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
    Man, I have seen some boys boasting to their parents that how much you are earning/month after 25 years of experience, I am earning more than that in less than 2-3 years from the day I started working. Now is this the way to say things, that too to the parents? Best part:- Most of these chaps are now laid off or recieved hefty pay cut in salaries:D. (Some may think why I am happy with this coz they deserve this when they use such words that too with their parents).

    One general thing which I have seen is ITGs are more arrogant than rest of the professions like the chap which came to me for patent info & was speaking on fone or during the time of festivals, these ITGs consider it to be downmarket to go house to house & collect donation for festive seasons. Even they use harsh language against the watchman of the society while those who have Audis in our society are extremely soft spoken.

    Hence, as ITGs got more than they expected, arrogance was there (this is not true for all) & this led to the factors like hey man, I bought a flat at x/sq ft & you are still homeless!! Some bought 3 flats, thinking they will sell 2 flat with profit & hence get their own one free (maybe I mentioned this somewhere) & it was this arrogance/lack of knowledge which led the builder fraternity exploit it. Today, most of these chaps are having tough time in managing their EMIs, not only home loan, but car, personal & credit card as well.

    *PS:- I am not against IT/ITGs. What I just want to say that IT sector proved to be curse to the city rather than boon & it's effects on RE can't be ruled out.


    To some extent you're right.Unfortunate half-truth. It did happen that you gave a gun in the hand of a mad man and he started shooting bullets just for fun. My friends bought 40K Rs cell s on their 2nd or 3rd salary but I also know those bought 45K activa after 1.5 years and using same old cell of 2000 Rs. even though they can afford much higher :(. It depends on your family background(if you seen/felt/realized your parents/family took hardships to make whatever they have; you'll value every penny but if someone is from higher middle class; he never seen whats luxuryless life)

    Regarding rudeness to poors or other laborers, it is very subjective; but quiet possible as money brings rudeness. I haven't been part of a bunch who booked 3 flats and sold 2 and siting on profits and still shocked at the prices in pune. (Earlier they were beyond my imagination; could not even get that much loan I can at least get home loan but afraid at the prospect of job instability)
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  • Anyway things have changed. Even "Arrogant ITG" looks poor in sales office of builder :D
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  • Originally Posted by puser
    Anyway things have changed. Even "Arrogant ITG" looks poor in sales office of builder :D


    Is arrogance contagious? Because, now Builders also have become arrogant
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  • Originally Posted by realacres
    Right man. Your friend in Tata motors too has lot of brain contribution to be put in though he may look like car mechanic at the end of the day;). However, ask your friend how much did he had to work & time needed to be spend to reach this level & it's corresponding time taken by an ITG.

    Man, I have seen some boys boasting to their parents that how much you are earning/month after 25 years of experience, I am earning more than that in less than 2-3 years from the day I started working. Now is this the way to say things, that too to the parents? Best part:- Most of these chaps are now laid off or recieved hefty pay cut in salaries:D. (Some may think why I am happy with this coz they deserve this when they use such words that too with their parents).

    One general thing which I have seen is ITGs are more arrogant than rest of the professions like the chap which came to me for patent info & was speaking on fone or during the time of festivals, these ITGs consider it to be downmarket to go house to house & collect donation for festive seasons. Even they use harsh language against the watchman of the society while those who have Audis in our society are extremely soft spoken.

    Hence, as ITGs got more than they expected, arrogance was there (this is not true for all) & this led to the factors like hey man, I bought a flat at x/sq ft & you are still homeless!! Some bought 3 flats, thinking they will sell 2 flat with profit & hence get their own one free (maybe I mentioned this somewhere) & it was this arrogance/lack of knowledge which led the builder fraternity exploit it. Today, most of these chaps are having tough time in managing their EMIs, not only home loan, but car, personal & credit card as well.

    *PS:- I am not against IT/ITGs. What I just want to say that IT sector proved to be curse to the city rather than boon & it's effects on RE can't be ruled out.


    Realacres.... you have acome across real arrogant , a*#$oles ITG's... who had no responsibility from thier family side or something and were surely mad...
    Can you give me the count of ITG's that you have met and observed? bcoz you are generalizing for atleast 50K + IT junta in hinjewadi and I dont know the count of Hadapsar/MP?
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  • Arrogance? ignorance? Or a mix ...

