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 veeemkay

    I think you have mentioned the answer urself. 70% (if no more) of people in India have to rent. Then there is something very wrong in way RE is priced. Don’t you think so? Demand/ Supply????
    VK

    If at all 70% rent then yes there is something very wrong. Why? They all will like to own a house as soon as they can. So they are in the buy market one time or other.
    30% who already own want a second or .... house :D:D:D:D

    So result --> High Demand, high prices.

    Do u know difference b/w a cost of building i & buying it. Guess is right - huge. The price of an entity is not derived from the manufacturing cost but from what people are willing to pay & how the entity holds in market(marketing).

    Prices are increasing last 6 months as people are willing to pay.
    CommentQuote
  • Good one compu, LOL

    Originally Posted by compuwalah
    Builder theory proved wrong. RE bull theory proved wrong. Bear theory is right. Please stay on rent :D .

    Actually I also stay in country where house prices were beyond my reach. So I stayed on rent for 11 long years before I finally bought. All these years I have been staying on rent as some people had spare money to buy 3 or 4 properties which they rented out. So it was a win win situ for both landlord and me. Had there been no such people who were bullish, there would not have been apt to rent (though the market price of some of these apartment was much below the price at which the owner bought) and it would have been a headache to govt as how to house the people who come to work in country (yeah there are govt who are concerned about such issues as well. Not "fend for yourself" attitude :-) ).

    Similar situation exists now in India (as the equation of 200 times rent is worth of a property is out of window fot at least for past 3 years). People who think its worth buying properties and have sufficient money, buy at present rate (which seems to be happening) as they believe in the northbound travel of rates in long run. People for whom rental equation wins in the the EMI vs rent math , stay on rent (and lookout for a big slump which many oracles are predicting to buy). This way people who booked at higher rates can cover some of their EMI. So works win win for both parties.

    Like Good Bad Ugly dialogue (by Tucho)
    "If you want to buy... buy ... don't complain" (If you want to shoot ... shoot ... don't talk).


    Shoot karne ke bad talk karne ka man karta hai. Flat book karne ke bad bak bak shuru ho jata hai. You have to do something in that interminable loooooooooong wait while your builder goes to sleep - giving you sleepless nights.
    CommentQuote
  • Originally Posted by puser
    Is land available anyway ? Why people are not buying LAND but buying flat in stalled projects of colorful brochures


    Just 2 reasons:-

      Sanctions are hard to get if you don't have right contacts at right place. Add to it that you should be aware of future prospects too &
      Loads of B-money is involved which many mango man don't have.
      Originally Posted by razer
      I'm not a builder, nor am I a RE bull or a bear, but I fail to understand your logic.

      I bought Larsen when it was Rs 500, market price now close to Rs 1500. What should I do? Sell it some needy fellow who wants it at Rs 600? And I have 300% profit in less than 6 months?!

      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?
      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?
      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?
      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?
      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?
    CommentQuote
  • Originally Posted by realacres
    Just 2 reasons:-

      Sanctions are hard to get if you don't have right contacts at right place. Add to it that you should be aware of future prospects too &
      Loads of B-money is involved which many mango man don't have.
      Man, you are completely wrong in the interpretation. I never will say to you to sell below the current rates, but don't fake that you bought the share itself at 1500 & hence can't sell below it. As you accepted that you want 300% profit, let the builders say the same, why give lame excuses that profit margins are just 25% as land cost itself is 1500? Accept you want more profit & don't say that raw material cost gone up. Got the difference man?

      Builder won't dare to say that he is earning 300 to 400 % profit.
      They are sophisticated timids who suck the society!

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?

      Land is almost free to most of them yaar! What 1500?
    CommentQuote
  • Rent vs Buy

    Rent vs Buy equation did not change in last 10 years. In 2001 in Kothrud, rent was Rs 3000 and same flat you could buy for 8-10 lacs with 8000 to 10000 EMI.
    CommentQuote
  • Originally Posted by shirishtiwari01
    Do u know difference b/w a cost of building i & buying it. Guess is right - huge. The price of an entity is not derived from the manufacturing cost but from what people are willing to pay & how the entity holds in market(marketing).


    And value is what is get...

    People at times get too religious in their arguments... if see value in the current prices then go for it!

    value has many more components other than just cagr!
    CommentQuote
  • Originally Posted by enduser
    Builder won't dare to say that he is earning 300 to 400 % profit.
    They are sophisticated timids who suck the society!

    Land is almost free to most of them yaar! What 1500?



    Actually, builder shares the profit with crooked politicians and beaurocrats. Many are just fronts.

    Here is a long post which I made in Chennai forum, which people here might also want to read through:

    Hi Economist.

    First, I agree 100% that some RE, including at least the roof over your own head, is a total must to guard against inflation.

