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?

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  • Originally Posted by realacres
    Man, unable to open this link. Went on official webiste too, yet no results:(. Can you please post the text here ,if possible?

    Here is the text....

    Dr Sudhirkumar Gopalkrishna Neermurthy is having to contend with some tension these days on account of some land sharks.

    And it is not related to his profession. A gang attacked him after he tried to enter a plot he had purchased in Bavdhan, an area where much of ‘new’ Pune is coming up.

    The plot was grabbed by the gang and they even built a shed. The gang demanded Rs 50 lakh to vacate the plot. They even used a revolver to threaten him.

    Much of the unfortunate action happened on February 7, and the 68-year-old doctor filed a police complaint on February 24.

    A resident of Sindh Housing Society on Baner Road, Dr Sudhirkumar lodged a complaint against Jaysingh Laxman Bhosale, Chindhabai Shankar Karanje, Shankar Ramchandra Karanje and Santosh Sudam Todkar.

    Dr Sudhirkumar, who owns Krishna General Hospital on Paud Road, said, “I wanted to build a multi-speciality hospital.

    So I bought land on survey no 38/1 and 38/2 in Bavdhan Khurd in Mulshi taluka 26 years ago. I developed the plot, planted coconut and mango trees, apart from vegetables.

    I dug a lake, wells and built a farmhouse with servant quaters. Till August last year, nobody bothered me. However, on Sunday, I got a call from the guard, who said that some people had entered the plot and were claiming to be the owners. I immediately rushed to the spot. After I got there, they abused me.

    When I asked them to get out, they pelted stones at me. A woman even came running towards me with a stick and tried to hit me. It was a close shave.”

    Sudhirkumar said the affair got so murky that it “became impossible for me to enter the land”. “They threatened to kill me with a country-made gun if I approached the cops and demanded Rs 50 lakh.

    I was so shaken that I did not dare to step out of my house till yesterday. Finally, I gathered some courage and approached the Hinjewadi police.”

    This is not the first time the gang has done this, the doctor claimed. “In September last year, these people had entered my survey no 38/2 plot.

    They claimed that it belonged to their forefathers. While I showed them the registered land deeds and the land sale agreement papers, which clearly show the land was sold to me in 1984, they filed a civil suit against me without my knowledge.

    The court ordered that status quo be maintained, and taking advantage of this, they entered the land, broke the wall and the fencing. I lodged a complaint.

    They were arrested and later released on bail. They had even given an undertaking saying they won’t trouble me anymore. But they did not abide by it.”

    Sub-inspector R T Pawar, who is investigating the matter, said, “We have received the complaint and are inquiring into it.

    We will arrest the culprits soon. In September, these people had created the same problem. We had arrested them then, but they got bail. At that time, they had given an undertaking saying they would not trouble the doctor.”
  • Thanks for the link Rajesh. What I find funny is the amount these chaps asked to vacate the plot:D. It would be much easier & cheaper for this doc to hire more professional human JCBs (hope you got the point;)) & get these chaps out. Once they know what you can do, they won't even dare to look at any of your properties:). No cops, no courts man, this can be done privately too. Hire animals to fight animals.
  • Originally Posted by realacres
    Thanks for the link Rajesh. What I find funny is the amount these chaps asked to vacate the plot:D. It would be much easier & cheaper for this doc to hire more professional human JCBs (hope you got the point;)) & get these chaps out. Once they know what you can do, they won't even dare to look at any of your properties:). No cops, no courts man, this can be done privately too. Hire animals to fight animals.

    Or better still, dont buy RE you cant use immediately- why enter this zoo of animals in the first place?
  • Originally Posted by Venkytalks
    Or better still, dont buy RE you cant use immediately- why enter this zoo of animals in the first place?

    Correct. Buy & immediately start construction. Holding plot for 20+ years is risky. Sometimes, it can be taken legally too say for road widening, airport etc.
  • CommentQuote
  • just noticed, Real seems to be the only Senior Member on this forum now. Has the rule changed from >50 to >500. Doesnt matter as long as the 'your post is being reviewed' do not start appearing for 'Members' :-)
  • Originally Posted by gsa177
    just noticed, Real seems to be the only Senior Member on this forum now. Has the rule changed from >50 to >500. Doesnt matter as long as the 'your post is being reviewed' do not start appearing for 'Members' :-)

    Yes it does not matter even if they call us all "Super Junior Member" as long as our messages get posted immediately
  • Hello All

    Hello All,

    I have been a member since the past few months with a different ID, religiously following and reading but was somehow barred from posting by default and finally got thrown out last week all of a sudden. Now with this new ID am able to not only read but post as well, happy and delighted!

  • CONSENSUS of sorts

    The joy and happiness of Living in a certain place takes precedence over every other consideration while choosing a place to settle in for life or a considerable part of it. This is my belief and is sure most of you share it. Each individual though may have his own definition which depends on – Family, Career, Extended family and Social avenues - in short a 360 view towards life. For first time buyers what should matter most is meeting these criteria to go ahead with a decision.

