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 suryawork
    Wrong...here is the profit percentage for 40k to 40L in 35 years :

    FV(14%,35,0,40000,1) = 3924007

    So profit is abt 14% per year not 280% per year . See the diff. in actual vs your assumptions .

    You are in supervisory position but do not know that your job does not depend only on your performance but also the company performance .

    Hats off to your genius , Sir !!!


    Ok count it the way you want - interest compounding or anything else, even at throwaway prices he made consistent 14% returns apart from saving us from shifting from homes to homes and paying rents.

    People like you cannot reach to such generous and genius levels cause you'll end up in wasting time in proving your wrong points right.
    CommentQuote
  • Originally Posted by Carefree
    after reading the last sentence " Money printing? now from where's this coming? Do you seriously think that a country can produce as much as it wants in times of need? Then why not print money and pay back all our dues"

    All I can say is this: I rest my case....


    cause you cannot do any better to convince with hypothetical stories and imaginations of prices fall..
    CommentQuote
  • Originally Posted by REinvest
    cause you cannot do any better to convince with hypothetical stories and imaginations of prices fall..

    OK
    CommentQuote
  • Originally Posted by Carefree
    after reading the last sentence " Money printing? now from where's this coming? Do you seriously think that a country can produce as much as it wants in times of need? Then why not print money and pay back all our dues"

    All I can say is this: I rest my case....

    P.S: thanks for writing the last sentence ....if not i would have ended up in long list of arguments with you....


    Read again what you wrote - I don't know if you think something else and then translate to something else.. you are the only genius available and living in the world..
    When your points proved fake and imaginative, you became personal :D people from your class cannot do better - just watch people booking and staying happily in their own houses and dream someday you'll be able to buy that house at half price - half of what that you better know cause to me half of today is 2011 or 2012 price which people paid at that time and are still happy..
    CommentQuote
  • Originally Posted by REinvest
    Read again what you wrote - I don't know if you think something else and then translate to something else.. you are the only genius available and living in the world..
    When your points proved fake and imaginative, you became personal :D people from your class cannot do better - just watch people booking and staying happily in their own houses and dream someday you'll be able to buy that house at half price - half of what that you better know cause to me half of today is 2011 or 2012 price which people paid at that time and are still happy..

    OK
    CommentQuote
  • I don't understand why these broken heart and frustrated guys go to extreme ends - when I said I don't think prices will fall they take it as I am saying prices will double in a day or a year..
    God please help these guys..
    CommentQuote
  • Originally Posted by wiseman
    The target would have been reached and by now we would have been well on way to recovery if normal course of markets were allowed. Negative impact would have been limited.

    I did not bank on powers that be bailing things out and delaying the inevitable.

    The problem with bailing out is that the eventual fall will have added energy with all that pent-up debt to be destroyed. It will only make things worse.

    So, one does not get prizes for the exact date target accuracy.

    One gets benefited by doing the right thing and coming out ahead. Nothing is lost by staying on rent and accumulating cash for the eventual crash when the real bargains will be available.

    I'm still betting that, when the big one comes, almost everyone, including me, will be surprised by the depth of fall. That would be the opportune time to deploy all the cash saved.

    Nothing has changed. OTOH, things may only have got worse. Ask all the people who, today are much more worried about their jobs/careers than they were back in 2013!!!

    Now the corrected doomsday date is the day one has realized that their property is 50% down and their loan is underwater. And worse, they are also not employable as job scene would have deteriorated.

    We just have to wait.

    cheers


    RE super cycle happened during 2002-2007 period . All that has happened since 2008 is bail outs and restructuring of bad loans to keep the bubble intact . The more the resistance to normal course of markets the more painful will be the impact in the future .
    CommentQuote
  • Originally Posted by REinvest
    Ok count it the way you want - interest compounding or anything else, even at throwaway prices he made consistent 14% returns apart from saving us from shifting from homes to homes and paying rents.

    People like you cannot reach to such generous and genius levels cause you'll end up in wasting time in proving your wrong points right.


    Sorry to have caught you on the wrong foot...perhaps maths is not your strong point ... but you'll need it to convince people of your arguments .
    CommentQuote
  • Originally Posted by suryawork
    Sorry to have caught you on the wrong foot...perhaps maths is not your strong point ... but you'll need it to convince people of your arguments .


    I don't need to convince someone - I am neither a builder nor a seller. Your expert maths also cannot prove that buying was a bad decision. So what's the point you are now trying to make?
    CommentQuote
  • REinvest; hey not so fast.

    An investment is successful when you are able to get out of that investment profitably and are able to meet your life goals. We are not businessmen or traders, but we are salaried people seeking to meet our life goals.

    You have very high concentration in real estate. You would be having great life goals for future. You have your strategy and style for investment.

    You are successful not in unrealised appreciation but in realised profit margins. So you need to wait till you sell off your investments and achieve life goals.

