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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  • Originally Posted by razer


    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?

    Beggers can use Nano to follow you on these roads!!:):D
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  • Originally Posted by compuwalah
    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.

    You have to consider the following things before comparing Dubai with Pune:-

      Dubai is investor driven market with deep pockets,
      Dubai investors mostly are foreign nationals (non UAE citizens),
      Dubai RE is hub for pumping in B-money in large scale (Pune is pygmy when compared to Dubai & PBAP investments are peanuts to that of Dubai),
      The PPP (Purchase Power Parity) of Puneties is far, far less than that of Dubai buyers,
      Last but not the least, Dubai has infra to sustain current RE & now the money, courtsey Abu Dhabi. In Pune, I am sure many projects will be haunted ones soon......no roads, no water, no residents (human):D.
    CommentQuote
  • CommentQuote
  • Unease awaits teaser-rate borrowers

    A very informative article on loans & impact of ROI which will soon be hiked.

    http://www.dnaindia.com/money/comment_unease-awaits-teaser-rate-borrowers_1335315

    Btw, power charges are going to be hiked by 3%. It will make Pune having one of the highest electricity charges. The property tax are also set to increase drastically, hence owning a property becomes more expensive.
    CommentQuote
  • So what happened to economic times ... have the builders stopped paying TOI??



    Are-NRIs-deserting-Indian-realty-market

    http://economictimes.indiatimes.com/markets/real-estate/news-/Are-NRIs-deserting-Indian-realty-market-/articleshow/5451684.cms
    CommentQuote
  • Originally Posted by frugality
    So what happened to economic times ... have the builders stopped paying TOI??



    Are-NRIs-deserting-Indian-realty-market

    ]http://economictimes.indiatimes.com/markets/real-estate/news-/Are-NRIs-deserting-Indian-realty-market-/articleshow/5451684.cms

    Around month back they printed this news :D

    http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Returning-NRIs-boost-demand-for-residential-property/articleshow/5317267.cms
    CommentQuote
  • To allow high rises or not?

    A good article which speaks about high rise buildings & the problems created by them especially in Indian context where infra is sub-standard in most cases.

    http://www.indianexpress.com/news/to-allow-high-rises-or-not/567879/0
    CommentQuote
  • Originally Posted by realacres
    A good article which speaks about high rise buildings & the problems created by them especially in Indian context where infra is sub-standard in most cases.

    ]http://www.indianexpress.com/news/to-allow-high-rises-or-not/567879/0

    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. :) What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor.... :)

    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. :) What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor.... :)

    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. :) What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor.... :)

    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. :) What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor.... :)
    CommentQuote
  • Originally Posted by akssenti
    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. :) What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor.... :)


    Wait for the rain gods to fill the tank ...

    May be the Builders will propagate the theory of cloud seeding, that is, they’ll claim that their building has a facility for cloud seeding (any cloud hovering over the building will be used to fill the swimming pool with water, etc.)
    CommentQuote
  • Originally Posted by akssenti
    Kumar is giving swimming pools on the 25th floor in PMC and PCMC say water for 2 hrs morning and evening. What will you do on the 25th floor without water.... imagine if generator fails for even 1 min during power failure and you have to go up or down from top floor....




    For all below 25 floor can open the waste hole of swimming pool and enjoy water …. So he is smart … instead of putting overhead tank he is making a pool ….
    Or rather we should make all our overhead tanks open … will serve Triple purpose
    Rain water harvesting ….
    Swimming pool and tank….. :)
    CommentQuote
  • LOL.

    Sounds more like septic tank!!!!
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  • “China’s property market has a bigger bubble than the stock market,” said Li Jun, a strategist at Central China Securities Holdings in Shanghai. “It’s pretty hard to avoid an asset bubble when banking loans had a big jump last year.”

    "Property prices rose at the fastest pace in 18 months in December, with residential and commercial real-estate values in 70 Chinese cities climbing 7.8% from a year earlier, the National Development and Reform Commission said last week. "


    So if 8 percent rise is bubble then what about Pune

    Is it NOT bigger bubble ?? don't tell me Pune's Growth is more them Chinese top cities

    check out this

    http://economictimes.indiatimes.com/news/international-business/Goldman-to-study-China-Hong-Kong-assets-for-bubbles/articleshow/5474652.cms :D
    CommentQuote
  • Its all about the scale ...