    Originally Posted by sanav3
    Realacres.... you have acome across real arrogant , a*#$oles ITG's... who had no responsibility from thier family side or something and were surely mad...
    Can you give me the count of ITG's that you have met and observed? bcoz you are generalizing for atleast 50K + IT junta in hinjewadi and I dont know the count of Hadapsar/MP?



    Don't know if its arrogance or ignorance.

    My personal experience with so-called developers (mostly programmers with limited knowledge of their programming environment and syntax -as someone said, in any other mature industry they would at most get a trainee job).

    The fault is not theirs but that of the leaders in the IT business. In their greed to lay their hands on all the money coming from abroad, they simply stuff their companies withe some pretences of training and placing people (but how exactly can you place quality people when you hire 500 per day; and 200 leave per day by the backdoor?! :D).

    So, this is a potent and dangerous mix of half-trained, young, impressionable people who are given a lot of money suddenly out of college, don't know about what financial challenges come up in the future, not knowing how to budget and save and gets even more challenging when you post them abroad and give them what seems like limitless amounts of money. To make it worse, many of these come from smaller towns and cities and its like taking a guy from earth and placing him on Mars!

    With few exceptions, its like giving a small child unlimited toys and ability to break one-a-minute.

    While the IT managements paint a rosy picture in the press, they are worried (even scared) in the background (those few who are able to figure it out) about long-term trends in the IT business which implies a permanent decline towards financial parameters in line with mature business (sales growth, gross and net margins, etc are all tending to Engineering and Manufacturing numbers with additional challenges of high labor costs, high labor volatility which, in terms of recessions can put them in deep stress). What next seems to be the strategic worry of most of these company's managements.

    But soon much of this will come to an end, with IT Exports starting to get taxed normally (30%+) - which will bring their net margins i nline with other industries of 10%-15% at most, with global joblessness meaning people in US working for similar absolute salaries like India (a couple of Indians already started a company in Michigan last week), a long-term decline in global IT workforce (if you didn't know, the number of people in IT is declining on a long-term basis globally) and automation of programming along with user-driven programming driving a large part of the IT workforce out of business. A matter of time.

    If builders are betting on the IT business to raise prices endlessly, good luck to them. In fact this abnormal trend in prices will face stormy weather in the next 5-10 years (since most loans are 10 - 20 years) when salaries in IT will taper off and actually decline in inflation-adjusted (real) terms and expenditure will be diverted more towards other spends like more mouths to feed, education, etc. At around that time, the number of greater fools will come down and by extrapolation price growth will also taper off. Keep this in mind when buying. Unless some other industry appears that magically priduces high salaries due to wage arbitrage (rather unlikely from where I'm sitting).

    cheers
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  • Well said, wiseman!

    I want to add a couple of points:

    1. Sooner or later, the mass-recruiting IT companies (like Infosys, Wipro, TCS, Accenture, IBM, etc.) will have to curtail this recruitment strategy.

    Actually, IMHO, the companies themselves understand this. Their short term strategy is to do a "land-grab" of as many qualified and semi-qualified people as possible. Their hope being that the inefficient and incompetent will get weeded out through their appraisal process, while they will manage to retain the bright and talented by dangling carrots such as "on-site", having them work in their R&D labs, making them technical architects, etc.

    Considering the fact that the unwashed masses are really not qualified in any way to sustain an IT job, and are also living in a fool's paradise consisting of mortgaged houses, personal loans, and credit cards; this WILL cause an issue sooner or later. The golden question is when?

    Just as China (like Japan earlier) is gradually moving away from a cheap mass market manufacturer to high-end quality manufacturing, Indian IT will have to follow the same path (up the value chain, to use jargon). This will mean that skilled and intelligent IT workers will be valued more and more, and the non-skilled workers will be valued less and less. Definitely, this will impact RE prices as the market is currently being driven by the sheep, not by the wolves.

    2. As far as IT salaries are concerned, I look at things the other way around. I feel that IT salaries are finally being (and should be) rationalized at international levels. We should be happy that these increased wages are forcing other industries to increase their wages as well, and not complaining about it!

