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 :
  • Originally Posted by Sj2013
    FD in wife's name or husband's name is same when wife is NOT working as whole interest income will be clubbed to husband's income. If wife is working then interest income will be as per wife's tax slab

    Just buy tax free bonds. Simple. Traded on icicidirect. Buy. Hold to maturity. Only if you sell and make capital gains then you get minor amount of tax.
    CommentQuote
  • Originally Posted by suryawork
    People are mostly wrong in assuming that 30% tax bracket means FD returns are taxed at 30% and hence are low yielding :
    FD return is added to your income and taxed .
    Here is a sample calculation for husband and wife each earning 20L with FD income of 10 lacs :

    Husband :
    Salary income = 20 lacs
    FD income = 5 lacs
    Total income = 25 lacs
    Deduction = 2.5 standard + 1.5 80C = 4 lacs (I'm not even considering other deductions)
    Taxable income = 21 lacs
    Tax = 4.63 lacs = 18.5%

    Wife:
    Salary income = 20 lacs
    FD income = 5 lacs
    Total income = 25 lacs
    Deduction = 2.5 standard + 1.5 80C = 4 lacs (I'm not even considering other deductions)
    Taxable income = 21 lacs
    Tax = 4.63 lacs = 18.5%
    Total income = 50 lacs
    Total tax = 9.26 lacs
    Total tax = 18.5%

    So pretax return of FD which is 9% gives post tax return of 7.33% and not 6.30% as assumed .
    In most cases the household income will not be 50L as above and FD post tax return will be still better .
    Make the FD in name of spouse who has lesser taxable income and you'll gain more(interest accrued is taxed in hands of accruer) .

    This is wrong way to calculate returns.

    First 4 lakhs is anyway tax free. 10 and 20% is anyway going to be exhausted by salary.

    So the tax incidence on your FD return is 30%.

    On tax free bond and PPF is zero.

    On capital gains is 10 or 20%.

    Unlike salary on which you are forced to pay tax at 10, 20 and 30% you have the option to chose the most tax efficient investment from 0 to 10 to 20 to 30%.

    Chosing 30% is just plain stupidity.

    I myself have just one FD of 20000 for bank locker. Thats it.

    Yes in wife name it has to be laundered. If any cheque or bank transfer is found from husband to wife then it will be clubbed. So cash deposits over the years is best way. One should exhaust 30 lakhs FD possible in wife name - slowly over the years otherwise it will attract suspicion. After 10 years interest on the FD alone will do the job.

    The only sensible direct bank transfers from husband to wife are PPF and NPS. We still need clarity on NPS.

    Averaging the tax incidence as done by Suryawork is a common way used by banks to fool people into investing in FD which are lousy for tax efficiency.

    Same thing in reverse is annualised interest of compound interest. So at 10% money doubles in 7 years. Banks will divide 100 by 7 and fool you by telling you are getting 14% annualised interest.

    Recently Sundaram finance (i think my memory is poor nowadays) fooled investors this way about a year ago. We discussed it here.
    CommentQuote
  • Originally Posted by sarkarsk
    Sir I am always saying, for genuine buyer, 15-20% reduction is always possible in present scenario, even for RTM. I personally experienced it. Today no deals are happening at builder specified rate. Look at the reply where someone gave a example of resale deal. I have said that 85L flat owner asking rate has been reduced to 67L selling price. This is 20% reduction from asking price, happening in builder deals also.

    Point is this is not crash!


    Man, first of all stop saying SIR. My humble request.
    Coming to 20% discount, yes its there. And you need to compare this with last year situation or even before that. If you say 2009 rates now, even 2009 rates looks inflated when compared to 2004-05 rates. :D

    What you need to see is earlier RE bulls were saying that RE prices will go only up, later they said we will witness stagflation & there will be no correction, no appreciation in RE prices, today they say 20% discount is easy to get......... are you saying the change which has taken place within past 6 months ??
    And yes, even with 20% cut in prices, nothing is going on change. The correction needs to be more for the simple reason the hike in RE prices themselves were not based on fundamentals. I strongly believe that further price correction/fall is very much evident as even investors (who used to act as angels for builders) are out of RE market, those stuck with RE are trying to sell it off below market rates & end users are not present. This is the sole reason why inventory is simply piling up across the country.
    CommentQuote
  • Originally Posted by Tangent
    you gave a good reason for Bears to smile ... but i feel 1.1cr expectation itselft was too high

    Builder himself was quoting 93L. So, forget 1.1 Cr, its below builders asking price.

    i know a person who bought 3bhk in S3 for 42 L in 2010 august .. 4bhk wask around 54L

    anyway the S3 scheme was selling at 2300 when others read GK was asking 2600-2800 for same location so the sccheme itself is a big rippoff

    Issue is not who has bought at what rate, issue is who is now selling at which rate.
    Tomorrow when even more correction will take place, will you then say, baah, this guy had bought the flat for only 20L in 2006, so its ok to sell even for 40L. :D
    CommentQuote
  • Originally Posted by realacres
    Man, first of all stop saying SIR.