    I differ from you in that I do not think it is currency devaluation which is the main cause of inflation, although it contributed in the past. After 1991, Rupee is in a reasonable free float with restrictions on inflow and outflow which are actually good and beneficial.

    India's currency management and reserve banking in the last 15-20 years is impeccable - I think they are both the best in the world, from what we have seen over the last decade. Much better than many free float countries.

    There are 3 causes of inflation. First, the most basic is supply demand mismatch. If a thing is scarce, it costs more and as scarcity continues, price keeps rising. Scarcity can be genuine or because of hoarding/black marketing.

    Second is monetary policy - an increase in money supply.

    Third is competitive disadvantage - which is what results in currency devaluation.

    As regards RE, increase in price of RE is in fact nothing but inflation. It affects everybody including you and me.

    Re price inflation has been traditional in India because of scarcity factor due to misgovernance reasons. There is 700 million acres of land in India, around 1 acre for every 2 people. Around 250 million acres of this is cultivable.

    People cannot build homes in this land because there are no roads - you need a helicopter (or walk/bullock cart as actually practiced) to reach 90% of this land. Cost of land in countryside reflects acricultural output. Average is 50,000 per acre (price of 1 laptop). Highest possible yield of agriculture, as practiced in India is 2 tons of cereal per acre = 40,000 Rs at 20 Rs per kilo. Not counting input costs. Usual agricultural yield without irrigation is around 10,000 Rs per acre. Which is peanuts.

    So the value of land is determined entirely by means of roads - if there is road, price is in crores. If there is no road, price is in peanuts.

    Second we have bad laws. There are laws in every state which restrict building on agricutural land. There are urban land cieling acts which prevent easy manufacturing of large scale apartments. Tenancy laws are tilted against landlords, who prefer to lock up the flat than rent it (more in Delhi).

    All of these create a scarcity of housing, which has the effect of making housing expensive.

    Tenency laws paradoxically prevent people from getting cheap rental houses. Otherwise massive tenaments can be erected by companies and rent out 1000 sf flats at 1000 Rs per month (thats all it actually costs). But our govt is wretched and perverse and prevents this from happening by keeping archaic tenancy laws.

    As a result, people pay the same 1000Rs rent for living in a slum in Dharavi. Actually much more.

    Govt gains in multiple ways from this scarcity. Politicians finance and are financed by crooked builders. High value RE is a good hiding place for black money as well as corruption money. Congress traditionally has juggi jhopri vote bank - so they try to keep people poor. Their modus operandi is - you have to vote for me otherwise you lose even your juggi!!!!! Nobody publicises the fact that Congress laws are what created the juggi in the first place.

    In any case, after 60 years of mismanagement, the scarcity of flats remains. At the pace in which govt is creating roads, there is going to be flat scarcity for my lifetime at least.

    But my fear for the near future is that multiple factors are converging to cause inflation all together.

    First, the RE scarcity has been magnified by recent prosperity - salaries are up and a lot of people are looking to buy. People in their 50s, 40s, 30s, and even 20s are all entering the RE market at the same time. Last time this happened in 2004-2007, we had RE hyperinflation. Flat prices tripled in 3 years.

    As long as our economy does well, this trend will continue.

    Second, there has been good monetary action by RBI but exceptionally incompetent fiscal policy by the finance ministry. This includes NREGA, 6th pay commission and loan waivers. We have overspent govt funds crazily and this has caused an increase in money supply which makes inflation inevitable. This will be reflected in RE price. The govt servants and puclic sector undertakings have all got salary rise and arrears which will inevitably go to RE. It will also stoke inflation of food - where also poor govt policy has caused scarcity by destroying agriculture (17% of GDP last I heard).

    Third, monetary policy of the whole world is loose and over 5 years is bound to increase raw material prices for oil and base metals, both will impact RE constructin cost.

    Finally, currency movements in both directions will cause RE price inflation. If Rupee strengthens, then it means our economy is doing well and there will be more people quieing up for flats. If Rupee weakens, raw material costs will go up making flats more expensive to build. At the same time s o f t w a r e outsourcers will get a competitive advantage and will see pay rises - increasing demand for RE.

    There is one other thing - which many people who talk demand and supply do not understand at all.

    In USA there are 18 million more dwelling units than there are households. 18 million vacant homes. But year on year the number of households is increasing because of immigration and more children by christian rightwingers.

    In Europe, number of dwelling units equals number of households, with a mild excess which varies from country to country. There is a decline in number of households year on year due to declining population.

    In Japan, number of dwelling units equals number of households. But number of households is dropping precipitously due to massive aging and population decline.

