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 vaibav123
    Unfortunate but true in many ways.
    Linguistic and caste feelings are deep rooted among most.Education has made a partial dent in cities .
    In societies most MCs do not get volunteers because members create enough problems on day to day basis.
    Parking,leaving taps open in bathrooms and going out,unauthorised vendors/visitors/tenants without MC permission are common problems in most societies.Most committee members find it difficult to run the show and things just carry on till some major incident takes place and then every one becomes alert and careful till old routine comes back.
    Basic discipline is lacking.
    Milk/newspaper boys drive in bikes without licences(clearly 12+ age group) and if committee asks them to stop at gate and walk inside to deliver milk/newspapers-they refuse and also get support from those who buy newspapers/milk through them.
    Instead of supporting MC which is enforcing RTO rules,they seek own convenience of timely delivery.
    Solution for our betterment is genuine acceptance of rules and adherence without being compelled.

    it is time to check who is creating more nuisances. a 12+ year old milkman/newspaper guy or a member who keeps taps open

    dealing with mature educated IT professional is more difficult than an immature 12+ year boy. that is what my experience is in managing a CHS
  • Originally Posted by flatowner2
    not true

    also this is not my word but as posted by many american in social media & I fully agree

    The American has a "protect my Job " from the Indian/Chinese/{enter nationality here} excuse or they are different from me . Such posts and views are a tiny proportion of the Americans but

    What is your excuse ? I hope you do understand that the same stand can be taken by locals in any country or city to disparage the different lifestyles of the so called outsider.
  • Originally Posted by Que Sera
    The American has a "protect my Job " from the Indian/Chinese/{enter nationality here} excuse or they are different from me . Such posts and views are a tiny proportion of the Americans but

    What is your excuse ? I hope you do understand that the same stand can be taken by locals in any country or city to disparage the different lifestyles of the so called outsider.

    Sir, huge difference between lifestyle and what can be clearly classified as cheating, sycophancy, fraud, unhygienic and unfair behaviour. Are you suggesting this sort of stuff is our Indian lifestyle??? That we shouldn't criticize it???

    Fraudsters, cheaters and office politicians who steal from merit performers are the real scum of the society poisoning the pool of the society for the rest of us working hard for India. Also this sort of people make it difficult for deserving people to survive in foreign lands.

    If a thief doesn't wan't people to call him such, let he/she stop stealing. But we are going to call what it is-- 'Theft'.
  • interesting this post is no more sticky :D
  • CommentQuote
  • Originally Posted by wiseman

    Elliott Wave guys say 2016. But who cares about +/- 1 year or so!

    A good deal is a good deal!!!

    But when prices fall and keep falling, wait for momentum to come to zero and prices to stagnate for 6 months or so. Given the viciousness of the global crisis this time, it could be longer.

    Buy when volumes as well as price seem to have hit absolute, unbelievable rock bottom, buy with full confidence. Accumulate cash meanwhile.

    Imagine! even 6 months ago, people continued to be bullish with talk of price rising even now while the tsunami of unsold stock kept climbing. Sure sign of impending disaster.

    All the time it was quite clear that this was a Bull Trap developing (for those who have seen Bull Traps in other markets it was clear). Prices keep on rising going well into bubble territory. Economy keeps on sliding with every other economy accompanying. Volumes keeps on sliding, implying thin participation. Financial distress of builders keep on growing.

    With ALL this evidence for as long as 2 years or more, people were jumping into this whirlpool, chasing a runaway situation to somehow catch it before its too late.

    Now we have to track how much prices will slide in terms of years. For example ...

    2005 40,00,000 (Purchase price)
    2006 46,00,000
    2007 53,00,000
    2008 61,00,000
    2009 70,00,000
    2010 80,50,000
    2011 92,50,000
    2012 1,06,50,000
    2013 1,22,00,000
    2014 1,04,00,000 (15% down - 2012 level) --- 85,00,000 (2010) (adjusted for interest paid + tax saving)
    2015 92,00,000 (25% down - 2011 level) --- 75,00,000 (2009) (adjusted for interest paid + tax saving)
    2016 79,50,000 (35% down - 2010 level) --- 65,00,000 (2008) (adjusted for interest paid + tax saving)
    2017 61,00,000 (50% down - 2008 level) --- 50,00,000 (2007) (adjusted for interest paid + tax saving)
    God Forbid!
    2017 49,00,000 (60% down - 2006 level) --- 41,50,000 (2005) (adjusted for interest paid + tax saving)

    The price adjusted on the right is accounting for interest paid on EMI (35L loan 9% for 15 years) and includes 30% tax saved on 150k added back notionally to principal paid.

