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 onnoval
    I would like to explain this from my perspective, since i am also going to buy a car. Reason i am buying a car is real estate is simply NOT affordable. Many of my friends also think it's pointless to wait for a flat and sacrifice on many things like cars and holidays.

    Of course everyone knows its contrary to popular wisdom in india, that one always buys home first and then other things. But what else can one do?

    I can easily afford a hatchback(without finance) but home, not at all. So yes, i am buying a car with money saved for downpayment of flat. I would have ofcourse preferred to buy a flat first. :bab (38):


    +1. There are some good things in life to enjoy as well. No point in thinking about flat & sacrifice all other things in life. And also note that car is still VFM unlike RE today.
    Btw, I too don't own flat but I have a car & a bike. 2 of my friends, who don't own flat are also going to buy car in Diwali, one is VW Vento (selling off his swift), other guy is buying Safari Storme (in addition to i10). :)
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  • Originally Posted by Tangent
    also same here .. still use 5 yr old nikia e71 .. dont own a car but own a house and covered car park !!!!


    :eek2:

    Man, what's the use of covered car park ??
    And how do you move around ??
    And in 2014, you are still using E71 ??
    Forget expensive phones, you still can have MMX or Karbonn.

    Whats the use of buying flat & having nothing else ?? :confused2:
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  • Originally Posted by investwest
    Car was never prior to home.. AFAIK and what I observed.
    These days people buy car and stay in rented homes. Also, ipad and iphone never had priority over homes.
    Only essentials comes in correct order before home.


    Car came after home -- but earlier & not now. People have now realized that its a folly buying over-priced RE & then traveling on scooter & kids, if any hanging here & there. I have seen people who own flat but travel 3-4 on activa. :o
    Again, when we say car, it doesn't mean one should buy car of 15L+. It is better to spend even on good hatchback & stay in rented house. Whats the use of buying flat if one skids & falls off from scooter ?? In developed countries, house is never a priority, quality of life is. And its always better to have good quality life than owning a flat & leading a life like BPL family. Again, this doesn't mean one shouldn't buy house but surely not at the cost of other things in life.
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  • World Bank warns of global jobs crisis

    Originally Posted by NCRTalk
    Recently Synechron laid off people in Pune. There was another news in TOI saying entry level salaries of IT engineer and electrician around same now. Not sure if people are earning enough to support price hikes of last 3-4 years in Pune RE.


    The world is facing a global jobs crisis that is hurting the chances of reigniting economic growth and there is no magic bullet to solve the problem, the World Bank warned on Tuesday.

    In a study released at a G20 Labour and Employment Ministerial Meeting in Australia, the Bank said an extra 600 million jobs needed to be created worldwide by 2030 just to cope with the expanding population.

    "There's little doubt there is a global jobs crisis," said the World Bank's senior director for jobs, Nigel Twose.

    World Bank warns of global jobs crisis - Economic Times
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  • A new report by UBS shows that on an average pre-sales are down 50 percent in 2014 while residential inventory is at a seven-year high on an average. Now take a look at city specific data and you will see why the real estate market is rigged in favour of builders and politicians rather than the aam aadmi.

    The National Capital Region (NCR), which is the largest investor-driven market, has seen pre-sales drop a whopping 73 percent; Gurgaon is even worse at 74 percent! Mumbai, another market largely driven by investors, has seen pre-sales drop 49 percent in the last year. All major metros, including Bangalore, Mumbai Metropolitan Region (MMR), Hyderabad, Pune and Chennai have seen a drop in pre-sales.



    But still RE bulls will say prices will go up. :D
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  • Originally Posted by realacres
    :eek2:

    Man, what's the use of covered car park ??
    And how do you move around ??
    And in 2014, you are still using E71 ??
    Forget expensive phones, you still can have MMX or Karbonn.

