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 realacres
    +1. Even in Pune, the people who bought flats from own pocket in most cases were those who bought in 2004-06, after that it was mostly sell older flat & buy new one. Peth area to Kothrud, Warje, Sinhgad rd happened in similar ways, while many defence personal got settled in areas like Wanowrie.
    In recent years, in several cases it was like selling old 2BR & buying new 3BR or selling some land or house in native place & buying flat in Pune. As you gave eg. of NCR, similarly stuff is in Pune.

    I know a guy in neighbourhood who has given token money for 3BR flat (resale) but is unable to do agreement as he is not getting any buyer for his existing 2BR for price he wants & now that 3BR chap is also not asking him to cancel as he haven't come across any other buyer than this guy.

    So, for that 3BR to get sold, first this 2BR needs to get sold. :D Both are stuck for past 3 months.


    As said before :- The population in India is so high that hardly anyone bothers about life.
    Man, I have heard people saying that when 4-5 people die in bomb blast, they say, "oh, bomb powerful nahi tha." :o

    Take other simple case :- When an old, dilapidated building collapses & some people die under it, you read the news & after 5 mins, it's out of your mind. And in US, even if handful of people die in some bus accident, you will see hoards of people lining up to pay last respects, strangers included. They come with bouquets, candles. My bro sent me some pics of people when shooting took place in school few months back in US. Here, we hardly bother.

    VALUE FOR LIFE in India is Zero or perhaps negative.


    Hello realacres

    Right on the mark abt negative value of life. There are people willing to pull the trigger for just a few thousand bucks, in this country. Or How much would a truck driver care about someone else on the road. We are highly and densely populated. It does matter. And I don't see any solution to the population problem. For various reasons. Not just political.

    Human life has the lowest value here. Sad but true.
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  • Originally Posted by Sat234
    Hello realacres

    Right on the mark abt negative value of life. There are people willing to pull the trigger for just a few thousand bucks, in this country. Or How much would a truck driver care about someone else on the road. We are highly and densely populated. It does matter. And I don't see any solution to the population problem. For various reasons. Not just political.

    Human life has the lowest value here. Sad but true.



    Agree on the low value, but I dont think population is the reason. Japan or even UK is not far behind in terms of density. Its the attitude of people
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  • With economic pressures and other self preservation issues coming,up we act selfishly.
    sometimes good samaritans who try and help others land in legal messes and are put off from any helping activities.
    Sometimes those who write about shortcomings of any particular project,sometimes get termed as agents of competitors etc
    But regardless we must help others will care and sympathy.
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  • Originally Posted by RP Pune
    Agree on the low value, but I dont think population is the reason. Japan or even UK is not far behind in terms of density. Its the attitude of people


    hello RP_Pune,
    Agree.

    India will overtake china in population in the next 20-30 years. China is 3rd largest country by area, India is 7th.
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  • Sat 234
    Population and area is not only criteria for economic growth..The leadership in China is communist in name but they behave like capitalists and provide decisive leadership.
    If a road is to be built,it will be built,even if million people have to vactate.
    In India even a buffalo standing on the road cannot be evicted without difficulty.
    China has a dictatorship and can achieve results and equally one day it may collapse like a pack of cards with bloodhsed when people rebel,but our India has safety valves of freedomand can never collapse like China will in the near future.
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  • Originally Posted by vaibav123
    Sat 234
    Population and area is not only criteria for economic growth..The leadership in China is communist in name but they behave like capitalists and provide decisive leadership.
    If a road is to be built,it will be built,even if million people have to vactate.
    In India even a buffalo standing on the road cannot be evicted without difficulty.
    China has a dictatorship and can achieve results and equally one day it may collapse like a pack of cards with bloodhsed when people rebel,but our India has safety valves of freedomand can never collapse like China will in the near future.


    China can collapse just like Russia.Everybody wants Autonomy.It is being suppressed by communist regime.Bubble may burst in times to come.
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  • Selling RE through social media is agood thing.
    It can spread news at great speed and reach out to ever increasing net savvy customers.
    But the most important thing is -timely delivery,quality as promised and no hidden charges.
    Builders ought to develop a customer friendly approach.
    Once that approach comes up genuinely,then social media will prove to be doubly helpful and word of mouth will be replaced by word of internet.
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  • China's balancing act
    Ashwani Mahajan, April 10, 2014, DHNS:
    Tweaking the currency
    China’s strategy to depreciate Yuan can be considered a sensible bet, with an objective to handle its dwindling economy.

