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
    And it is said that after Greece, Spain & Italy are in line:D. Italy will still be having fun, thanks to S.Burlosconi:bab (41)::D.
    Btw, the US jobless claims, though reduced, still remain high. Until & unless US comes up, atleast IT won't come up.

    picked from Mumbai thread

    Originally Posted by boldm28
    Indias debt to gdp ratio is 78% it def an orange if not red

    unless some one is wearing a "chaddi" over his trousers and acting like a superman who defies gravity .. India going to Greece was is not a question of if but when

    Nice visual link and China in Grey and India only BRIC country in its 71 - 80 range rest all in Grey ......
  • Originally Posted by monds
    it's a toxic smile...

    BTW, check Ajit Pawar's statement about Pune crime in today's sakal...and read all comments by the readers, all are very toxic :)

    LoL:D. Found some, & understood that as well:):-

    अजित दादा, गुंडगिरी ठेचून काढा आसे म्हणून तुम्ही तुमच्याच पायावर धोंडा मारून घेताय...सुरवात तुमच्या पासूनच करा... :D

    अरे बापरे! मग अशाने राष्ट्रवादी पक्षाला एक तरी कार्यकर्ता उरेल काय दादा ?

    दादा, तुमचे दाखवयाचे दात वेगळे आणि खायचे दात वेगळे दिसताय..

    This statement is like Pakis saying they will stop terrorism. Even the cops must be laughing on the dias:D.
  • Originally Posted by realacres
    अजित दादा, गुंडगिरी ठेचून काढा आसे म्हणून तुम्ही तुमच्याच पायावर धोंडा मारून घेताय...सुरवात तुमच्या पासूनच करा... :D

    अरे बापरे! मग अशाने राष्ट्रवादी पक्षाला एक तरी कार्यकर्ता उरेल काय दादा ?

    दादा, तुमचे दाखवयाचे दात वेगळे आणि खायचे दात वेगळे दिसताय..

    I wish there was a law which prevented criminals to come to democratic realm.
  • Originally Posted by frugality
    picked from Mumbai thread

    Nice visual link and China in Grey and India only BRIC country in its 71 - 80 range rest all in Grey ......

    I gone to the site & didn't understand how to read these figures...I think you are smart enough to read those

    Couple of observation from that website....Janan Debt to GDP ratios is whopping 179% & russia's is only 6.8% & USA's is around 60%, so does this mean that Russia is in better position then USA & Japan????

    As far as I know Russsia is One of the world's worst managed economy & due to that life of Russian ppla are miserable & Russia has very-very high cost of living....

    So I think posing such link doesn't make any sense, let leave this for experts:D:D:D
  • But all the uncertainty .. will it keep the prices steady or actaully cause a drop..
    I would like to wait and see if it drops.. I don't think it will rise any further.. as it is already too high..
  • Today, China increased the CRR to curb excess liquidity in the market especially the RE sector. This is the second step by China to stop RE bubble, the first being the 40% min amount as downpayment for purchase of RE (50%+ for 2nd house). It is hight time now that India too does similar thing, especially with regards to downpayment, else the picture may be far worse than imagined as people may continue to over-levergae themselves:o.
  • Putting this info from Samrajya thread:-

    Originally Posted by abeerbagul
    Thats cool na?
    Suppose you are in IT, and face a layoff, have to stay at home for 6-8 months before you get another job.
    In that time, your wife, who has a job in IT, pays the EMI, household bills, etc.
    I guess you will not be a man for 6-8 months

    Abeer, first & foremost I am not an ITG, so I don't know how ITGs think about managing wealth (wealth not money). Infact, I have seen some ITGs having a marriage condition that they would only marry another ITG (gal in this case) so that he can have one more person to pay EMIs:o.
    Most important aspect:- If you are laid off for 6 months & aren't unable to sustain your current lifestyle, then man, you are definately wrong in financial planning. It is always recommended to have buffer for 8-10 months under any circumstances, if not it only means that one is highly over-leveraged.

    Btw, if wife is able to run the show without your EMIs, this means the savings would be huge by now (till man is laid off) & I see no reason why then she would have to make EMIs, simply pull out some cash from bank & make the payment. Also, this would mean that the loan is taken based on single person income only, which is good. However, if this is not the case, then even wife wouldn't be able to service the EMIs on her own.

    Originally Posted by rocknrolls
    How many men on this forum own Audi A4 and plan to gift a Civic to their "own" wife ;-)

    "OWN" wife:D, that's funny.

    Anyway the point is even your businessman friend is happy to let his wife enjoy her earnings in her own way. Had his wife wanted to contribute towards the house I am sure he wouldn't have complained about that as well. I am sure he didn't go for a housing loan... because a title in joint name requires all owners to be co-borrowers in housing loan proposal (My knowledge on this topic could be outdated though..)