    And don't judge from what our parents did. Times change. Economy is social science and highly dynamic.

    And I hope with the kind of debts you have, you have yourself insured adequately - term, health and home loan insurance.
    CommentQuote
  • Hairpin; Yes I do agree with you and carefree that situation changes and it also makes difference from person to person.
    Yes, insurance was my biggest worry in all of this when I went for second property - after all debit of 65L is something one cannot ignore.
    I went ahead for a term life insurance (not property insurance) with one time payment which starts cover from day one and runs through loan life, this is not something banks propose for property. Most property insurances are reducing cover basis. I took only 5 years of property insurance as it was offered to me for only 6-8k..

    Life goals - I agree and hence not soon planning to go for third transaction which I mentioned. It'll take some time.
    For first two - I don't plan to sell and book profit - this was just to show that even if I bought it in past - I took right decision at right time cause I could not have bought 2 flats in today's rate..

    My simple advice, instead of paying rents, go for your own home - no matter if it's smaller - you can upgrade it in future at lesser difference.
    Now from second third or fourth property - it's upto you what you want to do with your money.

    Most of my friends still thinking if they should buy a car or not and if they can afford a car, I bought it, paid off the loan, drove it over 1L kilometers and across 8-9 states, enjoyed and it's now 7 years old - time to think for new one :D Friends are right as well as wrong :) It depends on the perspective.
    CommentQuote
  • Are let him invest. Let others invest. This thread if it has made readers rethink of their RE buying plans, then it has been successful.

    There are basic rules of investment. Diversification, liquidity-return balance, portfolio rebalancing, life goals planning and most importantly peace of mind.

    Although this thread has been preaching dooms day, people take it in negative sense as in where is the RE burst as was roared on this thread.

    Agreed there isn't significant RE burst (although there is pause in appreciation which itself is amazing thing to understand), but hasn't this thread acted as a check on readers mindless RE-EMI trap?

    The thread's success is in the liveliness of debates this has provided, significant presence of both sides and interpretation of data from both sides.

    May people like REinvest go the way they want, but many are listening, many are silently following this thread. It makes them pause and rethink.

    I think in this way, we should evaluate success of this thread.
    CommentQuote
  • Originally Posted by REinvest
    Nice assumptions that i haven't diversified or don't have insurance and what else. All frustrated guys r trying to find problems in me n my opinions wid proven record to hide their inability to buy and inability to convince others not to buy..
    Keep continuing this thread for another 6-8 years, still u won't b able to buy.

    People don't take decision based on ur idiotic comment here who's searching satyam n blaming it for RE downturn :D what a joke - BTW frustrated soul, satyam is still operating, just wid different name n u don't even know what happened to it..


    Just make sure you pay down your debt as soon as possible.

    To let you know, my car (a zen which still drives like silk :)) is 18 years old and has over 1.8L kms on the odo.

    My bike (an original RX100 Jap import bought back in Feb 1987, is going to be 28 years old with over 2L kms on the odo. I ride it everyday now and get some very interesting looks and conversations with people who know. Little while back an auto driver at a signal stop asked ... "Is this new? Numberplate (CAP) says very old, but bike looks like new!" :) Another said, "I had one like this long ago. No othe bike comes close". The guy who's been servicing it for last 20 years tells me, in his experience, no bike has matched this one.

    Nostalgia perhaps? I ride that every day!!! :D I may have crores in the bank, but put me on the bike, point me to an open road (or no road at all) and after that, its all bliss and happiness!

    Just got lucky with my bike and car perhaps, like my investments! :) It all depends on how you select them and (more importantly) how you treat them. Treat them well and they will serve you all your life!

    cheers
    CommentQuote
  • Amusing discussions:) but prices seem to have stagnated now. At least we have some bargaining power now. There is something called investment fatigue. In the frenzy of investment prices shoot up but plateau at one level or meander for some years and then the momentum begins. This is what is happening in many industries as we can't always have vertical growth and there should be time for saturation:)
    CommentQuote
  • Originally Posted by wiseman
    Just make sure you pay down your debt as soon as possible.

    To let you know, my car (a zen which still drives like silk :)) is 18 years old and has over 1.8L kms on the odo.

    My bike (an original RX100 Jap import bought back in Feb 1987, is going to be 28 years old with over 2L kms on the odo. I ride it everyday now and get some very interesting looks and conversations with people who know. Little while back an auto driver at a signal stop asked ... "Is this new? Numberplate (CAP) says very old, but bike looks like new!" :) Another said, "I had one like this long ago. No othe bike comes close". The guy who's been servicing it for last 20 years tells me, in his experience, no bike has matched this one.

    Nostalgia perhaps? I ride that every day!!! :D

    There is also a new car, but everyone wants to drive only the zen! :)

    cheers


    Still driving Zen !!! No wonder auto industry is slowing down
    CommentQuote