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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  • There is also issue about huge amounts of land owned by military and government establishments.

    If all the land records and property records become transparent and infrastructure improves and government rules become simple and people friendly, we will see very low prices for land.

    Originally Posted by realacres

    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.
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  • Originally Posted by realacres
    http://www.indianexpress.com/news/rbi-warns-banks-on-home-loans/582095/0

    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.


    Hi Real

    Thanks for this link... thats what i was also saying on Samrajya board that you would find more buyers complaining about builder delays than otherwise, but still builds would expect buyers to believe and trust their every word...
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  • Joke of the day

    Joke of the day (Cruel?)
    http://www.indiainfoline.com/Markets/News/Rohan-Builders-bags-2-Awards/4784005996


    These honors were bestowed on the Rohan Builders for ‘Highest Consumer Protection’ and ‘Best Project Execution’. ...................REALLY?
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  • It is like choosing the best from all bad s!
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  • Why "s" / <> words disappeared?
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  • Not able to put word , A, E, Safarchand(Marathi). Trying few variations.
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  • US Job losses - latest data

    http://www.bls.gov/news.release/empsit.nr0.htm

    Unemployment rate is unchanged at 9.7%.
    Net job loss in Feb was -36,000. Total 14.9 million are jobless.
    An interesting data to watch here is, no. of persons in temporary jobs increased from 8.3 million to 8.8million (an increase of 5L temporary workers).
    This means, lots of people are still lossing jobs and doing temporary jobs either because their working hours are cut or they are unable to find full-time job.
    CommentQuote
  • Originally Posted by aditi sharma
    http://www.bls.gov/news.release/empsit.nr0.htm

    Unemployment rate is unchanged at 9.7%.
    Net job loss in Feb was -36,000. Total 14.9 million are jobless.
    An interesting data to watch here is, no. of persons in temporary jobs increased from 8.3 million to 8.8million (an increase of 5L temporary workers).
    This means, lots of people are still lossing jobs and doing temporary jobs either because their working hours are cut or they are unable to find full-time job.


    Well the market is taking this quite nicely. They're assuming that many of these temporary jobs will be converted into full-time jobs soon, we'll have to just wait and watch.
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  • Originally Posted by informsantosh
    Joke of the day (Cruel?)
    http://www.indiainfoline.com/Markets/News/Rohan-Builders-bags-2-Awards/4784005996


    These honors were bestowed on the Rohan Builders for ‘Highest Consumer Protection’ and ‘Best Project Execution’. ...................REALLY?

    Man, one of the jury was Credai:D, CNBC AWAAZ CRISIL Credai Real Estate Honors!! So, no surprises here. It is like ISI giving peace award to Pakistan:D.
    Originally Posted by aditi sharma
    This means, lots of people are still lossing jobs and doing temporary jobs either because their working hours are cut or they are unable to find full-time job.

    One more thing:-
    Many people have now stopped registering themselves as unemployed at various govt depts as they have no hope in short term. Hence, the real no. of jobless people will be much more than the official figs. The same was also stated recently on program:- 'Quest Means Business' on CNN.
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  • Originally Posted by realacres
    One more thing:-
    Many people have now stopped registering themselves as unemployed at various govt depts as they have no hope in short term. Hence, the real no. of jobless people will be much more than the official figs. The same was also stated recently on program:- 'Quest Means Business' on CNN.


    Oh for sure! The real unemployment rate could well be nearly 12%!

    Psychologically, anything double digit sounds far worse than 9.7%, hence they'll let it hover around here for a while and will keep it below 10%.
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  • Originally Posted by razer
    Oh for sure! The real unemployment rate could well be nearly 12%!

    Psychologically, anything double digit sounds far worse than 9.7%, hence they'll let it hover around here for a while and will keep it below 10%.

    True...just like Bata rates;).
    Btw, Greece is gone & EU has no leader to look upto. Gordon Brown is already stuck with internal politics, Angela Merkel is unable to instill confidence in Germans especially after cos like Opel went bankrupt, France's Nicolas Sarkozy, one of the powerful leaders in EU too is down & has no big achievements in his current term except for Carla Bruni:p & Italy's Silvio Berlussconi is fixed in a bed:D as well. There is EU summit in next few weeks & Obama has refused the invitation for the same. It has been a history as no US Prez denied this invitation in last 4 decades!! This also signifies that EU has lost the importance in the eyes of the globe & mostly the US.
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  • Read this:

    http://www.reuters.com/news/pictures/slideshow?articleId=USRTR2B8CC#a=1

    One of our neighbors features high up the list. :D

    And can you imagine, the traditionally poor countries are not even in this list (Bangladesh, African countries?). What a turn around isn't it?
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  • Unemployment 9.7%

    US stock Market went up by 1.3% with this news!
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  • Mumbai’s Failed Land Sale

    Found this link on IndiahousingBubble

    http://www.bloomberg.com/apps/news?pid=20601206&sid=ak1PLikSQn9E

    Hey Pune prices will keep on rising, cant compare Pune with Mumbai or rest of the world.
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  • Buy vs Rent Calculator

    Here are a few decent buy versus rent calculators:

    http://www.propmart.com/tools/rentorbuy.asp

    http://realestate.yahoo.com/calculators/rent_vs_own.html
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