    Originally Posted by frugality
    “China’s property market has a bigger bubble than the stock market,” said Li Jun, a strategist at Central China Securities Holdings in Shanghai. “It’s pretty hard to avoid an asset bubble when banking loans had a big jump last year.”

    "Property prices rose at the fastest pace in 18 months in December, with residential and commercial real-estate values in 70 Chinese cities climbing 7.8% from a year earlier, the National Development and Reform Commission said last week. "


    So if 8 percent rise is bubble then what about Pune

    Is it NOT bigger bubble ?? don't tell me Pune's Growth is more them Chinese top cities

    check out this

    ]http://economictimes.indiatimes.com/news/international-business/Goldman-to-study-China-Hong-Kong-assets-for-bubbles/articleshow/5474652.cms :D


    Frugal,

    I'm not denying that most big cities in India are unaffordable to the masses and therefore must decline if you want to return to normalcy.

    But one cannot compare 8% aggregate rise in the whole Chinese market and a 15% rise in Pune alone. Simply about scale.

    A 1% rise in China will probably equate in absolute terms to maybe a 10000% rise in Pune (aggregates) - just a wild guess, so don't kill me. The real issue is this,

    when the bubble abates (or bursts), the Pune decline will hurt a few people. The China decline will kill people (over a wide area) and take much longer to recover.

    The difference is comparing a Diwali cracker to an Atomic Bomb. Its all about the scale.

    cheers


    Frugal,

    I'm not denying that most big cities in India are unaffordable to the masses and therefore must decline if you want to return to normalcy.

    But one cannot compare 8% aggregate rise in the whole Chinese market and a 15% rise in Pune alone. Simply about scale.

    A 1% rise in China will probably equate in absolute terms to maybe a 10000% rise in Pune (aggregates) - just a wild guess, so don't kill me. The real issue is this,

    when the bubble abates (or bursts), the Pune decline will hurt a few people. The China decline will kill people (over a wide area) and take much longer to recover.

    The difference is comparing a Diwali cracker to an Atomic Bomb. Its all about the scale.

    cheers


    Frugal,

    I'm not denying that most big cities in India are unaffordable to the masses and therefore must decline if you want to return to normalcy.

    But one cannot compare 8% aggregate rise in the whole Chinese market and a 15% rise in Pune alone. Simply about scale.

    A 1% rise in China will probably equate in absolute terms to maybe a 10000% rise in Pune (aggregates) - just a wild guess, so don't kill me. The real issue is this,

    when the bubble abates (or bursts), the Pune decline will hurt a few people. The China decline will kill people (over a wide area) and take much longer to recover.

    The difference is comparing a Diwali cracker to an Atomic Bomb. Its all about the scale.

    cheers


    Frugal,

    I'm not denying that most big cities in India are unaffordable to the masses and therefore must decline if you want to return to normalcy.

    But one cannot compare 8% aggregate rise in the whole Chinese market and a 15% rise in Pune alone. Simply about scale.

    A 1% rise in China will probably equate in absolute terms to maybe a 10000% rise in Pune (aggregates) - just a wild guess, so don't kill me. The real issue is this,

    when the bubble abates (or bursts), the Pune decline will hurt a few people. The China decline will kill people (over a wide area) and take much longer to recover.

    The difference is comparing a Diwali cracker to an Atomic Bomb. Its all about the scale.

    cheers
    CommentQuote
  • Increase in Home Loan NPAs

    The banks have stated last week that afer the launch of special offers on home loans like low interest rates for first 2-3 years, though the disbursements of home loan increased, the number of bad loans too have shot up. Many loans have already been declared NPAs & this has caused a worry in RBI as banks are risking their capital just to keep poaching other banks' customers.
    CommentQuote
  • CREDAI foresees realty price rise in Pune

    Check out this.

    ]http://abodesindia.wordpress.com/2010/01/12/credai-foresees-realty-price-rise-in-pune/
    CommentQuote