    In the past few years, currencies of most of the nations have been weakening against the US dollar.

    However, China’s currency Yuan was constantly getting stronger. Riding on China’s strong export performance; Yuan appreciated by more than 40 per cent, between 2005 and 2013.

    Breaking this trend in the last one year China has amazed the world by depreciating its currency by nearly 3 per cent in the last one year.

    It is believed that in the coming months Yuan may depreciate further.

    Today, in most of the countries the exchange rate of a currency vis a vis foreign currencies is determined by market forces, however in China it is still more or less administered, that is, fixed or managed by the Chinese government and the People’s Bank of China (PBOC).

    One can say that exchange rate of Yuan cannot vary against their will. Policy of strong Yuan paid rich dividends to China, with constantly rising export incomes and foreign exchange reserves.

    Though speculators used to speculate on Yuan.

    That speculation was unidirectional, that is, only on upward movement of Yuan.

    However in the past one year PBOC first allowed speculation within the range of 1 per cent and the same has now been increased by 2 per cent.

    It is now clear that the Chinese government and PBOC have finally decided to devalue Yuan.

    Why is devaluation being done? In the last more than two decades, China has experienced huge growth in GDP and per capita income.

    China’s average GDP growth rate has been around 10 per cent in the decade preceding 2009. However this year’s expected growth is merely between 7 and 7.5 per cent.

    Today China is amidst high inflation and interest rates. Both these factors are responsible for rising costs in China, making Chinese products less competitive in the world.

    Earlier Chinese Yuan continued to gain strength riding on competitiveness of Chinese goods, owing to low cost with continuous support from Chinese government.

    This turned China into manufacturing hub of the world and therefore rising export earnings and bulging foreign exchange reserves made Yuan gain strength year after year, without any loss of export market.

    In recent years, currencies of India, Brazil, South Africa and many other developing countries have depreciated significantly, making Chinese products less competitive in international markets.

    As a result, growth of exports from China has slackened in the past couple of years. The fact that Chinese economy has started slowing down, is revealed from the data published by international agencies.

    It is notable that the Markit/HSBC Services Purchasing Managers’ Index (PMI), which focuses more on the private sector, fell to an eight-month low of 48.0 in March.

    The index has been below the level of 50, since January, indicating a contraction this year.

    Financial crisis

    Many companies in China are passing through a severe financial crisis and it seems that unlike earlier days, Chinese government is in no mood to rescue them.

    Some time ago, China's largest solar company Suntech defaulted in payment of debts and later faced insolvency, the Chinese government did not try to save the company.

    Downgrading by rating agencies of Chinese major electronic and many other companies, point toward the financial crisis.

    Debt equity ratio in these companies is on rise and in future situation may worsen further, it is believed.

    Generally, other things equal, countries usually strive to strengthen their currencies as value of their currency reflects their economic strength. Riding on lower rate of inflation and subsidised exports, China continued to dump Chinese goods worldwide.

    Now due to the fact that China too is facing the heat of inflation and constrained by resources, Chinese government is no longer in position to subsidise exports.

    Chinese goods are losing competitiveness very fast.

    On the other hand, appreciating Chinese Yuan is adding to the woes of Chinese policy makers.

    Since, except Russia, currencies of the remaining countries of the world, have depreciated significantly in the recent past, their goods are getting relatively cheaper in the USA and Europe.

    Apparently stiff competition from other countries is making Chinese policy makers to rethink about valuation of Yuan.

    India’s rupee has weakened considerably in recent times.

    Exchange rate, which was Rupees 54.4 per dollar in March 2013, went up to Rupees 68.84 per dollar in August 2013.

    Although the rupee has strengthened recently, but it is still weaker by 11 percent, from the March 2013 level.

    Brazil, South Africa, Argentina and other Latin American countries’ currencies are also weaker than before.

    A few years ago, China's currency was strengthening, along with rapidly growing GDP.

    But now with slowing down of Chinese economy in general and the deteriorating condition of Chinese companies in particular, China’s government was forced to devalue its currency.

    At this point, the Chinese government probably would not want any domestic troubles including massive labour unrest, with the spread of crisis.

    Normally, when currency devalues, country runs the risk of inflation, due to costlier imports.

    However, situation of China is different from the rest of the world. China does not import many goods from rest of the world except raw materials, while imports of India and other developing countries have been high and rising.

    Therefore if currencies of these countries depreciate, they run the risk of getting caught into inflationary spiral.

