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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • @Wiseman - 'The process is underway and people in the IT business (also other businesses who are getting automated away rapidly)"

    Banking and education are next (IMHO). In banking (and medicine), huge regulatory compliance make it harder for a small lean startup to disrupt. But it will happen. Financial institutions will see their cushy margins wither away.

    Education is already being disrupted. Coursera, Udacity, Khan Academy .... Early days, but simply a question of time till they refine their model. I think the real kicker will come if firms start hiring people with certificates from them. For folks working in IT, most of what you learn in an Engg course is redundant anyways. 4 years mostly wasted. It will be interesting if the world transitions to a learn as you go model. Take a few courses, get a job. And take some more when the job or a career shift demands it.
    CommentQuote
  • Originally Posted by Sj2013
    I got following numbers from Igrmaharashtra.gov.in. for Haveli no. 4


    DocNo DName RDate
    Year 2014
    5000 36--Leave and Licenses31/05/2014

    Year 2013
    5000 36--Leave and Licenses10/06/2013

    Which states that. 5000th registration happened on 31st May 2014 where se it took 10 more days in 2013


    Tell me which Haveli number has more registrations "till mid-last year" than today, we will confirm

    Man, what I said in my above post :-

    Mid of last last year & past 6 months of this year. But you took different period.
    And for proof, the simple thing would be to sit for a day in any registrar office you wish & see how many sale deeds are happenings.
    CommentQuote
  • Originally Posted by Sj2013
    EMI for home contributes to build an asset which is your home
    Rent for home never contribute to build any type of asset it is pure expenditure

    EMI - Rent = +X.
    This X invested & later used for higher downpayment will cut down price of so called asset.
    And man, 'Asset' is for investors, for end users, its a 'Liability'. Note the difference between the two. Man, sometimes even in such lacklustre RE market, the RE bulls give logic that how buying an aircraft is cost effective than purchasing a ticket for travel.
    Heck, when you buy airline ticket, the money is wasted coz you don't even own the seatbelt, let alone the seat & aircraft. :D



    The real owner is the one who do the registration, pays the stamp duty, pays property tax, buys insurance, etc on the property.

    Don't pay EMIs for 3-4 months & you will come to know who the owner is. :D
    Either you rent house or you rent money.
    CommentQuote
  • Originally Posted by ThodiSiZamin
    but when you rent, you can keep your downpayment in financial instruments and earn at least 9% every year. the amount of money you will have at the end of 15 years will definitely be more than the captial gains in RE net of all transcation costs.

    Owning a home mean renting money from the bank and Renting means renting an apartment.

    +1. Infact, I operate 2 accounts. One is like the piggy bank account where I put some money & forget about it. This account is liked to my RD account.

    Sansei,
    Not all are drift spenders. There are lot of so called kanjoos friends whom I have & you won't believe that despite fantastic earnings, their spending pattern is like one we had in college.
    Even today, for all my advance trips, I book ticket well in advance & save thousands on single trip. My credit card offers 2.5% cash back even on fuel, so I use CC a lot for fuel.

    Man, whether to spend heavily on useless stuff or not depends upon the power of your mind. No power on earth can propel a person to spend unwisely if he has control over his mind. :)
    CommentQuote
  • Originally Posted by Sj2013
    Are you assuming fixed rent for the entire life time?

    Every rent agreement is for 11 month only. And now a days we have to do registration for rent agreement without fail. This cost registration only renter has to bear and that too every 11 months.

    3 years agreement is also there. Please do check that out.
    Btw, place where I stay is long term investor & he said to me that I can stay as long as I want. It has already been 4 yrs now.

    Rest of the things have been aptly put by southsea.
    CommentQuote
  • Originally Posted by realacres
    +1. Infact, I operate 2 accounts. One is like the piggy bank account where I put some money & forget about it. This account is liked to my RD account.

    Sansei,
    Not all are drift spenders. There are lot of so called kanjoos friends whom I have & you won't believe that despite fantastic earnings, their spending pattern is like one we had in college.
    Even today, for all my advance trips, I book ticket well in advance & save thousands on single trip. My credit card offers 2.5% cash back even on fuel, so I use CC a lot for fuel.

    Man, whether to spend heavily on useless stuff or not depends upon the power of your mind. No power on earth can propel a person to spend unwisely if he has control over his mind. :)



    On a lighter note , which cc you use that provide 2.5% cash back ????
    CommentQuote
  • Originally Posted by realacres
    3 years agreement is also there. Please do check that out.
    Btw, place where I stay is long term investor & he said to me that I can stay as long as I want. It has already been 4 yrs now.

    Rest of the things have been aptly put by southsea.


    Owners doing this type of multi-year rent agreement are at huge risk of loosing their home.

    The current practice is renew agreement ever 11 months.

    If this is possible at all I would lease for 3,4 or 10 years and give it on sub-lease!!!
    CommentQuote
  • Originally Posted by RAJARORA83
    On a lighter note , which cc you use that provide 2.5% cash back ????