    SIR = stupid idiot rascal
    should not be used for gentlemen like RA.
    CommentQuote
  • Originally Posted by NG2012
    hmmm. Lets assume a scenario. Wife doesn't work and husband works.
    Husband takes loan for 50 lakhs at 10.5 and FD is in wife's name. So husband can take tax benefit and wife pays only a miniscule tax for the FD interest...or even less if it is invested in MF (debt instrument) and gets benefits of indexation.



    Sj2013 has rightly said that income will be clubbed with husbands income only.
    Similarly, even in RE, if property is on wife's name who is not working & is put on rent, the rent income will be added to husbands income + husband will end up getting under scrutiny of IT dept for 'Benaami transaction' is money has not been actually transferred to wife's account first before buying flat & the same reported to IT dept.
    CommentQuote
  • RBI needs to raise policy rates to bring down inflation: IMF

    The Reserve Bank of India needs to further increase policy rates to bring down inflation on a sustained basis, the International Monetary Fund (IMF) said today.

    In a note released ahead of the G20 meeting of Finance Ministers and central bank governors at Cairns in Australia, IMF said India needs to take more steps to reduce stubbornly high inflation and the large fiscal deficit.

    "Sustainably lowering inflation will also require further increases in the policy rate and a simpler monetary framework with clear objectives and operational autonomy for the RBI," said the IMF note.

    Responding to the demand of industry to cut rate in view of declining inflation, RBI Governor Raghuram Rajan had recently said: "There is no point in cutting interest rates to see inflation picking up again."

    RBI needs to raise policy rates to bring down inflation: IMF - Financial Express
    CommentQuote
  • Why RBI Governor Raghuram Rajan may be right about a ‘crash’

    In a series of recent interviews, Reserve Bank of India governor Raghuram Rajan warned of a 'crash' should there be sudden reversal in risk perception already distorted by unconventional monetary policies in the West. The rational response to the exuberance in the prices of financial assets is that they have always been irrational. And Rajan may be right this time!

    Global economic outlook is grounded in optimism despite data showing the contrary. Interestingly, the word 'geopolitical' appeared only once in RBI's June statement; in August it appeared thrice. The US and Japan have contracted and EU is in the midst of a fresh bank bailout. The financial markets around the world, more so in the US and Europe, continue to rise. The Dow has risen more than 50% since 2008 and during this hiatus, the US Q2GDP (and also in Q1) expanded by more than 4%. What could possibly explain this disconnect between the stellar performance of financial markets in the backdrop of continued modest real growth?

    The financial sector, in the run-up to 2008, had grown on high leverage both on and off balance sheet, and expanding exposure to trading assets vis-a-vis the traditional assets. Leverage continues to be a serious cause of concern across regulators even today. The Basel III accord has promptly checked this by incorporating the leverage ratio and has subsequently followed this up with a resolution regime mechanism to ensure orderly winding-up of entities that fail.

    High debt is not just a problem of the financial sector but also a problem of the government and household sector in the US and Europe. A Bank of International Settlement study of 2011 examining linkages between debt and economic activity in 18 industrial countries found that high debt is bad for growth.

    Hence, unless the economic system as a whole delivers, the growth prospects of the global economy projected at 3% and more by IMF can itself falter. While high debt continues to plague the major economies, the initial response to the situation in 2008 was a massive injection of liquidity, reducing interest rates close to zero bound and in some cases altering the slope of the yield curve. The measures may have restored peace in financial markets, but with the benefit of hindsight, one must look into the possible externalities such measures have created.

    Artificially lower interest rates have distorted investment decisions and made risk pricing arbitrary. At lower rates, an otherwise unviable project must have been judged viable. As central bank tries to exit exceptional measures, the ensuing rise in long yield can make those very viable projects unviable.

    Why RBI Governor Raghuram Rajan may be right about a ‘crash’ - Economic Times

    ^^ The last 2 para explain why RE prices recovered from 2009 - artificial pumping of money in markets & see where this has lead us to :- High debt, poor growth, high inflation & rising NPAs.
    CommentQuote
  • Originally Posted by Venkytalks
    This is wrong way to calculate returns.

