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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  • Did you know this statement is unlawful?

    Originally Posted by razer
    Goods once sold cannot be taken back or exchanged. ;) :D



    Some years back I had the opportunity to work with some leading social service NGOs in Bangalore. One of the things I learnt was that this wording that retailers (mainly and also others) use on their bill "Goods once sold cannot be taken back" is specifically banned by law.

    There was even a drive to educate retailers about this and many were forced to destroy and re-print receipt books to eliminate this phrase in each bill. This a little known fact which affects us in our daily life.

    No kidding!:) Check it out.

    cheers
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  • Originally Posted by wiseman
    Some years back I had the opportunity to work with some leading social service NGOs in Bangalore. One of the things I learnt was that this wording that retailers (mainly and also others) use on their bill "Goods once sold cannot be taken back" is specifically banned by law.

    There was even a drive to educate retailers about this and many were forced to destroy and re-print receipt books to eliminate this phrase in each bill. This a little known fact which affects us in our daily life.

    No kidding!:) Check it out.

    cheers


    Maybe they started later with a different quote . "Goods once sold will not be taken back due to hygiene reasons" ;)

    VK
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  • Originally Posted by compuwalah
    Golly. I opened the sites expecting some authoritative content on the subject. Just turned out to be two more bears predictions without any backing. Like "my friends telling me price not fall ... blah blah ... but I am convinced they will fall" ... great ... keep writing


    Ok . This is some credible source of the info than some vague statement
    ]http://economictimes.indiatimes.com/articleshow/5500592.cms

    However interestingly ]http://economictimes.indiatimes.com/policy/Dragons-24-trillion-weapon/articleshow/5500652.cms :D

    So effectively major powers will try to uphold the value of dollar at all cost and whoever does not think so (read Saddam), US will show him good reason as why they need to do so :)

    So a simple economy get too complex and just predicting on knowledge of some macro ecomics and micro economics you learn at some school does not help anymore . Boy you now have to build some weather models (and a cray supercomputer to do number crunching) like algorithm to understand modern economy. :D

    So effectively major powers will try to uphold the value of dollar at all cost and whoever does not think so (read Saddam), US will show him good reason as why they need to do so :)

    So a simple economy get too complex and just predicting on knowledge of some macro ecomics and micro economics you learn at some school does not help anymore . Boy you now have to build some weather models (and a cray supercomputer to do number crunching) like algorithm to understand modern economy. :D

    So effectively major powers will try to uphold the value of dollar at all cost and whoever does not think so (read Saddam), US will show him good reason as why they need to do so :)

    So a simple economy get too complex and just predicting on knowledge of some macro ecomics and micro economics you learn at some school does not help anymore . Boy you now have to build some weather models (and a cray supercomputer to do number crunching) like algorithm to understand modern economy.
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  • Are houses going to be affordable ever?
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  • CommentQuote
  • Downfall is inevitable by any means

    No amount of black money will be able to prevent this fall, my contacts in US who are good at calculations in economics & finance & who understand that a country cannot get out of debt by creating more debt (printing money) they mention that dollar can loose significant amt. of its face value.

    They are even willing to come back to India, banks are not lending in US.

    So heavy lies to cover lies is the trend in vogue right now there.

    Those who believe 2010 will be bullish i say to 'em - good luck (if you can keep India totally insulated from US mkts)

    Govt. of India is not foolish to buy 200 Tonnes of gold 16000 rs/10 grms :)


    Originally Posted by frugality
    check out the links

    Bubble Bursts for India's Once-Booming Real Estate Market


    ]http://www.realestatechannel.com/international-markets/commercial-real-estate/real-estate-news-india-real-estate-market-chanda-kochhar-icici-bank-1928.php


    Swelling provisioning for bad loans erodes banks' Q3 profits
    ]http://www.thehindubusinessline.com/2010/01/27/stories/2010012752360100.htm


    IPOs overpriced, see commercial realty glut: Deepak Parekh



    ]http://www.moneycontrol.com/news/business/ipos-overpriced-see-commercial-realty-glut-deepak-parekh_437856.html
    CommentQuote
  • Originally Posted by frugality
    check out the links

