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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  • Articles says market like Pune has seen price rise of 5-10% last year.

    Also the words need careful consideration . It says - sharp decline in "price appreciation"

    What it means prices are still accepted to be appreciating, but "rate of appreciation" is less (barring Pune,Kolkata which is 5-10%).

    Like it appreciated 30% in 2011 , then 15% is 2012 , 10 % in 2013 and now its in single digit.

    People who have bought RE till 2011 are still laughing.
    CommentQuote
  • RE investors never purchased property for 5-10% appreciation.
    I would keep my money in Bank FD for such appreciation without any risk.
    sharp decline in price appreciation is the key to an investors withdrawal process.
    No sharp appreciation no investment simple fundamental economics.
    One can always live in denial but fact is RE investment right now gives lesser returns than Bank FD with plenty of risk.
    It is nice that some people are laughing whether at themselves or with happiness for making spectacular gains is the question.
    CommentQuote
  • Six-fold rise in affordable housing launches with a significant price drop: Cushman & Wakefield - The Economic Times
    Extract:
    While Pune recorded a decline of approximately 25% in launch prices of new projects in the same period. Pune also saw an increase in the average size of apartments that were launched in Q1 2016 which were noted to be larger by an average of 24% over those launched in Q1 2015 impacting the average ticket size of the new launches within the city.

    My view
    Eternal bulls need to see signs which are more than clear.
    CommentQuote
  • There is nothing like eternal bull or bear phase in any market..

    RE has seen irrational exuberance from end 2009 to 2011, which created kind of bubble if not bubble, which need to be corrected..

    Currently the process of correcting that irrational exuberance is on.. soon value is likely to emerge and market will again start moving up..

    It is healthy for the market, as lots of people were blindly getting into the RE investment as they thought 25-50% is almost given .. Now that it is getting proved that it is not the case, one will be prudent to prune the expectation of return accordingly...

    Regarding eternal bull-- he would like to negate any negative news, and eternal bear will just negate any likely positive news..
    CommentQuote
  • Originally Posted by vaibav123
    RE investors never purchased property for 5-10% appreciation.
    I would keep my money in Bank FD for such appreciation without any risk.
    sharp decline in price appreciation is the key to an investors withdrawal process.
    No sharp appreciation no investment simple fundamental economics.
    One can always live in denial but fact is RE investment right now gives lesser returns than Bank FD with plenty of risk.
    It is nice that some people are laughing whether at themselves or with happiness for making spectacular gains is the question.



    This would be true if you are holding cash of 60L plus.

    But of you only have 10L in bank on which you can only earn interest of 80K per year (which may be spent, with some top up, in paying rent and brokerage every year), better to get in asset like RE which you can buy with leverage of bank loan (as prop itself in collateral) and with 60L notional even with 7% increase you would get returns of 4.2L per annum (of course you have to pay one time reg fees but interest payment are spread over long period of time so you gain in long term , like people bought between 2007 to 2010 benefitted).

    I am not sure if majority of people have cash holdings holding in 60L plus bracket.
    CommentQuote
  • Originally Posted by vaibav123
    Six-fold rise in affordable housing launches with a significant price drop: Cushman & Wakefield - The Economic Times
    Extract:
    While Pune recorded a decline of approximately 25% in launch prices of new projects in the same period. Pune also saw an increase in the average size of apartments that were launched in Q1 2016 which were noted to be larger by an average of 24% over those launched in Q1 2015 impacting the average ticket size of the new launches within the city.

    My view
    Eternal bulls need to see signs which are more than clear.


    Interesting. Your earlier posted article says that Pune, Kolkata saw 5-10% increase in price while this says otherwise.
    Not sure which one is correct. Any idea ?

    In past few years C&W has been posting very bullish posts on RE which many senior members here like RA had opinion that C&W , ET and TOI are not trustworthy. YMMV.
    CommentQuote
  • compu
    I am posting links for general information of members and surfers.
    My view is clear-
    Right now buying a flat for investment is poor decision.
    For self stay bargain and buy any time.
    U/C projects are a total strict no -no,regardless of state of legal papers and discounts offered and regardless of big names promoting the project.
    ""But of you only have 10L in bank on which you can only earn interest of 80K per year, better to get in asset like RE which you can buy with leverage of bank loan (as prop itself in collateral) ""
    it is not the amount which matters whether 10L or 60l,it is the governing/guiding principle which matters..
    You get a loan on a collatrrel which may never come up in time.
    CommentQuote
  • Originally Posted by vaibav123

    Right now buying a flat for investment is poor decision.