    First 4 lakhs is anyway tax free. 10 and 20% is anyway going to be exhausted by salary.

    So the tax incidence on your FD return is 30%.

    On tax free bond and PPF is zero.

    On capital gains is 10 or 20%.

    Unlike salary on which you are forced to pay tax at 10, 20 and 30% you have the option to chose the most tax efficient investment from 0 to 10 to 20 to 30%.

    Chosing 30% is just plain stupidity.

    I myself have just one FD of 20000 for bank locker. Thats it.

    Yes in wife name it has to be laundered. If any cheque or bank transfer is found from husband to wife then it will be clubbed. So cash deposits over the years is best way. One should exhaust 30 lakhs FD possible in wife name - slowly over the years otherwise it will attract suspicion. After 10 years interest on the FD alone will do the job.

    The only sensible direct bank transfers from husband to wife are PPF and NPS. We still need clarity on NPS.

    Averaging the tax incidence as done by Suryawork is a common way used by banks to fool people into investing in FD which are lousy for tax efficiency.

    Same thing in reverse is annualised interest of compound interest. So at 10% money doubles in 7 years. Banks will divide 100 by 7 and fool you by telling you are getting 14% annualised interest.

    Recently Sundaram finance (i think my memory is poor nowadays) fooled investors this way about a year ago. We discussed it here.



    What if emergency funds are needed and you are not available to sell off your bonds/investments ?
    Money in your account can be made immediately accessible to spouse while investments will take a few days to settle and money being credited .
    CommentQuote
  • Builders & Real Estate Bulls Theory Proved Wrong

    Originally Posted by Venkytalks


    Yes in wife name it has to be laundered. If any cheque or bank transfer is found from husband to wife then it will be clubbed. So cash deposits over the years is best way. One should exhaust 30 lakhs FD possible in wife name - slowly over the years otherwise it will attract suspicion. After 10 years interest on the FD alone will do the job.

    The only sensible direct bank transfers from husband to wife are PPF and NPS. We still need clarity on NPS.
    .



    There is one more way actually, make FD with re-investment option instead of pay at maturity. With this mechanism,

    1] the interest earned in first year being a reinvestment, will NOT be clubbed into husband's income as it went into investment (read expense and hence not income)
    2] at end of 2nd year of the maturity, the interest on FD is NOT clubbed with husband's income as it is wife's own income

    I read this mechanism somewhere in economic times. Make sense but not sure
    CommentQuote
  • Originally Posted by realacres
    Sj2013 has rightly said that income will be clubbed with husbands income only.
    Similarly, even in RE, if property is on wife's name who is not working & is put on rent, the rent income will be added to husbands income + husband will end up getting under scrutiny of IT dept for 'Benaami transaction' is money has not been actually transferred to wife's account first before buying flat & the same reported to IT dept.



    Hence, put property on both husband and wife's name, and being 2nd property which is given on rent
    1] deduct all maintenance, municipal tax, society taxes from the rent and
    2] get 100% of the interest portion deducted from taxable income without any limit (read 2L)

    Do all these using online money transfer for proof of expense. Let Income Tax do whatever scrutiny they want
    CommentQuote
  • Originally Posted by Venkytalks
    This is wrong way to calculate returns.

    First 4 lakhs is anyway tax free. 10 and 20% is anyway going to be exhausted by salary.

    So the tax incidence on your FD return is 30%.

    On tax free bond and PPF is zero.

    On capital gains is 10 or 20%.

    Unlike salary on which you are forced to pay tax at 10, 20 and 30% you have the option to chose the most tax efficient investment from 0 to 10 to 20 to 30%.

    Chosing 30% is just plain stupidity.

    I myself have just one FD of 20000 for bank locker. Thats it.

    Yes in wife name it has to be laundered. If any cheque or bank transfer is found from husband to wife then it will be clubbed. So cash deposits over the years is best way. One should exhaust 30 lakhs FD possible in wife name - slowly over the years otherwise it will attract suspicion. After 10 years interest on the FD alone will do the job.

    The only sensible direct bank transfers from husband to wife are PPF and NPS. We still need clarity on NPS.

    Averaging the tax incidence as done by Suryawork is a common way used by banks to fool people into investing in FD which are lousy for tax efficiency.

    Same thing in reverse is annualised interest of compound interest. So at 10% money doubles in 7 years. Banks will divide 100 by 7 and fool you by telling you are getting 14% annualised interest.