    Bubble Bursts for India's Once-Booming Real Estate Market


    ]http://www.realestatechannel.com/international-markets/commercial-real-estate/real-estate-news-india-real-estate-market-chanda-kochhar-icici-bank-1928.php


    Swelling provisioning for bad loans erodes banks' Q3 profits
    ]http://www.thehindubusinessline.com/2010/01/27/stories/2010012752360100.htm


    IPOs overpriced, see commercial realty glut: Deepak Parekh



    ]http://www.moneycontrol.com/news/business/ipos-overpriced-see-commercial-realty-glut-deepak-parekh_437856.html
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
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  • Here is one opinion on Vascon IPO. I agree... Avoid at all costs...

    http://www.blonnet.com/iw/2010/01/24/stories/2010012450741300.htm

    Vascon Engineers — IPO: Avoid

    Premium valuations, and high dependence on related parties for contract revenues make this offer unattractive.


    Originally Posted by realacres
    Thanks for the links man:). Good info.
    Btw, I am looking forward for the listing of Vascon builders. Lets see what happens to it. Kolte patil is already banged though. Seems Vascon's IPO is more for clearing debt rather than completing, starting new projects.
    CommentQuote
  • Originally Posted by ttt43
    Here is one opinion on Vascon IPO. I agree... Avoid at all costs...

    ]http://www.blonnet.com/iw/2010/01/24/stories/2010012450741300.htm

    Vascon Engineers — IPO: Avoid

    Premium valuations, and high dependence on related parties for contract revenues make this offer unattractive.



    Thanks man:). One thing I completely agree here:-

    ...of the 55 million square ft. of real-estate projects planned/being developed, less than 10 per cent are due for completion over the next three years ending FY-13. Earnings growth in the near term may, therefore, not keep pace with the valuations sought now.
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  • Price hike reasons

    The reason which I think for price hike in some projects is to again create fear in the mind of the people to buy a flat ASAP. I remember just last month that some builders were saying that register before 31st Dec 09, else the stamp duty + reg is going to bee hiked due to which you will need to shell out few lakhs more. So, these are pure mind games, nothing more than that. So, make your mind strong.
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  • KP Singh for Padma Bhushan

    Man, DLF promoter, KP Singh has been conferred with Padma Bhushan award(. The chap who has fooled many innocent buyers, shareholders gets this award just because of his proximity with Delhi crooks? Giving Padma Bhushan award to such non-human people has degraded the value of this award:(.
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  • Decline In The Number Of Homebuyers In Mumbai

    There has been a steady drop in the number of homebuyers in Mumbai over the last two quarters. Blame it on builders who are constantly raising prices. Liases Foras, a real estate research firm, said there were approximately 20,500 buyers for new flats in March-June 2009, and only 17,000 in July-October. Builders justified the hike. "All materials - cement, steel, etc - have become very expensive. We have to pass the cost on to buyers to guard our profits," said Mr Sukhraj Nahar, chairman of the Nahar Group. But this argument did not convince analysts. They warned against getting carried away by the rise in number of bookings after the real estate slowdown.
    13 Jan 2010 Hindustan Times (Mumbai)

    Btw, DLF has shown 30% drop in profits YoY. It's results were declared today.
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  • Originally Posted by realacres
    Man, DLF promoter, KP Singh has been conferred with Padma Bhushan award(. The chap who has fooled many innocent buyers, shareholders gets this award just because of his proximity with Delhi crooks? Giving Padma Bhushan award to such non-human people has degraded the value of this award:(.


    You forgot to mention Sant singh chatwal as well:) It seems that in congress govt everything for sell...including padma awards:D:D
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  • Originally Posted by ash7979
    You forgot to mention Sant singh chatwal as well:) It seems that in congress govt everything for sell...including padma awards:D:D


    Yes... thats true man..
    Pawar soon will get Bharat Ratna, at this rate :D
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  • Originally Posted by monds
    Yes... thats true man..
    Pawar soon will get Bharat Ratna, at this rate :D

    he could buys 100s of bharat ratna's if they are on sell.. blame it on magarpatta alone :D
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