    To support the above statement, we can consider the calculation in the pic attached https://api.indianrealestateforum.com/api//v0/attachments/fetch-attachment?node_id=75851

    For reference :
    http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDE0LzA1LzA2I0FyMDIxMDM%3D
    Attachments:
    CommentQuote
  • Originally Posted by IMRealEstate
    To support the above statement, we can consider the calculation in the pic attached https://api.indianrealestateforum.com/api//v0/attachments/fetch-attachment?node_id=75851

    For reference :
    http://epaper.timesofindia.com/Repository/ml.asp?Ref=VE9JTS8yMDE0LzA1LzA2I0FyMDIxMDM%3D

    Why do you post such biased bulls*** ?

    Old adage about repeating lies with conviction and people will believe you seems to be the financial consultant motto
    CommentQuote
  • Originally Posted by manzb
    There is nothing like eternal bull or bear phase in any market..

    RE has seen irrational exuberance from end 2009 to 2011, which created kind of bubble if not bubble, which need to be corrected..

    Currently the process of correcting that irrational exuberance is on.. soon value is likely to emerge and market will again start moving up..

    It is healthy for the market, as lots of people were blindly getting into the RE investment as they thought 25-50% is almost given .. Now that it is getting proved that it is not the case, one will be prudent to prune the expectation of return accordingly...

    Regarding eternal bull-- he would like to negate any negative news, and eternal bear will just negate any likely positive news..


    Markets whether stock or RE will always give opportunities - people need to make rational decisions and 99% get carried away by the wave or trough .
    CommentQuote
  • Originally Posted by compuwalah
    Articles says market like Pune has seen price rise of 5-10% last year.

    Also the words need careful consideration . It says - sharp decline in "price appreciation"


    Agree, but a lack of meaningful appreciation itself can be a deterrent as a lot of RE buying and investing happens with the hope of rapid appreciation.

    Originally Posted by compuwalah

    Like it appreciated 30% in 2011 , then 15% is 2012 , 10 % in 2013 and now its in single digit.

    People who have bought RE till 2011 are still laughing.


    does it mean those who bought after 2011 are still crying. ;-)?
    CommentQuote
  • Originally Posted by GlobeSon
    lack of meaningful appreciation



    Lack of meaningful appreciation can be because of the delay in possession , failing on promises , local police not helping , ultimately loosing trust


    http://indianexpress.com/article/cities/pune/dream-homes-turn-a-nightmare-for-flat-buyers-in-pune/
    CommentQuote
  • This is off topic, but the Indian consumer is taken for a ride everywhere, be it auto or RE.

    Kwid, Celerio, Eeco, Scorpio and Eon get zero rating in global NCAP crash test - The Economic Times

    Global NCAP on Tuesday released the latest Indian crash test results. All five models Renault Kwid , Maruti Suzuki Celerio, Maruti Suzuki Eeco , Mahindra Scorpio and Hyundai Eon rated as zero star and all showed low levels of adult occupant protection.

    Even world class companies offer 3rd class products to Indian consumers!
    CommentQuote
  • Think ok to post such things else this thread will become non sticky :)
    CommentQuote
  • It is a very good time to buy RE....,things will only move up frm this quarter....so buying now is like bottom fishing...

    FD interest rates will remain stagnant or move down...7%..so that avenue is out
    Equity will take other one year to reach where it was in May 2014..(so ppl who invested in 2014 are in loss for past 2 years + 1 year to get back to their buying price! )

    Like in all investments ....what you buy and at what price and CAGR expectations from it ..determine your decision.
    RE - capital gains are tax free...and price rise has to minimum cover inflation...

    A biig bonus for RE prices to increase is the RE Bill....note that whenever "liability" of the seller/service provider increases...the seller/service provider will increase the fees or selling price..(worldwide thats the principle...from doctors to car sellers ...etc)

    Any "investment" by taking a loan and expecting to earn profits after paying back the loan is a foolish man's dream...!!
    ,
    CommentQuote