    Recently Sundaram finance (i think my memory is poor nowadays) fooled investors this way about a year ago. We discussed it here.

    Actually tax free bonds can be used to transfer income to specified relatives.. Or investments in say equity funds which are held for more than a year.

    Basically Any investment leading to tax free income which cannot be clubbed. The income can then be invested in a "taxable" high yielding asset if so desired in the name of the lower earning spouse/relative
    CommentQuote
  • Originally Posted by Sj2013
    There is one more way actually, make FD with re-investment option instead of pay at maturity. With this mechanism,

    1] the interest earned in first year being a reinvestment, will NOT be clubbed into husband's income as it went into investment (read expense and hence not income)
    2] at end of 2nd year of the maturity, the interest on FD is NOT clubbed with husband's income as it is wife's own income

    I read this mechanism somewhere in economic times. Make sense but not sure

    WARNING... DO NOT TRY REINVESTMENT TO AVOID TAXES

    Whether you reinvest or spend the interest, it is taxable in the period it is due to you.

    Even in case of reinvestment, the bank will deduct tds and reinvest the net interest. The TDs deduction will be reported to income tax along with your pan no so it better be in your return TO AVOID TAXES

    Whether you reinvest or spend the interest, it is taxable in the period it is due to you.

    Even in case of reinvestment, the bank will deduct tds and reinvest the net interest. The TDs deduction will be reported to income tax along with your pan no so it better be in your return
    CommentQuote
  • Originally Posted by Que Sera
    WARNING... DO NOT TRY REINVESTMENT TO AVOID TAXES

    Whether you reinvest or spend the interest, it is taxable in the period it is due to you.

    Even in case of reinvestment, the bank will deduct tds and reinvest the net interest. The TDs deduction will be reported to income tax along with your pan no so it better be in your return



    Here is the extract from link in the reference

    "If you are taxed on the income, is there any point in investing in your wife's name? Yes, there is. The clubbing happens only at the first level of income.

    If this money is reinvested and earns an income, it will be treated as your wife's, not yours. "The income from the reinvested income does not attract the clubbing provision," points out Sudhir Kaushik, chartered accountant and co-founder of tax filing portal Taxspanner.com."





    Ref - http://articles.economictimes.indiatimes.com/2013-02-04/news/36743106_1_tax-laws-flat-tax-higher-tax
    CommentQuote
  • Originally Posted by realacres
    Sj2013 has rightly said that income will be clubbed with husbands income only.
    Similarly, even in RE, if property is on wife's name who is not working & is put on rent, the rent income will be added to husbands income + husband will end up getting under scrutiny of IT dept for 'Benaami transaction' is money has not been actually transferred to wife's account first before buying flat & the same reported to IT dept.


    No it is possible to buy property in wife name without clubbing if you can show gift from father in law or long term independent income from other sources and if you file annual tax returns diligently. Rent will be her independent income.
    Originally Posted by suryawork
    What if emergency funds are needed and you are not available to sell off your bonds/investments ?
    Money in your account can be made immediately accessible to spouse while investments will take a few days to settle and money being credited .

    Tax free bonds can be sold at the click of a button
    Originally Posted by Sj2013
    There is one more way actually, make FD with re-investment option instead of pay at maturity. With this mechanism,

    1] the interest earned in first year being a reinvestment, will NOT be clubbed into husband's income as it went into investment (read expense and hence not income)
    2] at end of 2nd year of the maturity, the interest on FD is NOT clubbed with husband's income as it is wife's own income

    I read this mechanism somewhere in economic times. Make sense but not sure

    This is correct but difficult in practice.
    Originally Posted by Que Sera
    Actually tax free bonds can be used to transfer income to specified relatives.. Or investments in say equity funds which are held for more than a year.

    Basically Any investment leading to tax free income which cannot be clubbed. The income can then be invested in a "taxable" high yielding asset if so desired in the name of the lower earning spouse/relative

    True. But only the income becomes wifes not the capital. Plus money doesnt compound.

    With PPF or NPS capital also becomes wifes after 15 years for all practical purposes. Plus power of compounding.

    Equity funds or shares is dangerous to use for transferring funds. Long term capital gains is anyway tax free in your own hands. The point is to get tax free interest income.

    If the purpose is tax free interest income in wife name then all these can be done. But all of these is dangerous for using to buy a flat in wife name for rental income in her name.

    Best option is give money to father in law, brither/sister in law or other relatives who can help and have that person gift it back to wife.

    Basically wife can receive gift from anyone except husband and husbands parents.
    CommentQuote