    I am constantly horrified at the huge wage difference that exists in India. There is absolutely no reason why a house-maid or laborer should earn a tenth or twentieth of what a white collared worker earns. There is no logic to this kind of disparity. Middle class wage differences should be in factors of 2 to 4, not 10 and 20! We have become so used to dirt cheap labor that we are failing to see this.
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  • Originally Posted by asliarun

    I am constantly horrified at the huge wage difference that exists in India. There is absolutely no reason why a house-maid or laborer should earn a tenth or twentieth of what a white collared worker earns. There is no logic to this kind of disparity. Middle class wage differences should be in factors of 2 to 4, not 10 and 20! We have become so used to dirt cheap labor that we are failing to see this.


    Absolutely agree! I reside in the UK and the wage differences here between different classes of work are a lot lower than in India (and that is what I believe is right). And yet we have some people on this forum complaining about quality of life in India going down because maids and rickshawallahs are asking for too much.

    This trickledown effect of better paid people being willing to pay more to get services is what drives down benefits to different parts of the society. I see nothing negative about people willing to pay more for T-shirts or or maids or for cup of tea or coconut water, etc..
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  • Originally Posted by aaj123
    Absolutely agree! I reside in the UK and the wage differences here between different classes of work are a lot lower than in India (and that is what I believe is right). And yet we have some people on this forum complaining about quality of life in India going down because maids and rickshawallahs are asking for too much.

    This trickledown effect of better paid people being willing to pay more to get services is what drives down benefits to different parts of the society. I see nothing negative about people willing to pay more for T-shirts or or maids or for cup of tea or coconut water, etc..


    Thats why UK is a developed country & Indian is developing ( And will remain developing for next 100 years)...In UK 1200 Pound is the minimum wages & in india there is no definition for minimum wages, thats why Developed countries don't have Slums, but Developing countries does have....

    And its foolish thing to compare UK (having population 6 Cr) to India (having Population 100Cr)...Do you think that Minimum Wage in Huge country like India is Possible???? Go to Bihar or UP & see there PPls are not able to earn even 3000 Rs/month (around 40 Pound) where as in UK 40 Pound is the minimum daily wage...that's why they come to mumbai & live in Slums...So Talking about these issue looks great on internet forum, but not at all Practical in India....
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  • In that case we can apply same logic to builders that nothing wrong in asking price closer and closer (month after month) to what is quoted buy some builder in some suburb of London (takes cover to escape wrath of bears ) :D
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  • Originally Posted by puser
    It depends on your family background(if you seen/felt/realized your parents/family took hardships to make whatever they have; you'll value every penny but if someone is from higher middle class; he never seen whats luxuryless life)

    Agree with all your points except this one:-
    My cousin was gifted Honda Jazz on his birthday, yet he drives activa to his college, doesn't use internet on fone as it is expensive & whenver outside, goes to udapi hotel than star one, all this though he can afford it. His logic is simple:- I will spend when I earn:). Again when is looking after the family biz, though part time, he isn't spending, it still goes to his piggy bank (though he has his a/c he operates piggy bank as well:D).

    So, more or less, this is in the blood + experience learned from seeing others. Best part which I really appreciate about him is that he never gives in to peer pressure, which many people failed to do for whateer reasons.

    * PS:- All the family members earned from scratch & hence all are aware about the value of money even if they are in crores now.

    Man, earning money is not difficult, digesting it is!!;)
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  • Originally Posted by sanav3
    Realacres.... you have acome across real arrogant , a*#$oles ITG's... who had no responsibility from thier family side or something and were surely mad...
    Can you give me the count of ITG's that you have met and observed? bcoz you are generalizing for atleast 50K + IT junta in hinjewadi and I dont know the count of Hadapsar/MP?

    I met 20-25 ITGs, & not all are IT engg though they work in IT cos. Rest I agree with wiseman.
    Originally Posted by ash7979
    And its foolish thing to compare UK (having population 6 Cr) to India (having Population 100Cr)...Do you think that Minimum Wage in Huge country like India is Possible???? Go to Bihar or UP & see there PPls are not able to earn even 3000 Rs/month (around 40 Pound) where as in UK 40 Pound is the minimum daily wage...that's why they come to mumbai & live in Slums...So Talking about these issue looks great on internet forum, but not at all Practical in India....