    Lack of liquidity as well as age could further depress prices from these levels, leading to levels even earlier. In addition, since in the first 5 years or so, large bulk of EMI would have been interest outgo, a large part of the initial purchase price would still be unpaid.

    Meanwhile, the person who has not bought from 2005 would have accumulated cash from then on, added interest to it and have a big kitty as well as huge choice in a distressed market. If the saver started with the same 5L in 2005, adding the same amount as EMI (3.9L) each year, earning 7.5% (after tax interest) on principal, in 2016 he would have accumulated nearly 75L. From the table above we can see that, with 25% decline in prices, after adjusting remaining principal, the price of the same house is about the same 75L!!!

    These are rough calculations but one gets the picture, I hope!

    This is the classic Bull Trap of a runaway market which eventually follows the logic of "everything that goes up must come down eventually" and "higher they rise without fundamental strength, harder and longer they fall". By now, is there anyone who thinks builder prices are justified by any kind of fundamentals?

    As I had mentioned back in late 2009, the rising stock market and all-round feel-good was the BEST time for builders to have reduced prices and inventory. In their arrogance (and stupidity), they did the exact opposite, raising prices significantly. And investors and occupiers ran after this chimera with the "lets buy before its too late" refrain. What happens when you get money-mad, I suppose!


    The prices have been keeping stead in 2015 and 2016 at least in Pune RE. 40L 2005 (Luxurious 3 to 4 BHK in Pune) like new flat in good location will not be below 1.25 cr in current market. If you find such deal please let me know.

    The post tried to make 2013 as some kind of peak and projected 15% plus fall in price in subsequent years . 2016 79.5L, 2016 60L - LOL :D . Mungerilal kahan ho tum.
    • Sj20133 years ago
      calculation does not have adjustments towards saving in rentals. when you purchased a flat then you are not paying any rent
  • Originally Posted by compuwalah

    The prices have been keeping stead in 2015 and 2016 at least in Pune RE. 40L 2005 (Luxurious 3 to 4 BHK in Pune) like new flat in good location will not be below 1.25 cr in current market. If you find such deal please let me know.

    The post tried to make 2013 as some kind of peak and projected 15% plus fall in price in subsequent years . 2016 79.5L, 2016 60L - LOL :D . Mungerilal kahan ho tum.

    There are many posts on this forum (including official Govt numbers) that put 2013/14 as the peak and plenty of examples of 15-30% drop in prices.

    Pune is not a normal example since much of Pune (as I understand from posts on this forum) is parking for black money of politicians and thus normal market fluctuations do not work (until they suddenly do).

    But keeping all that aside, the world is on its trajectory to the worst every crash in its modern history (and if you didn't know this, either you are not reading up or are in denial). So the calculation trajectory is broadly on track and I doubt there are many people as eagerly going out and buying as they were in 2013.

    I hope you are not guaranteeing price rise to infinity to buyers today into the next 5-10 years - or your money back. If you are, there is something you know that most well-known economists, bankers and financial experts do not.

    Patience and you will have your RE crash when the global Bond, Stock and Commodity markets crash on a Financial System freeze up. Thats almost guaranteed. Right now people are in doubt what Gold will do, though I'm not.

    • drstoneheart3 years ago
      Dear Wiseman, will it be hyperinflation or deflation that will hit us?Just ur thoughts .regards.
  • My favorite thread is back after long time
  • Many of the arguments of first post are still valid. Home buyers are facing so many issues even after paying such high prices. Luckily the backbone of this black money economy is starting to crack. At least in NCR region, buyers are becoming more aware and getting justice. Hope it happens in Pune as well.
    Personally I have decided to defer my home buy for indefinite time. Have bought land in my hometown, have invested in Equity funds and looking to invest in start-ups.
  • Was reading this article as how automation is going to affect job of around 69% of work force in India. This gonna have impact on property prices ?
  • Originally Posted by Deepak Singh

    MANOJa, times have changed a lot since you were last in Pune. If you see Pune now, you wont be able to recognize it. As of today, traffic in Delhi is much more manageable than Pune.

    Very true!! I travel everyday from South Pune to East Pune! Mark my words - no other Metro city is as chaotic as Pune! Lets not even talk about places like Hinjewadi etc.
    The charm of old Pune is long gone. Especially due to unplanned growth of the city. Emergence of IT and auto industry brought many migrants to Pune, with that grew the builder lobby and that gave birth to newly rich political class which would give shelter to shady elements. So Pune is not as safe as it used to be. Recently many incidents of robbery on roads like Karve Road at night. I still remember traveling from Viman Nagar to Sinhagad road at odd times like 3 am in the morning but never had second thoughts about safety etc. Not the case anymore.