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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  • Vaibhav ji,

    I was talking about productivity, which is different from 'returns'.

    Plots ha e given great returns, but to the investor. If that money was instead spent on consumption, it would have trickled down to the poorer sections.

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  • Originally Posted by fatichar
    Vaibhav ji,

    I was talking about productivity, which is different from 'returns'.

    Plots ha e given great returns, but to the investor. If that money was instead spent on consumption, it would have trickled down to the poorer sections.

    - tapatalk free


    I think there must be a law to limit the developed residential space a person can own in India. For example, 2000 sq. ft. developed area can be a good limit. This way much vacant land will be released and RE prices will come down sharply because there will be huge supply and many homeless or rented people will be able to afford a home. There is already a similar law in most urban areas that mandates construction of 25-20% of owned land after free-hold from lease-hold. This releases a lot of land when time comes for free-hold and RE prices come down for a year or so in that area and then increase in the next few years.
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  • Originally Posted by vaibav123
    "Our forefathers believed in stocking all their wealth in dead or low productive assets, like gold and land"
    I dont know whether you can call land which was stocked by our forefathers as unproductive.Those who bought land in 60's and sold it in let us say 2000 or so would have reaped a handsome profit.
    In Delhi early 60's even south extension was a deserted place and those who bought land there have reaped profits in unimaginable amounts.


    Land and gold is unproductive because it does not add any value. Industry/Development/Services/Hospital/School add value to society. Land/Gold are just trade commodity with no relation to science, technology and growth.
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  • "I think there must be a law to limit the developed residential space a person can own in India. For example, 2000 sq. ft. developed area can be a good limit"
    India is a democracy and we cannot limit the amount of residential space which can be owned by a person.Ambani can have an Antilla and iI can have/afford a 400 sq ft one BHK.It depends on my financial capacity.We have too many laws as such.
    Individual is concerned with an investment which gives him maximum returns.He will not calculate productivity as such.Expecting some one to spend on consumption so that it trickles down to the poor is far fetched.
    It is for the Government to devise such plans to allow trickle down to poor.Government expenditure can be planned to allow trickle down effect.NREGA allows such money to flow to the rural poor.
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  • Vaibhav,

    My post was a reply to Ankit that spending inherited money is not bad for the society. So he should not cirse the neighbours for destroying inherited wealth.

    Personally, I am against inheritance. I feel one deserves what one earns.

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  • Inheritance is not only money. We inherit our social, cultural, intellectual, emotional, physical and financial characteristics/identity/status from our ancestors. Separating financial inheritance from others will be a mistake.

    Originally Posted by fatichar
    Vaibhav,

    My post was a reply to Ankit that spending inherited money is not bad for the society. So he should not cirse the neighbours for destroying inherited wealth.

    Personally, I am against inheritance. I feel one deserves what one earns.

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  • Originally Posted by tushart
    Inheritance is not only money. We inherit our social, cultural, intellectual, emotional, physical and financial characteristics/identity/status from our ancestors. Separating financial inheritance from others will be a mistake.


    There are better ways of spending inherited money which benefits society better, than buying expensive wine and cars. See these:

    Bill Gates says he has no more personal use for money - Neowin
    BBC News - Bill and Melinda Gates give 95% of wealth to charity
    Buffett gifts to foundations total a record $2.6 billion - Omaha.com
    Meet The Man Who Gave His Entire $7.5 Billion Fortune To Charity And Inspired Bill Gates | Celebrity Net Worth

    Ever heard such stories in India??? Yes, you might have seen such numbers in billion dollars in news in India but in scams not in charity.
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  • Originally Posted by tushart
    Inheritance is not only money. We inherit our social, cultural, intellectual, emotional, physical and financial characteristics/identity/status from our ancestors. Separating financial inheritance from others will be a mistake.


    Yes, we inherit a lot of things. But how would abolishing financial inheritance be a mistake (if done by all countries)?

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  • We talk about inheritance of meony, asset, culture, tradition etc., and there are few who get to inherit the country itself.
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  • Originally Posted by ankitnagpal
    There are better ways of spending inherited money which benefits society better, than buying expensive wine and cars. See these:

    Bill Gates says he has no more personal use for money - Neowin
    BBC News - Bill and Melinda Gates give 95% of wealth to charity
    Buffett gifts to foundations total a record $2.6 billion - Omaha.com
    Meet The Man Who Gave His Entire $7.5 Billion Fortune To Charity And Inspired Bill Gates | Celebrity Net Worth

    Ever heard such stories in India??? Yes, you might have seen such numbers in billion dollars in news in India but in scams not in charity.


    There is no justification to the tone in your posts or the others who want to lecture people on how to live their lives - We live in a free country, and its not your call as to how people spend / waste / invest their OWN money. I dont understand the constant criticism of people who have inherited wealth. Are they robbing money from you ? Are they asking you for your opinion on how to spend ?

    There's really no use of venting out here in an online forum about some rich troublemakers in your locality. It does not add anything of relevance to the topic "Builders and RE bulls". They have crores, they're lucky to be born in their family. Get over it. Nothing you say on a small forum is going to change it.

