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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  • Originally Posted by RAJESHP



    Regarding Stock market, I have never felt has any correlation with RE.
    Stock market does not follow any rules, there is never a good reason why price falls or rises in normal circumstances.

    check this fig. worldwide its 180 degree out of spin ....

    whats happening her is difficult for even the experts to understand
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  • Buyers shy away as realty gets costlier:-

    Good image frugal. Unfortunately ,seldomn does a buyer tries to go in depth like members here & hence goes for a toss.

    Here is another link to re-emphasis this fact:-

    http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Buyers-shy-away-as-realty-gets-costlier/articleshow/5842487.cms
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  • Originally Posted by realacres
    Good image frugal. Unfortunately ,seldomn does a buyer tries to go in depth like members here & hence goes for a toss.

    Here is another link to re-emphasis this fact:-

    http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Buyers-shy-away-as-realty-gets-costlier/articleshow/5842487.cms


    Ya rightly said ..
    A must read

    http://www.moneyweek.com/news-and-charts/economics/property-will-fall-until-at-least-2011-then-us-stocks-will-lead-the-way-13814.aspx
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  • The Mysterious Socotra Island (Indian Ocean)

    As you guys must be chilling out in your homes, go through these nice pics as well:-

    http://www.funonthenet.in/articles/Socotra-Island.html
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  • Originally Posted by frugality
    check this fig. worldwide its 180 degree out of spin ....

    whats happening her is difficult for even the experts to understand


    This appears to be a drunken clock to me, trying to show 12 O'Clock:D

    Anyways, Cycle from Boom to Recession(In RE)
    1) Overbuilding
    2) Rent Concession
    3) Saturated market
    4) Tightened Funding
    5) Less Construction
    6) Reduced Funding

    I believe, saturated market --> stagnated market, right?
    But clearly we are at point 4 now, with rising interest rate, right?

    There was no real concession in rent, but no rise amounts to kind of concession.

    so 4 down 2 to go..
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  • Environment Ministry stalls DLF project in Goa

    This it seems is the same project of the DLF which was being marketed by Nitin of Insignia earlier. Now that this project goes for toss, the credibilty of Nitin & Insginia which is already low looks to be hammered further south. Btw, the news is they have now again changed the plot for their group housing i.e. exploring a new plot now. They don't even have plot, yet ask for lakhs of rupees. Wonder when this project will actually start, forget about completion.

    http://news.webindia123.com/news/Articles/India/20100424/1491103.html

    http://www.deccanherald.com/content/65564/centre-puts-dlf-goa-township.html
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  • Tougher FDI norms for housing

    The finance ministry has now suggested that rules governing repatriation of funds should be tightened to protect consumers.

    >> This is good for buyers in Pune who are looking at townships like BR, MPolis etc.
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  • DSK to scrap SEZ; Plans township instead

    Update about DSK Phursungi project:-

    http://www.business-standard.com/india/news/dsk-to-scrap-sez-plans-township-instead/392961/
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  • when farmers are opposing as its on the cultivable land that is being used for airport .... Ajit Pawar is pushing as his money is involved ....

    Check out the link....... the other two sites ... wagholi and saswad were rejected ....

    On what basis is never known.....


    http://www.indianexpress.com/news/stalled-chakan-airport-plan-gets-ajit-pawar-push/611757/
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  • Originally Posted by frugality
    when farmers are opposing as its on the cultivable land that is being used for airport .... Ajit Pawar is pushing as his money is involved ....

    Check out the link....... the other two sites ... wagholi and saswad were rejected ....

    On what basis is never known.....


    http://www.indianexpress.com/news/stalled-chakan-airport-plan-gets-ajit-pawar-push/611757/

    Man, it can be summed up in this:-

    He said after the announcement of the airport, scores of residential projects involving large investments had come up in areas around the site and property rates had shot from around Rs 1,000 to Rs 4,500-5,000 per square feet. All these projects now face the prospect of a downturn.