    Yes, population is biggest prob. Reduce prob, 90% of probs will get resolved.
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  • Which was also the biggest part of proclaiming recovery from recession.. as we have a huge market within India bcoz of this population..
    Which is being targeted now by many companies from across the Globe, one widely known example is Auto sector

    And realacres the number speaks for itself - 25 ITGs out of 50K... that is you are making statements about a whole community based on 0.0005% of people you know
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  • Originally Posted by ash7979
    Thats why UK is a developed country & Indian is developing ( And will remain developing for next 100 years)...In UK 1200 Pound is the minimum wages & in india there is no definition for minimum wages, thats why Developed countries don't have Slums, but Developing countries does have....

    And its foolish thing to compare UK (having population 6 Cr) to India (having Population 100Cr)...Do you think that Minimum Wage in Huge country like India is Possible???? Go to Bihar or UP & see there PPls are not able to earn even 3000 Rs/month (around 40 Pound) where as in UK 40 Pound is the minimum daily wage...that's why they come to mumbai & live in Slums...So Talking about these issue looks great on internet forum, but not at all Practical in India....


    Point taken, Ashish. You did miss out one crucial point though: Everything changes if you focus only on Indian metros. Life in urban Indian metros is dramatically different from life in the rural hinterland, in terms of wages, facilities, infrastructure, job opportunity, etc.

    Indian metros can and should be benchmarked against other metros around the world. Even in the so-called developed countries, urban standard of life is dramatically different from the rural standard of life. Heck, our urban real estate prices are as much as they are in other international metros.

    You talk about Bihar and UP's average wage. Yes, that is true. But that is EXACTLY the reason why Biharis and UPites and people from all over rural India are migrating to the cities. In this RE forum, by the way, why do you only see sub-forums for Mumbai, Pune, Bangalor, Delhi, Chennai, etc? Why don't you see forums for Jaunpur, Aligarh, Jhumri-talaiyya, etc? What is the point of talking about Bihar's per capita income when we are ALL city dwellers? That is a complete different universe that has absolutely nothing to do with our daily existence or with the RE prices in metros or how much our maid charges or even the price of vegetables. Even as far as vegetables are concerned, all the money is being made in the cities by the middle-men and traders. The farmers in the villages are still living in their own stagnant universe. The price increase in vegetables has made hardly any difference to them.

    One more thing: Why do we always compare ourselves with the really advanced countries like US, UK, Germany, etc? It is a pointless exercise as the disparity is so huge. However, it DOES make sense to compare ourselves with other economies similar to us in terms of population, growth, economic size and development. Why don't we ever compare ourselves to a Brazil or Russia or China or Turkey or Malaysia or Indonesia or Ukraine or Argentina, for example?

    Man, we can compare ourselves with Brunei that is floating in oil and where nobody pays any taxes, and we will never manage to reach that level (in the next 50 years). We can use any ridiculous example and say that "we will never get there in 100 years". That's such an easy thing to say.
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  • Originally Posted by asliarun
    One more thing: Why do we always compare ourselves with the really advanced countries like US, UK, Germany, etc? It is a pointless exercise as the disparity is so huge. However, it DOES make sense to compare ourselves with other economies similar to us in terms of population, growth, economic size and development. Why don't we ever compare ourselves to a Brazil or Russia or China or Turkey or Malaysia or Indonesia or Ukraine or Argentina, for example?



    We are equally far far faaaaaaaar behind most of the countries you name. All of them have spanking clean cities with every modern amenity. Mean annual income is about 10,000 dollars per capita or more in most South American and East/SEast Asian countries as well as East European and Russia.

    Even China is 3500$ on their massive base and have fantastic cities.

    India is the dirtiest and the poorest. Only Bangladesh is behind us.

    The filth in our country is unbelievable. Its a shame that we are calling ourselves incredible - outsiders will say - Incredibly dirty India.

    Now we are calling them for Commonwealth games and showcasing our filth.

    Bula ke dikha ne ki kya jaroorat thi?
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  • Originally Posted by Venkytalks


    We are equally far far faaaaaaaar behind most of the countries you name.


    But we are far ahead w.r.t to RE prices and may be Pune RE players could be one amongst the richest in the world
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