    For what its worth, we have no right to comment on how anyone spends their money or their time - Each one has their own view, which in your eyes may be right or wrong, but that DOES NOT MATTER. While the middle class Indian says the rich man should give up his Audi and donate the money to the poor, the poor man will say the middle class should stop buying houses and cars, or watching movies because they cannot get by a day with two full meals.

    You're concerned about the investor buying too many flats in urban India and driving prices up, someone lower in the food chain feels you're responsible for a lot of inflation in their daily lives. The idea of people being restricted to buying only a particular amount of Real estate is even more absurd - this is some kind of communist ideology you're trying to preach out here. Last time I checked all the communist experiments of the last 120 years have failed miserably.

    So with that said, lets stop this incessant whining about our personal condition, about rich men buying Audis and BMWs with their own money and all. I think lecturing others on how they should live their lives, or where they should spend their lives is just a complete waste of time.

    PS : I am a middle class Indian, just like most of you, with approximately 0 inheritance.
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  • Thinking about inheritance should we also not count the fears, insecurities, knowledge, social skills, ability to understand things, patience, greed, love or hatred of things for no reason, ambitions? After all this is also what we inherit from our parents, isn't it?
    Most of the things we think of as our identity are mostly inherent in our family genes. We just got to accept it. So nothing wrong with good inheritance.
    You will find plenty of this new rich with complete lack of financial knowledge due to their knowledge inheritance. Then shouldn't one be happy that this guy is going to loose everything he has due to his lack of knowledge and the once who have knowledge, however poor he may be, is only going to build on what he has.
    And also what about people who inherit debt from their parents? Should they be pardoned by banks or lenders?
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  • Well. Every thing in the world is driven by karmic theory. Soul has a karmic balance - good and bad. He gets his share in a life based on it. People can be blessed with money but may not be very wise, may have health issues, may get involved in crimes, may their relatives cheat them, may they have a short life. I just believe if someone gets inherited money its just that soul deserves it in that life may be to compensate for other stuff. May be soul has spent number of lives in at most poverty.
    If your luck get you a lottery or right time right place scenario and education provided by parents help you reach a good position in life - will you deny that as well. Or if your ancestors have passed you genes which make you handsome and charming taking you into movies will you deny that as well?

    Originally Posted by fatichar
    Yes, we inherit a lot of things. But how would abolishing financial inheritance be a mistake (if done by all countries)?

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  • Originally Posted by onnoval

    And also what about people who inherit debt from their parents? Should they be pardoned by banks or lenders?


    From what I know, people inherit debt only upto the wealth inherited by them. If someone inherits 1 crore and debt was 2 crores, the heir doesn't need to pay 1 crore from pocket.

    Similarly, posthumous awards are given to family, but punishment is not given.

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  • Originally Posted by tushart
    Well. Every thing in the world is driven by karmic theory. Soul has a karmic balance - good and bad. He gets his share in a life based on it. People can be blessed with money but may not be very wise, may have health issues, may get involved in crimes, may their relatives cheat them, may they have a short life. I just believe if someone gets inherited money its just that soul deserves it in that life may be to compensate for other stuff. May be soul has spent number of lives in at most poverty.
    If your luck get you a lottery or right time right place scenario and education provided by parents help you reach a good position in life - will you deny that as well. Or if your ancestors have passed you genes which make you handsome and charming taking you into movies will you deny that as well?


    The theory of soul is just a belief. It has no scientific evidence, and not everyone believes in it.

    Yes, we can not take away a lot of things that are inherited. But how does it prove that wealth inheritance is good. This is like arguing
    'why should murder be a crime? Then are you going to prevent soldiers from killing enemies? '

    I want a society where everyone will get equal opportunity. Now this is not possible. But our efforts should be in that direction.

    Consider an academically brilliant but poor student. He studies hard and gets in to IIT. He takes loan to pay fees. After graduation, he gets about 5L CTC. Even after working for 10 years, he will not be able to buy a decent size plot in a city like Noida, forget Delhi and Mumbai. This is the situation of a brilliant student. Think about others.

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  • Imagine at the beginning, there are two men equal in everything. By stroke of luck or bad luck one of them does better than the other. Now imagine few years later when they have children, will the better man not provide better things for his kids or simply refuse because the other guy can't afford it and it will be unjust to his children.
    Example of murder and soldiers just doesn't make any sense.
    Human beings are born to survive and to survive selfishness is natural. In the above example of IIT guy, don't u think there must be thousands of kids living in slums and even his own colleagues in school who may have been better than him in academics, we can say that then even this guy has an unfair advantage.
    In similar way one can say that Usain Bolt has an unfair advantage genetically or Sachin Tendulkar doesn't deserve what he has because vinod kambali was more talented than him.
    Thing is judging people is near impossible in real life. Every man is trying to get better things in his life. Why people pass inheritance is because they want their kids, who will carry their genes in future to have better chance in life.
    Idea of fair society with equal chances can never be realised. We can only improve.
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