'm doing a 8-day trip to Kruger and CapeTown and anyone with some tips can help me make a better trip out of it.

    Out of action next week. I'm sure a lot of people will heave a sigh of relief! :)

    My quote of the week ... If prices are too high, you just have to Bear it! :)

    cheers


    Lots of mugging incidents in SA. Stay in safe areas with safe group tourism. Dont venture out alone or with wife into unsafe areas.
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  • Originally Posted by Venkytalks
    Lots of mugging incidents in SA. Stay in safe areas with safe group tourism. Dont venture out alone or with wife into unsafe areas.


    +1

    Don’t dare walk on isolated streets and anywhere after sunset; always hire a taxi from hotel and back.
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  • Originally Posted by wiseman
    Wondered if anyone knows much about SA. I'm doing a 8-day trip to Kruger and CapeTown and anyone with some tips can help me make a better trip out of it.

    cheers


    If you are going to Durban by any chance then stay in a beach facing hotel preferably Holiday Inn for a beautiful and mind boggling sea view.:):)
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  • Originally Posted by realpune
    We had been discussing about slowdown/crash in real estate. I came across a deal which is a distress sale, came to know through one of my relatives. In Latur(district place in Maharashtra), ready possession flats of area 1200 sqft are available for 5 L!!! The builder has constructed around 5000 flats, out of which 3000 flats are still to be sold.

    5L for 1200 sqft is less than even construction cost!

    As per my relative, there is severe liquidity crunch in this area as farmers haven't made good money this year. The entire economy of the area is dependent on farmers. Its expected that the same flat will fetch at least 10L next year.

    I am confused whether to go for such distress sale or not! Anyone on this forum has better idea of this area ? Shall i go for this deal ?

    He told me about one more investor in same area who invested about 7.5 crores to buy land parcel about an year ago by borrowing good amount of money from private money lenders. The idea was to do the plotting and get profit. Today, the same investor is willing to sell the entire land for 3 crores, but no buyers! The investor is finding it very tough to service the debt, that he is ready to sell even at loss.


    Hey...could you pls let me know the details of the seller?..it near my native place and I could buy the flat for my parents. Appreciate your response..
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  • Originally Posted by hcdiss
    Hey...could you pls let me know the details of the seller?..it near my native place and I could buy the flat for my parents. Appreciate your response..


    5 lakhs for a flat in Latur? I will buy it even if its 20% more. Let us know the builder's name or society name and I will find them. 5000 flats is a very large number...and can accomodate entire Latur if needed. I doubt if anybody will undertake such a huge development in Latur....but if its true, it makes sense to buy right away.
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  • Originally Posted by hcdiss
    Hey...could you pls let me know the details of the seller?..it near my native place and I could buy the flat for my parents. Appreciate your response..


    This was long back, around 8-9 months. This was on outskirts of the town and was distress sale. I did not enquire further as there were doubts about it's completion as this was under construction.

    I can check for current status and will PM you.
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  • Originally Posted by realpune
    Few days back i reported about stagnation in rates in Vidarbha region. The rates have started falling now! So, coupled with Marathwada, now Vidarbha too is falling.

    In Mumbai, builders have started offering discounts. I wonder how long Pune will sustain.


    Many have been wondering about it for some yrs now. With new supply slowing down its difficult to see prices falling down very quickly.
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