    Whats the use of buying flat & having nothing else ?? :confused2:



    dude i am not staying in US or may be you are ...so dont really need a car to move around ... what i did was the best decision .. i had 5 laks which i invested in RE rather than buy car... the flat i bought sells at 70L (actual transaction unlike your fictiuous examples ) cost price was 26L .. but you wont understand why i did it becsue if you did you would not be satying on rent for 5 years .. and trying to prove how fool ppl are to buy RE ...... i think you should have bought a flat instead of car in 2009 when you started the thread .... ... i have made engough saving to buy atleast a Honda city ,, but to me car is more luxury than nececisty ....... bu

    and btw now you are suggesting that buying a car is VFM than buying a FLAt .. wake up man... anyway as always you wont understrand ..... ppl raked in moolah since 2009 while you are trying to prove that ppl buyiing are fools ....... i bough a flat for 26L which now sells for 70L so now you decide who is a fool
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  • btw i gave the advice of buyin flat before car to many of my friends (2008-2011).. sommtetimes fought with them ... but now all of them thank me because at current rate they couls have afforded only a compact 2bhk rather than bigger flats they bought
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  • bte the car that was worth 5 laks must be worth junk now

    and new car still costs same albeit with more features
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  • Excellent decision congratulations. So what is your next big decision? I would like to mirror that unless you want to keep it a secret.

    By the way did you know that it would go to 70l at the time of buying. Or did it turn out to be the best decision post facto ?
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  • I feel like a loser here.

    1. Didn't buy a home even after 9 yrs of IT experience.
    2. Bought 2 junk pieces in b/w Bajaj Avenger(felt like god when bought) and Honda Jazz (wasted 7 lakhs in the name of security, safety and comfort). But I love to ride my junk 2-wheeler and feel safe with family in 4-wheeler junk in this mad traffic.
    3. Don't like a flat within budget and the ones I like are well beyond my budget, but thankfully affordable on rent.
    4.Damn! I hardly like any city to live (spoiled by a 6 month stay in chandigarh in 2005). Waiting for smart cities to be built.
    5. Thankfully invested in ppf and epf to full extent. Have some endowment policies also from LIC.
    6. Some one advised me to buy term-insurance and mediclaim even if employer provides one and I DID. Wish he would have advised to book a flat.
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  • By the way, I moved to Ahmedabad 6 months back from Pune. Here its a known fact that RE is dull since last 2 yrs at least. Even my carpenter is suggesting, don't buy now wait for 1 more yr, prices will drop more.
    I befriended the consultant who placed me here. He bought a bunglow for 52 Lacs. Quoted price was 72 Lacs.
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  • Arey sab personally lene lage....everybody's needs and situation is different. Buy what's of most utility to you.

    Also, its not like people cant buy a smart phone due to financial reasons so stop that stupid argument
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  • Originally Posted by realacres
    Car came after home -- but earlier & not now. People have now realized that its a folly buying over-priced RE & then traveling on scooter & kids, if any hanging here & there. I have seen people who own flat but travel 3-4 on activa. :o
    Again, when we say car, it doesn't mean one should buy car of 15L+. It is better to spend even on good hatchback & stay in rented house. Whats the use of buying flat if one skids & falls off from scooter ?? In developed countries, house is never a priority, quality of life is. And its always better to have good quality life than owning a flat & leading a life like BPL family. Again, this doesn't mean one shouldn't buy house but surely not at the cost of other things in life.


    I was talking about 'earlier'.
    If one skids - the argument can be reversed - what's the use of owning a car (no matter what - a hatch or 15L+) and getting thrown out of house by landlord (with or without notice) and what's the use of shifting every 11 months and disturbing family and especially kids and their friend circle every 11 months. If you have elders staying with you then - what's the use of expecting them to adjust in new surrounding every 11 months?

    Again, car is a depreciating asset (though I own it and happy to have it) will you be handing over it to next generation? What'll they get out of a 10-20 years old car?

    I agree with you on quality of life - but, do you call it a quality of life which pays EMIs for car (most of the guys buying cars on loan, I did this mistake when I joined job had loan limit with no liabilities, so I paid interest on a depreciating asset - such a fool I was and there are lot many like me) and paying rent for home? I'll prefer to stay in own house and roam on bicycle if I cannot afford a scooter after paying EMIs of home but with own home I'll ensure stability to my family - kids and parents. With own home, they can make/convert it the way they want and after all this there comes an element of satisfaction of achieving something in life (even car gives that satisfaction but home is home).