    However, same problem does not occur in China, as their economy is more export oriented than imports.

    Therefore, it may be mixed destiny for the rest of the world; Chinese strategy to depreciate Yuan can be considered a sensible bet, with an objective to handle their dwindling economy.
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  • The project to change the direction of Huan river in china displaced millions and destroyed forests and polluted the river.
    They invested billions in building roads many of which were not needed.
    They built flats in place of huts and expected poor villagers to pay rent for that.
    Dictatorship can be a boon or a bane.
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  • $21-PER-SQUARE-FOOT OR LESS: The 14 Cheapest Homes You Can Buy Right Now

    http: // $21-PER-SQUARE-FOOT OR LESS: The 14 Cheapest Homes You Can Buy Right Now | Business Insider India
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  • Global IT spends may kick Indian software into high gear

    SHARE · PRINT · T+

    Gartner, the research firm, has recently forecast that global technology spending may expand by 3.2 per cent in 2014. That may not seem an exciting number, but it is good news for Indian IT.

    Typically, when global tech spends pick up, the outsourcing pie, which Indian biggies depend on, expands 3-5 times the global IT spends. Last year, Indian IT exports were up 13 per cent (according to trade body Nasscom) despite global IT spends creeping up only by 0.4 per cent.

    What this suggests is that Nasscom’s projection that India’s IT sector will grow by 13-15 per cent this fiscal year (2014-15) may be understating it. The breakdown of Gartner’s numbers reinforces bullish prospects for Indian players, especially software firms that rely on offshoring. Global IT spending is set to grow at 4.6 per cent in 2014, compared to just 1.8 per cent last year, while enterprise software spending is expected to grow at 6.9 per cent. This indicates that the traditional application services deals, which make up the bread and butter for Indian software companies, will continue to contribute handsomely to their growth.

    The expected pick-up in enterprise software spending meanwhile suggests that global companies are also beginning to loosen up their purse strings on discretionary spending, which have been muted in recent years. This revival has also been signaled by Infosys’ numbers in the last couple of quarters.

    The other data point is telecom services returning to growth for the first time in many years, though the growth is a small 1.3 per cent. Most large software firms in India, barring TCS, have struggled to grow in the telecom vertical in the last two-three years. The revival in this segment augurs well for top and mid-sized playerssuch as Tech Mahindra.

    Top software players such as TCS and Infosys had indicated a soft fourth quarter, but now it appears that this may only be a mild seasonal blip. In the recent quarters, previous laggards such as Infosys and Wipro too have delivered growth rates close to outperformers such as TCS, HCL Technologies and Cognizant, indicating an industry-wide acceleration.

    So, what’s all this to you? If you are one of the many thousands employed in Indian IT or BPO companies, it may mean better prospects and pay packets. Of course, a thriving IT sector would have many positive spin-offs for the faltering economy too.

    (This article was published in the Business Line print edition dated April 11, 2014)
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  • Originally Posted by RP Pune
    Agree on the low value, but I dont think population is the reason. Japan or even UK is not far behind in terms of density. Its the attitude of people

    Issue is not density but ratio of POPULATION : RESOURCES.
    Man, when there are 100 vacancies, 5,000 apply. In case of central Govt job, its even higher.
    Density is alone not the issue, it is more of quality human resource.
    In India, out of 120 Cr, how many are really productive ?
    In West or even Aus, majority of people are contributing towards making their country a better place, in India, only handful are contributing & majority are parasites. Add to it junk Govt policies like free food, free flats for slum dwellers, free this & free that.....why will anyone work ? Remember that proverb :- Give fisherman a net to fish & not free food.

    Useless population in India can be seen when people attend election rallies for 100/day & vote for 500-1000 or some alcohol & chicken biryani bucks for 5 years, which means 100-200 bucks/year or 8-16 bucks per month !! And we have thousands of cases where woman works as maid to run her house (which is appreciated) but her husband is drunkard. What's the use of these people ??
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  • Who is Chidambaram fooling?

    On Monday evening, the finance minister, as ever, claimed all's well on the economic front. But the fact remains India will have to grow by 8.1% in January to March 2014, for it to hit a target of 5.5% during 2013-2014. It's unlikely to happen, Vivek Kaul explains.

    An important part of finance minister P Chidambaram's job for a while has been to keep telling us that "all is well" on the economic front.

    He continued this on the last day of the financial year when he said "the Indian economy is now stable and the fundamentals have strengthened." The statement was in response to 18 questions posed by former finance minister and BJP leader Yashwant Sinha on the economy.

