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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  • Rajesh & Venky,

    Agree with you but men, you haven't taken into account the cost of living 2-3 years down the line.

    There is strong signal coming out that oil prices might be deregulated which means stronger personal transport + higher cost of material, commodities & food items as well. Now, whether the rise in oil can match the salaries need to be seen.

    Another aspect which I feel very important is the fiscal deficit. If it continues to remain high, expect tighter borrowing norms. This will automatically lead to lower eligibility for loans.

    Next, if the world situation improves in next 3 years which I suppose will, in that case, lot of the FIIs will go out of India, especially from stock markets & PEs. This would mean an end to REITS which has already lost it's shine in the market.
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  • Hi Real.

    I think we should give up trying to predict future economic situation.

    Things are too complicated right now. There is no clarity. Anything can happen
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  • Originally Posted by Venkytalks
    Hi Real.

    I think we should give up trying to predict future economic situation.

    Things are too complicated right now. There is no clarity. Anything can happen

    Correct, situation is volatile but one thing is for sure:- ROIs will only go up making RE out of reach for many & to compensate this, RE prices have to come down. At the end of the day what matters is affordability according to the buyers's standards & not PBAPs or builder in general. There is a clear mismatch between the two as of now!!
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  • Sahara Ambey Valley

    Watched interview of Subrato Rai on NDTV profit, he said valuation of amby valley (Lonavala) is now 19000 Cr which was 34000 Cr 3 yrs back

    This valuation has done by World No 1 consultancy

    When our builder will understand this, god knows
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  • Whether Pune IPL team will be used as another reason to hike prices by PBAP? I guess so. It will be one more gimmick from them.
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  • There is a Stadium being built somewhere to host IPL in Pune.
    Donno the place but the plots around it would suddenly shoot in prices 3 fold as you will have the added amenity of waching matches while sipping tea from your balcony!:D:D:D
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  • thepune1576,
    What you said must be true as properties at Amby valley are now available for around 90L-1Cr, just 10L more than Samrajya.
    Originally Posted by Trojon
    There is a Stadium being built somewhere to host IPL in Pune.
    Donno the place but the plots around it would suddenly shoot in prices 3 fold as you will have the added amenity of waching matches while sipping tea from your balcony!

    Just make sure that the ball doesn't hit the cup of tea:D.
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  • Originally Posted by Trojon
    There is a Stadium being built somewhere to host IPL in Pune.
    Donno the place but the plots around it would suddenly shoot in prices 3 fold as you will have the added amenity of waching matches while sipping tea from your balcony!:D:D:D


    its in Gahunje, few kms from where expressway starts

    closest area for inflating prices might be ravet :)

    source - http://timesofindia.indiatimes.com/ipl/iplarticleshow/57http://timesofindia.indiatimes.com/ipl/iplarticleshow/5710057.cms10057.cms
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  • first time home buyer from 2007 and still going on

    Hi I am a first time home buyer and have been since 2007 and I cant still justify if i want to buy a flat two bedroom ( carpet around 550) in the western burbs starting from malad till dahisar ( after that it is thane district)
    the prices people as well as builder quote are humongous to say the least
    6500 on wards for under construction and car park is worth more than the car do not see a good future for India , to make things worse people as well as builder are asking for 40% black money.. am wondering where that kinda money would go 40% of 50 lacs say is 20 lacs of black money to be a given to a person or builder who looks acts and deals shady is not for me . I for one might just rent a place a two bedroom for around 15 thousand a month and still save .. good enuff venting back to work ..
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  • Will rates go up in Pune in next month?
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  • Frayed String for China's Property Balloon

    "China's property market is a massive bubble. The stock of residential properties, developer inventories and land pledged to banks by local governments exceed by three times the nation's gross domestic product. Rental yields in most cities fail to cover depreciation costs. The price-to-income ratio, a measure of housing affordability, is routinely above 20 in major cities, which means an average Chinese citizen would spend his or her entire income for 20 years to buy an average-priced property.
    The bubble can continue because China's banking system has plenty of liquidity, partly thanks to hot money and because governments have many levers to channel bank liquidity into the market. But the longer the bubble lasts, the more damage it will do to the economy."

    http://finance.yahoo.com/real-estate/article/109149/frayed-string-for-chinas-property-balloon?sec=topStories&pos=6&asset=&ccode=
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  • Do or will China's RE impact Pune's RE? how?
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  • Originally Posted by puser
    Do or will China's RE impact Pune's RE? how?

    China RE won't impact Pune RE, but the factors behind both remain the same:- Excess liquidity & over-leverage by buyers, a perfect combo for creating deadly bubble. Now, what needs to be seen is where the Chinese & Puneties will go from here on...
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  • Yes. It will directly ...

    Originally Posted by puser
    Do or will China's RE impact Pune's RE? how?



    When China's RE bubble bursts, all the investors there will sell in distress and buy cheaply in Pune, since Pune is manufacturing hub and all the Chinese have to do is shift their factories to Pune, buy property cheap and start on another bubble. This will start Pune's own RE bubble which will see RE prices rise 50% per annum forever!:D

    All you bears will look foolish when you see RE at 4 times its current price in 2012 when China's RE bubble bursts.:p

    cheers
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  • Originally Posted by wiseman
    When China's RE bubble bursts, all the investors there will sell in distress and buy cheaply in Pune, since Pune is manufacturing hub and all the Chinese have to do is shift their factories to Pune, buy property cheap and start on another bubble. This will start Pune's own RE bubble which will see RE prices rise 50% per annum forever!:D

    All you bears will look foolish when you see RE at 4 times its current price in 2012 when China's RE bubble bursts.:p

    cheers


    Serious crap ROFLOLp:p
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