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
    Issue is not just inflation but more of speculation. Why are NPAs of banks rising QoQ ?? This single answer will put in place most of the queries about interest rates here.


    Here is one more chart. NPA in Retail loans - mostly real estate loans - is the lowest. Industries include airlines and power.
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  • Originally Posted by realacres

    Btw, I won't bet very high on oil prices as these are largely speculative & beyond control of Indian Govt. Also, note that slowdown in China is one of the major reasons for oil prices to fall. Chinese slowdown will have major impact across the world.


    Dude pls do a simple google search before posting. Here is a link about the worlds top producers and consumers of crude oil. Heard about the US shale oil boom???

    I couldn't possibly comment: Oil production and consumption - US the biggest winner
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  • India is dependent on imported oil.Fall in prices in the international market has done good for the country.Good that government is passing on the benefits of lower prices to us the consumers.
    The lower prices will help cool down the price situation inn the market.
    It was nice to se price of diesel Rs61 in Mumbai.
    The lower oil prices will benefit ONGC,Oil India because their under recoveries will decline,butt companies like Cairns will not get much benefit.
    USA,Western Europe have made efforts to reduce dependence on Middle East oil.ME is the most violent and unstable region. Discovery of shale oil,northern seas oil in UK etc have made their dependence much lower and crisis in ME will not impact them to that extent as in 80s.
    Many factors have proved a blessing for Namo government.Oil prices,increased agricultural yield.
    It is upto the Government to capitalise on these and energise the economy and not treat it as purely their economic skill and a PR point.
    It is not that our economy has turned around.(September quarterly results show India Inc losing steam; slowest aggregate revenue since December 2013 - The Economic Times)
    There are far too many grey areas which require sustained attention.NPAS is one for example.Divestment from perpetual loss makers like AI need to be attended.FDI in insurance is another aspect.
    NAMO government has to go full steam to turn India around,while not destroying environment by loose EIA studies.
    Otherwise on one hand factories will come up and generate income and other hand we will be setting up task forces to clean rivers,lakes etc.
    Balanced approach is the need of the hour and no quick fixes.
    When national economy as a whole stabilises/improves,RE will also have the benefits as it is interconnected in many ways to the macro economic scene.
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  • Originally Posted by realacres
    What you fail to see is why these poor results at first place ? This is due to poor sales due to lack of buyers in the market.

    This is just to show that RE is not in good shape & they can't continue to hold on as it is unless there is end user. If RE had good scope, why are people pulling out of RE stocks then ??

    Stocks of XYZ sector is mere reflection of reality.


    Well, there are many poorly managed companies which don't provide any dividend or return on investments and their shares go down even of they are in a booming sector.
    There are some companies which are making losses but their shares are going up..

    Before making such conclusions, you should check the market and reality. Indian market is a sentiment driven one - predictions and analysis of rise or fall are hilarious here.
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  • RA . You should change your focus to Aviation industry now once hero hiralal has enlightened us with the facts about NPA facts across sectors. You have been focussing so much on RE that Aviation people took advantage of it and got away with 2700% growth in NPA spread across 4 years (since 2009 - exactly since when you started to focus on RE). Result was that due to your posts , teh RE NPA remained in check. DLF etc were very uncomfortable with the focus from frugality etc and kept their debt under control. You can see other sectors for yourself. They have also taken advantage of your shifted focus.

    1% vs 27% :D

    I believe if you are so active in Aviation sector , Air India debt could have reduced by half by now (maybe more) and kingfished must be still fishing happily in skies. If you join hands with wisey maybe it could wipe off all debt of AI.

    Or maybe you can divide them amongst yourselves each one focussing on one sector or rotate on annual or 5 yearly basis.
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  • >You should change your focus to Aviation industry now once hero hiralal has enlightened us with the facts about NPA facts across sectors.
    NPAs affect the banks. Whether it is due to high flying beer barons or crooked builders, the banks ability to lend is reduced.
    Industrial NPAs are worse than household ones, imo. One large firms troubles ripple across to its vendors and contractors potentially causing a chain of smaller NPAs.
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  • Exactly. In the end buyer may not get the required loan due to lack of funds. That is why I am requesting for diversifiation of RA to aviation etc here. So that we keep the NPA is check overall so that buyer will be benefitted.
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  • Originally Posted by compuwalah
    Exactly. In the end buyer may not get the required loan due to lack of funds. That is why I am requesting for diversifiation of RA to aviation etc here. So that we keep the NPA is check overall so that buyer will be benefitted.

    Dont worry.

    RA covers recession and NPA from every industry.

    He has posted many depressing stories about the Kingfisher crash here. Have you forgotten?

    Relax. All bad news will be faithfully conveyed.

    (Sorry RA, couldnt help myself !)
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  • Rate cut by RBI imminent: Royal Bank of Scotland - Moneycontrol.com


    Superstar Rajan will need to come up with a really good reason for not wanting to reduce rates.
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  • Originally Posted by herohiralal
    Rate cut by RBI imminent: Royal Bank of Scotland - Moneycontrol.com


    Superstar Rajan will need to come up with a really good reason for not wanting to reduce rates.


    inflation? isn't the middle class in India being squeezed every month just to pay grocery bills?
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  • Does RBS country head know more than some "experts" in India ?
    Raone will call him ignorant.
    Mangoman will call him a paid guy.


    Originally Posted by herohiralal
    Rate cut by RBI imminent: Royal Bank of Scotland - Moneycontrol.com


    Superstar Rajan will need to come up with a really good reason for not wanting to reduce rates.
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  • Originally Posted by rambler
    Does RBS country head know more than some "experts" in India ?
    Raone will call him ignorant.
    Mangoman will call him a paid guy.


    Even experts within the RBI backed a cut in interest rates in the last meeting.

    Majority of RBI advisors backed interest rate cut in September meeting - Livemint

    Lets wait and watch. Nothing ever follows a logical path in the Indian system :)
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  • Originally Posted by Venkytalks
    Dont worry.

    RA covers recession and NPA from every industry.

    He has posted many depressing stories about the Kingfisher crash here. Have you forgotten?

    Relax. All bad news will be faithfully conveyed.

    (Sorry RA, couldnt help myself !)

    Ahhh.
    1) RA being acive on IREF with target to reduce RE rates but has in turn contributed to keep NPA in check for RE however RE rates increased over 20% per annum on average.
    2) Aviation posts were used as a "boo" factor to darken the image of RE scenario but it has not contributed in reduction of Aviation NPA . However Air Ticket prices have reduced in last 5 years .

    Wonder what conclusion one can draw from these observations.
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  • Compu,
    The conclusion is obviousD
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  • Originally Posted by compuwalah
    Ahhh.
    1) RA being acive on IREF with target to reduce RE rates but has in turn contributed to keep NPA in check for RE however RE rates increased over 20% per annum on average.
    2) Aviation posts were used as a "boo" factor to darken the image of RE scenario but it has not contributed in reduction of Aviation NPA . However Air Ticket prices have reduced in last 5 years .

    Wonder what conclusion one can draw from these observations.


    He traveled by air in 2009 and 2010 that means he's actually in loss ;)
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