    So, how strong is the Indian economy? "We have contained inflation. Our biggest success is containing fiscal deficit," said Chidambaram.

    But how do the numbers stack out? In February 2014, inflation, as measured by the consumer price index, was at 8.1%. It has come down from levels greater than 10%. The primary reason has been a rapid fall in food prices.

    Food products make up for around half of the consumer price index. The question is: how much credit for the fall in food prices goes to the government? Not much. Also, don't forget the damage to crops from the unseasonal rains and hailstorms in parts of the country. This is likely to push up prices again.

    If we look at non-fuel, non-food inflation, or what economists refer to as core inflation, it stood at 7.9% in February 2014. This number has barely budged for a while now. Non-fuel, non-food inflation takes into account housing, medical care, education, transportation, recreation etc.

    What about fiscal deficit? "We will end FY14 (period between April 2013 and March 2014) with a fiscal deficit of 4.6%, as planned," Chidambaram said. Fiscal deficit is the difference between what a government earns and what it spends.

    But how has this target been met? A lot of expenditure has simply not been recognised. Oil subsidies of Rs 35,000 crore have not been accounted for. Estimates suggest that close to Rs 1,23,000 crore of subsidies (oil, fertiliser and food) have been postponed to next year. A March 4 report in this newspaper pointed out that the central government owes the states Rs 50,000 crore on account of compensation for the central sales tax.

    On the income side, public sector banks have been forced to give huge dividends to the government, despite not being in the best of shape. Coal India has paid the government a dividend and a dividend distribution tax of close to Rs 19,600 crore. India has the third-largest coal reserves in the world, but still imports coal. Shouldn't this money be going to set up new coal mines?


    Neelkanth Mishra and Ravi Shankar of Credit Suisse point out in a report titled Elections: Much Ado about Nothing, on March 19, 2014: "True utilisation in thermal power generation is below 60%, near 20-year lows (reported plant load factor is 65%)." This is because we don't produce enough coal that can feed the power plants.

    Getting back to Chidambaram, he said: "The CAD (Current Account Deficit) has contracted. We have added to reserves. The FY14 CAD is likely to be about $35 billion." CAD is the difference between the total value of imports and the sum of the total value of its exports and net foreign remittances.

    This has largely happened because of two things. The government has clamped down on legal gold imports. But anecdotal evidence suggests gold smuggling is back. This has a huge social cost. Also, over the last few months, non-gold, non-oil imports have fallen due to sheer lack of consumer demand. And that surely can't be a good thing.


    Chidambaram also expects "spirited growth, going forward". The finance minister has been spinning this yarn for a while now. In early February, he had said the economy will grow by 5.5% in this financial year.

    Growth during the first three quarters of the financial year has been less than 5% (4.4% in the first quarter, 4.8% in the second and 4.7% in the third).

    A back-of-the-envelope calculation shows the economy will have to grow by 8.1% in January to March 2014, for it to grow by 5.5% during 2013-2014. You don't need to be an economist to realise that this is not going to happen.

    Interestingly, in July 2013, Chidambaram had said: "People should remember India continues to be the second fastest-growing economy after China." By January 2014, this statement had changed to "India remains one of the fast- growing, large economies of the world."

    What happened in between? A whole host of countries in our neighbourhood have been growing faster than us. This includes Cambodia, Philippines, Indonesia, Sri Lanka and even Bangladesh. Given these reasons, it's fair to say that Chidambaram was cracking an April Fool's joke, a day early. :D

    P Chidambaram fades out, happy with himself | Latest News & Updates at Daily News & Analysis
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  • Dip in house sales in Q4

    High prices and low demand continue to pull down the sales of residential units in big cities. The volume of residential units sold in Gurgaon and Mumbai has come down by 77 per cent and 45 per cent, respectively, during the fourth quarter of 2013 when compared with the corresponding period last year, said a report by Goldman Sachs.

    Quoting data from PropEquity, Goldman Sachs said by value, sales in Bangalore went up six per cent year-on-year, while those in Gurgaon and Mumbai went down 73 per cent and 36 per cent, respectively.

    “Overall sentiments are down due to high prices and delay in competition of projects. People are also expecting rates to come down and policies from the new government to reduce their burden,” said Santhosh Kumar, chief executive (operations), JLL, a global property consultant.

    Gurgaon, Mumbai see biggest dip in house sales in Q4 | Business Standard
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