    In China, number of dwelling units which in India will be called "pucca" exeeds number of households (YES!!!!!!). Everybody has a home, a TV, a cycle, a washing machine. Most current dwelling units are more than adequate by Indian standards. New housing is aspiratinal i.e. a luxury, as people earn more and want to better their lifestyle. Population is plateauing and is likely to face a 50 year slow decline followed by a precipitous drop much worse than Japan.

    Now you all know what India is. The vaaaaaaaaaaast majority live in tents/juggi/footpath/village huts without electricity.

    A small percentage of this mass moves out of poverty every year. This will create a demand supply mismatch for the next 100 years. If India shows even 5% growth sustained for the next 20 years, there will probably be a 50% mismatch over this period i.e. there will be only half as many dwelling units as compared to households with income enough to buy/rent a flat.

    Shortages and RE price inflation is inevitable.

    Better buy now. RE price has only one way to go and that is up.

    Current flattening is a buying opportunity, before the relentless RE inflation continues.

    I do not anticipate good road building by Indian governments for at least 15 years. The only thing which can prevent RE inflation is road building. If govt builds roads, then it will dull the RE price inflation somewhat.

    Since political parties are the main beneficiaries of RE price inflation, including election funding, it is in their self interest to misgovern India.
    CommentQuote
  • Originally Posted by shirishtiwari01
    If at all 70% rent then yes there is something very wrong. Why? They all will like to own a house as soon as they can. So they are in the buy market one time or other.
    30% who already own want a second or .... house

    So result --> High Demand, high prices.


    Not surprised. If this logic keeps you happy, good for you.:)

    I request you to think little more and try and account for the 70% flats left vacant by the existing tenants. Do they vanish in air, to keep supply less and demand more?
    CommentQuote
  • Originally Posted by Venkytalks


    I do not anticipate good road building by Indian governments for at least 15 years. The only thing which can prevent RE inflation is road building. If govt builds roads, then it will dull the RE price inflation somewhat.

    Since political parties are the main beneficiaries of RE price inflation, including election funding, it is in their self interest to misgovern India.


    Holy cow! :D

    Venky you?! A bull in disguise? :D

    I would've never guessed. :p
    CommentQuote
  • Originally Posted by razer
    Holy cow! :D

    Venky you?! A bull in disguise? :D

    I would've never guess. :p


    Me too I didn’t realized Venky is Bull ,Althouh need to agree it’s awesome statistical laser show! :)

    Many spectrum of subjects have been touched and well covered after reading I was about to give call to pune builder for booking. But then again Venky have aggreed/cautioned about how Pune RE have been manipulated by lobby and crook politicians
    CommentQuote
  • Originally Posted by realacres
    Loads of B-money is involved which many mango man don't have.


    Hope mango man gets mangoes to eat this year (summer is coming :p); keeping in mind extreme inflation
    CommentQuote
  • Nicely done. I hope you are correct.
    BTW, you sure you are in no way affiliated to PBAP:D:D

    Joking! That was some Statistical whammy
    CommentQuote
  • Originally Posted by kunjirs
    Rent vs Buy equation did not change in last 10 years. In 2001 in Kothrud, rent was Rs 3000 and same flat you could buy for 8-10 lacs with 8000 to 10000 EMI.


    Good point kunjir.
    CommentQuote
  • Hey, I am not a bull. I am an India bear.

    I think price will stay same for around 4-5 years. MAybe 10-20 % downside - noticed recently in NOIDA - is all.

    Regarding roads - I wish our govt was building roads like crazy. Unfortunately it is not. Whatever it is building in the name of roads is also very poor quality. I am not seeing enough road building around Delhi to impact RE prices.

    As I said earlier, Rupee appreciation will benefit general economy and manufacturing. Rupee depreciation will benefir .

    Either way one groups will do well and will queue up to buy RE.

    That doesnt mean I am bullish on RE. If you are renting and dont have own flat and your job is geographically static, now is still OK to buy a flat on loan.

    If you already have own flat, then you should not buy a flat on loan. Accumulate money and when you have more than enough, buy a flat - using some 30% of net asset value. (Or use up your savings if you are confident of re-accumulating it soon)This may mean buying a small flat. Buy for own use only - i.e. buy to secure your children's future.

    Inflation means buying now before price goes up. But you should buy only for you or your children's use. Do not buy thinking rental yield will provide income - in inflation and flat scarcity you may not be able to evict tenants who may default with impunity. You know India - there is no law and order here.

    RE is not the place for get rich quick thinking. That only crooked builders can do. Normal people should just be sensible and be aware of inflationary impact and safeguard themselves - without thinking they are financial geniuses for making a flat booking.
    CommentQuote
  • Good stats Venky, but then you copy pasted this from Chennai thread, so how much is this co-related to Pune RE in terms of hitting buy?;) Chennai has seen sharper price drops than Pune, hence comparing Chennai to Pune is wrong.
    CommentQuote