    In developed countries, the concept of family itself is in question and forget about inheritance and so on.. usually people don't stay with parents so they don't have to consider that angle in owning a house (see data of US and UK and you'll find that most of the Asians and in that too most of Indians have good families and not their natives).
    Again, in developed countries, the thinking is - earn to live and spend for oneself and get loans if you can and spend that too on fun, holidays, hobbies and so on - remember why US faced the dangerous recession?

    In India, we have the best economy - we call it savings economy - everyone tries to save for future and for next generations. There's nothing wrong in that, you'll get the feeling from Indian parents that whatever I could not get, I'll try to give to my kids - this feeling lacks in developed countries and they have their own different issues. So don't compare with them.

    I'll still say that owning a car (especially on loan) prior owning a house (anywhere, does not need to own at the place/city you work) is not a good idea - it's pure idiotness.
    I went through it and I know how and when it pains - as I was paying EMI on car, I had low eligibility left for home loan - where is quality of life when you need to adjust in 1 room lesser to own a car?
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  • Originally Posted by Tangent
    i bough a flat for 26L which now sells for 70L so now you decide who is a fool


    interesting...

    what would be more interesting is you ACTUALLY buying one more similar flat (may be next to yours) at 70L TODAY and selling it for 2 cr+ in 2018-19. Believe me it is quite possible. Not joking.
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  • On inventory piling up and there are no sales - these are because of current inflated prices - I completely agree and if you check my earlier posts I always mentioned to piling inventory in cities including Pune.

    But my view is straight as always - if you are a builder and you are developing a project with the support of finance from bank or investors (Investors I don't mean someone who buys one flat from builder and want to sell it for profit, I mean big investors who lend money for profit sharing or for interest earning) will you sell it at loss just to repay your debits?
    Yes, you'll adjust prices little bit so that sells realize and you get money but will you sell it for loss - same question.

    If you predicted that by selling at 6k psqft (current rate of wakad if you look at market from developers perspective - includes all builder charges) will you slash prices to 3k psqft just to repay your debits?

    Answer is NO - you cannot book loss if you are a real businessman. Yes, you can reduce the profit - I'll explain how -
    If as a developer you have 40 flats to sell at 6k psqft and each flat is 1000 sqft that means you are aiming to sell each at 60L approx.
    How this 6k or 60L came? Did you dream this price? NO.. You did some market research and found out about paying ability of 'mass' (arguable but true), You found out about the current rates at which others are selling and you did your maths on profit calculation keeping in mind the raising cost of construction. Don't forget the interest on borrowed capital.

    So, as a developer, you came to conclusion that you'll start selling at 5.5k - you'll sell 10 flats at this price and then next 20 you'll sell at 6k and then last 10 you'll sell at 6.5k to average out your costs considering 100% profit.

    No developer makes 100% profit - even they initially plan for it. Inflation, raising cost of construction materials and labor and so on eats from this 100% even if you considered them earlier. If sales get delayed then further interest on borrowed capitals eats from this 100%.

    So at the end you end up in making approx 60-70% profit if everything went well and some new comers make even lesser than 50%.
    Any project approximately takes 3 years to complete - so divide this 60% average by 3 years - 20%. If you are not getting at least 20% profit a year - why to do business?

    Now will someone please tell me that if a developer can discount prices by 50%? forget about 50%, can a developer discount prices by 30-40%? NO - and if one does then I'll say he's a fool or he decided to move out of this business.

    Yes, when sales don't happen you see discounts but you should be realistic about the figures. You'll never get a flat selling at 70L today for 30-40L tomorrow or next year or anytime prior and after that.

    When someone says prices are stagnant for a year - yes they are but then that's coming out from that 100% planned profit - when this planned profit goes below 70-80%, developers will not have any choice than to raise the prices.

    Be realistic guys - you can hope for a discount of 4-5L or say max 10L on 70L but not more than that and for getting 10L (approx 15%) discount you'll need to find a developer who is in urgent need of money so that he gets food that day at home.
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