    Having said that though in this case you can have emotion as the overriding factor, as heart easily scores over mind when we start talking of personal choices. To avoid this pitfall do a thorough assessment of your choice based on all the parameters of the VFM (Value for Money) criteria and then take the plunge.

    Is this the right time (mean as of today). Well, those who don’t have an immediate need or who haven’t done the above exercise may wait but others shouldn’t and investors in RE should completely avoid now. Rather for those who are looking for a personal dwelling and weighed all the parameters this is how you can make it your best buying decision

    Uncertainty, Fear, Gluttony and Wishful thinking drives any risk-driven investments. Economics used broadly as a term for everything else forms the background to this playing field of emotions. It is the fear of the UNKNOWN that leads to unimaginable bottoms. Once anything that is unknown comes to the fore and there is nothing significant left to unfold everyone and everything gets back to NORMAL. (It looks like we are in that phase - in June 2009 when I first wrote this). This is truer about Equity markets than RE as it’s definitely more knitted to employment and GDP. But even then we are behind the unknown, irrespective of the means employed by the entire world, especially US. This will lead to excessive inflation etc, etc and all that crap but does it really matter to us so much in our decision to buy a house. We are not IMF economists here, leave that to the theorists. We are simple salary earning professionals or businessmen and all others who are looking to balance happiness and risk. We can keep talking about it as a past-time but execution is the key.

    Once you have made up your mind and finalized on a property – apartment, plot, bungalow, anything you like and decided what YOU think is a fair price make an offer. Your own offer irrespective of what the counterparty’s expectations are and am sure you will be able to close the deal at your price or a 5 – 10 % premium (considering your quote will be much lower than current market rates). This is more applicable for cities like Pune, Bangalore and NCR than to Mumbai in the current market. I think there is still a room for correction in Mumbai after which you can apply the same principles.

    This is exactly what I wrote in June of last year in the India housing bubble Blog and I think it applies even today. I will certainly like to write about my own decisions in a later post.

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  • high rise apartment complexes

    I would like to explore pro's and cons about latest trend by builders from pune who have started building high rise apartment complexes.

    As I was looking at the plans for BR and megapolis seems more than 20 floors is defacto. Considering these locations which are way outside of the main heartland city is there a need for constructing these high rises?
    I was thinking in developed countries they avoid these kinds of construction as these are killer for environment.

    Imagine if all people start living in these apartments, assuming they complete projects :).
    I guess builder assumes that 30% are investor who never stays, 20% are bachelor ITG who spend 70% time in office and 10% partying

    Personally I hate high rise for living purpose i guess thats good only for office.

    May be I am more comfortable with home concept than industrialized barn (stable)
  • Originally Posted by informsantosh

    Imagine if all people start living in these apartments, assuming they complete projects :).
    I guess builder assumes that 30% are investor who never stays, 20% are bachelor ITG who spend 70% time in office and 10% partying

    AFA High rises are concerned, I think they provide :
    Nice view
    Bit more privacy
    Less noice ( of children in the evening and during their vacations:D)
    Bit more of breeze

    Hell. I like High Rises.;)
  • Originally Posted by Trojon

    Hell. I like High Rises.;)

    I guess nice view is perspective dependent and everyone have their own definitions and meanings which are relative age and time.

    Carlton(bangalore) fire underscores inadequacies of municipal corporations for fighting natural calamities. PMC fire brigade vehicles are capable of handling mere 45 meter height. PMC didn’t anticipate high rises like amanora and et all.
    Besides that there are so many logistical issues which builders are not anticipating and please don’t expect builder to take care.

    We don’t need high rises for getting nice views those can be brought in version with nice photography and choreography.;)

    I suppose cities like pune does not have space crunch, I can accept mumbai following that model as that city locked by sea.

    Proper reforms and working/efficient town planning department will unlock so much of land that all these people can construct 1 storey bungalows.

    Its high time pune implement bangalore like organised and working BDA.
  • I completely agree with Santosh here. Throughout the globe if you see, high rises are built in central areas of the city where there is space crunch. People go to outskirts so that they can be close to nature as well as have better & bigger homes.

    In Pune it is really wierd to see a project surrounded by farms all around:p. Fringe areas like Balewadi, Hinjewadi, Vimannagar etc. are more suited for bungalow type houses rather than high rises.

    The only issue in Pune is about sanctioned NA land with good infra. Had there been an authority to look into this matter, one could have built a bungalow with ease with much lesser rate/sq ft than a flat. I hope this issue gets sorted out once PMRDA is formed.
  • RBI warns banks on home loans

    Btw, read a news stating that in Pune, the max. cases in consumer courts are against the builders, mostly related to possession dates, non-delivery of amenities etc. Between 2005-08, 70 to 80 cases were filed against the builders & this fig. soared to 152 cases in 2009. This means that builders are not fulfilling their promises & buyers have become more aware about their rights too.