    The real issue is not airport but the declining RE prices at Chakan which were bought by builders thinking to cash in on PROPOSED AIRPORT:D. Loss to NCP is what has made Ajit worried more than anything else. Good that their investment went sour & atleast they got a bamboo free of cost:D.
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  • Originally Posted by ash7979
    Macro economic condition doesn't change in 3 months time:)

    As Q4 results are good of most of Indian companies & if this year monsoon remain good, then you will see higher levels on Indian stock market (you can see BSE crossing 20K mark once again)...

    you want 5 stock & I can give you 50 stocks for LT investment ( send me PM if you want), just study last 5 year performance of those stocks (some examples ares Reliance, L&T, JSPL,ICICI Bank,BHEL,SBI) and let me know how many has given negative return in last 5 years time frame. Most of these stocks has beaten all asset classes including RE in terms of LT return...

    You are 100% right, Stocks are not a safe investment but for short period of time, say 3 months (what you have asked me)...but for LT for 3 years & more you will see at least one cycle of rise & fall in stock market & average return would be better than even RE return in that period of time..So Stocks are "Safest Asset Class" if your investment horizon is more then 3-5 years,you invest in top 100 stock & if you at least watch the performance of company you have invested at least once in year....

    If you wanna try invest in NHPC at 30 Rs now & speak with me say after 3 to 5 years time...in 5 years time if NHPC doesn't touch 300 Rs, then I can pay you the difference....and that is 10 times return in 5 years time...you can calculate the CAGR yourself

    Problem with stocks is ppls dont have patience, if you have patience to search RE for years (some ppls on this forum are searching RE in pune for more then 3 years now)...show the same patience in stock & stocks will create "Wealth for you"...Instead of paying EMI to your home,start a SIP of same amount in some good large cap based MF & then compare the return of both for 20 years time....Stocks or MF beats all asset classes (be it RE or ) in LT (say 20 years)..it has been proven many time in past & will be true in next coming years as well...If you want more Gyaan on stocks, then we can meet up something, I dont charge for anything for advice:):):)

    I m totally agree with your analysis. Nice job. It is always advisable to invest in long term stocks or in MF through SIP.
    Visit this link http://www.utimf.com/product_services/value_added_services/sip_calculator.aspx#

    This shows how much more or less u can earn through SIP. Which is many fold large than cost of your house after 20 years.
    I have also started investing in Stocks and SIP so that by the time RE prices are corrected and come down and stabilises, let my money grow.
    For Stoks and MF always think of long term since some stock may be down for 2 years but in 3rd yr it can return you 3 fold profit, so be patient with stocks and MF :bab (55):
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  • Copying this from one other forum where a user posted this about Pune RE.

    "anyways, builders have gone mad again, and it might not be the right time to buy property...

    according to one inside informer ... "builders are forced to increase price "artificially" (read -for no good reason) to show investers who have bought their flats, that they are having good appreciation" . ...so there might be some under the table prices which ordinary people like us dont know... it's a mess for now. it'll be good to wait...until sanity prevails."


    I think this makes sense. See how some Rohan leher buyers(?) are rejoicing the price increase to 3500.
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  • Originally Posted by aditi sharma

    according to one inside informer ... "builders are forced to increase price "artificially" (read -for no good reason) to show investers who have bought their flats, that they are having good appreciation"


    I think this makes sense. See how some Rohan leher buyers(?) are rejoicing the price increase to 3500.


    Yes I too believe this is true. Whole builder theory is:
    Periodically keep raising the prices, irrespective of the demand, that shows to the world that how people who bought yesterday benefited.

    This price rise is what creates demand for them actually. It should be other way round actually.:bab (39):
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  • Property sales down by 25%-30% in five cities

    Check out

    http://www.moneylife.in/article/8/5090.html
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  • Builder, Politician arrested

    Man, 2 builders:- Ram Agarwal of Bramha Group & owner of Le Meridian Hotel & Ravi Sakla have been arrested by the CID today evening at about 1930-2000 Hrs. Along with them are 2 politicians:- Ajay Bhosle of Shiv Sena & one more other chap (whose details I don't have as yet:o). Anyways, read it tomorrow in the newspaper;). These are charged with grabbing land at Baner at gunpoint. Let's see how the story unfolds.
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