    Sorry, its not 2.5% but 5%. :)
    Cash back is not just for fuel but also for phone & utility bills (like electricity), each gives 5% cash back. The credit card is StanChart (Standard Chartered) Titanium credit card. This is amongst their top of the line credit cards. There are also good offers on airlines, lounge access & hotel bookings with some preferential forex charges when you use it abroad & make payment in non-INR currency. Apart from this, I would also recommend you to have a look at Visa Signature/Infinite range of cards.
    CommentQuote
  • Originally Posted by vlokras1
    @vaibhav123 - 2009-2013 the world economy was in shatters...recession in US Europe Japan started in 2008 and continues till today(improving though in some places), wars in Iraq afghanistan was on, Kon-gress and NCP rule in Maharashtra, even after all these issues the RE market surpassed expectations..I am not saying it will continue that astronomical rowth but even if there is a slump it will be smaller drop or stagnant growth compared to the 100% or 200% rise in property prices..But it will pick up again as more and more ppl come to work in metros..and Pune has all the factors for growth, MFG industry showing signs of revival (it will take couple of quarters), IT not growing strongly but growing gradually, Education hub, Investors from Mumbai who could afford buying homes @15000-20000 psqft find Pune cheap and continue investing..And how much ever the government ries, black money is infested in India, and RE is the only option other than elections where the maximum black money is invested..
    "I dont want to hear total bullish noises" - Well what I meant to say was not a single bullish noise is a Honorary Moderator or a veteran member..they just come and go in this forum..they research a lot, take inputs and leave the forum..they don't waste time here..on the other hand the Bears never leave this forum :P
    If you see the first few pages of this thread, you will understand that whatever be the scenario outside, its just impossible to predict the RE scenario in India..especailly in Pune coz its one of the few cities in India where RE is still somewhat bullish alongwith Mumbai and Bangalore..North India will see a definite drop according to me..especially places like Gurgaon and Noida..

    Well, RE cannot be predicted according to you, but you can predict the bullishness in pune and Bangalore re market. Howzzat ?
    And not all veterans or mods are bears :) 2 Years back this forum had 1000 bulks for every bear. Now the figures are more or less balanced, but what does it prove then ?
    CommentQuote
  • Cisco to Lay Off 6,000 People; India May See Job Cuts

    After reporting a marginal decline in profits and revenues for the fourth quarter, networking solutions giant Cisco has said it will lay off up to 6,000 employees globally, including India.

    The reduction, which is about 8 per cent of the US-based firm's global workforce, follows a similar move by the company last year when it announced plans to slash 4,000 jobs.

    Transforming Cisco requires "making some very tough decisions", Cisco chairman and CEO John Chambers said. He also said that the company must focus on areas of growth to become the No. 1 IT player.

    Cisco expects to record charges of up to $700 million as in restructuring charges through fiscal year 2015.

    People in know of the development said that India will also be impacted by the layoffs as Cisco has a sizable workforce in the region.

    Cisco to Lay Off 6,000 People; India May See Job Cuts - NDTVProfit.com
    CommentQuote
  • @RA - "Don't pay EMIs for 3-4 months & you will come to know who the owner is"
    Aptly summarized :).

    @SJ - "The real owner is the one who do the registration, pays the stamp duty, pays property tax, buys insurance, etc on the property.
    "
    Try that in court. Who knows, In our country you may even find a loony judge sympathetic to that argument
    CommentQuote
  • Originally Posted by realacres
    Man, what I said in my above post :-

    Mid of last last year & past 6 months of this year. But you took different period.
    And for proof, the simple thing would be to sit for a day in any registrar office you wish & see how many sale deeds are happenings.


    This is what you said
    Let me give simple eg. Till mid-last year, at Haveli registrar office, one had to take appointment 2 days in advance for entire process (scrutiny of docs, stamping etc). Today the scenario is you can go to this office in morning & finish off the work by afternoon & all this without the need to take any appointment. This itself shows the poor sales in Pune RE, be it from builder or in resale.


    now you are saying this

    Man, what I said in my above post :-

    Mid of last last year & past 6 months of this year. But you took different period.
    And for proof, the simple thing would be to sit for a day in any registrar office you wish & see how many sale deeds are happenings.



    Your argument is "There are lesser registrations happening at registrar office now-a-days" right?

    Why don't you pull the exact numbers from live dashboard of http://igrmaharashtra.gov.in/ and make a statement here?


    Here is today's (few mins ago snapshot)
    Attachments:
    CommentQuote
  • Originally Posted by southsea
    @RA - "Don't pay EMIs for 3-4 months & you will come to know who the owner is"
    Aptly summarized :).

    @SJ - "The real owner is the one who do the registration, pays the stamp duty, pays property tax, buys insurance, etc on the property.
    "
    Try that in court. Who knows, In our country you may even find a loony judge sympathetic to that argument


    and what about if you won't pay rent just for 1 month?
    CommentQuote
  • Originally Posted by Sj2013
    and what about if you won't pay rent just for 1 month?

    My neighbor didnt pay rent for 7 years. It took that long for court to throw him out.

    Landlord sold flat for 56 lakhs. Now worth 2 crores. I was stupid enough not to buy in 2007.

    Those days i used to hate real estate.

    Nowadays i am back to hating it. But it made me a whole lot of money from 2009.
    CommentQuote
  • Home Loan EMIs Unlikely to Fall in 2014: Analysts

    The Reserve Bank held repo rate at 8 per cent on Tuesday, dashing hopes of a reduction in EMIs on home and auto loans. More importantly, the RBI seems to have set its eyes on the long-term inflation target of 6 per cent by January 2016, which means interest rates are unlikely to come down over the next 12-18 months, analysts say.

    "It's unlikely that over the next 18 months, the central bank will go for a big rate easing cycle," he added.

    Rupa Rege Nitsure, chief economist at Bank of Baroda says Governor Raghuram Rajan is giving a clear signal that one should not expect any monetary policy easing in a fairly long period of time because while RBI is confident that it will attain inflation target of at 8 per cent by January 2015, it is not so confident to attain the 6 per cent by 2016.


    Home Loan EMIs Unlikely to Fall in 2014: Analysts - NDTVProfit.com
    CommentQuote