    If loan is not there, there is no need to contribute by all parties concerned.

    So if someone's wife wishes to contribute towards their home loan EMIs I don't see any issue with that.
    Frankly speaking I still don't understand how a joint loan is related to someone's manhood.

    I think you all have taken my comments on wrong context. I am not against women contributing towards EMIs, what I am against is increasing the loan taking into consideration the woman's income. In short, if the man is able to pay the EMI even if the woman doesn't contribute, it's good, but if the man is unable to pay the EMI without the woman's income, then something is wrong with the finances. Hence, loan EMIs should by not more than man's 40% max take home salary & not 40% of combined income. Hope you got my point.

    Tomorow for any reason if woman doesn't work or say for couple of years, still the EMIs should be paid comfortably. This is my only point.

    sorry if I hurt anyone's feelings... but I hate the way women are taken for granted and are considered weaker in our culture/society.

    Hey, we agree to disagree, hence no sorries here. What I again fail to understand is when did we say woman are weaker (if I say this, I will be kicked out of my house:D), anyways, what I feel is woman are more multi-tasking than men as they manage work + family, hence it is better not to put additional weight of EMIs on them.

    I am not against women contributing towards EMIs; I am against COMPULSORY contribution by woman towards EMIs. Woman should not be used as ATM machines, that's all what I want to say.
  • Originally Posted by realacres
    Today, China increased the CRR to curb excess liquidity in the market especially the RE sector. This is the second step by China to stop RE bubble, the first being the 40% min amount as downpayment for purchase of RE (50%+ for 2nd house). It is hight time now that India too does similar thing, especially with regards to downpayment, else the picture may be far worse than imagined as people may continue to over-levergae themselves:o.

    Middle class people like me will never be able to buy house then :o...

    Its so outrageous that salaried people cant buy a single house.
  • Originally Posted by puser
    Middle class people like me will never be able to buy house then :o...

    No man, this will mean that builders will cut the prices as no one will be able to buy with ease. I don't know why you single out yourself here & put up ':o' smileys........

    Its so outrageous that salaried people cant buy a single house.

    It is not outrageous that salaried people can't buy single house, it is outrageous that even 2% of population (who earns money like those on this forum) are not able to buy a house with ease as they are not affordable. Think what the situation would be for rest 98%?:(
  • India's Real Estate Boom Is on Shaky Ground

    Nice article.. very relevant...

  • "What's the point of a designer shower system in your new house if you don't have water in it?"

    And water cut is yet to start in Pune ....

    I am planning to manufacture Plastic tanks that can fit in cargo space.....
    Skoda , Wagon R and Maruti 800...

    As in coming times people will use their cars to buy water and bring them in their expansive cars... :)

    .... similarly wooden flooring in Pune ......
    Its like ask Torrid zone countries to wear a "North Face" jacket :D
  • Originally Posted by mahesh pune
    WHat are your views on manhood people who takes big dowary from wife ?

    These are not men for sure. Such animals should be hanged upside down on electricity pole & burnt alive.
    Originally Posted by ash7979
    A Home becomes home when both of the Partners contribute in it (Be it emotionally or financially) and if your wife is working & if including her income you can get a "Bigger" or "Better" home, so I don't think you should compromise on that....

    This is precisely I am against, going more than what the real capacity is. Making rest of the family members stuck with crap EMIs for 15 yrs is no joke. You feel good when you buy bigger than you afford but the impact is felt in 1-2 yrs as you see the savings disappear.

  • Nice link man:bab (27):. Yesterday, I also read somewhere that after 20 years, there will be potable water left for only 50% of the population. Add to it that India's population is going to overtake China by 2030 if the current trend continuesbab (44):. Man, so much population...........:bab (36):.
  • Developers warn that property costs are rising in India

    But he added that banks are still cautious about providing housing loan to consumers and asking for higher collaterals for lending to real estate developers.

    But several property deals are being cancelled due to the additional costs being levied by developers, according to Yashwant Dalal, president of the Estate Agents Association of India.

    Its Realty Trends 2010 report shows that 34% want to buy in Delhi followed by 28% favouring Mumbai and 11% opting Bangalore and Hyderabad.
    >> Hey, so where is Pune? If it is now no longer prefered destination, why still high rates for RE?
  • China may 'crash' in next 9-12 months: Marc Faber

    Any impact on India if this happen ?

    SINGAPORE: Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

    The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy”, Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen”, he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

    “The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong on Monday.

    “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

    An index tracking Chinese stocks traded in Hong Kong dropped 1.8% on Monday, the most in two weeks, after the central bank raised reserve requirements for the third time this year.

    The Shanghai Composite has slumped 12% this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday on Monday.

    Copper touched a seven-week low and BHP Billiton, the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto, the third-largest, slid as much as 6 %.

    Chanos, Rogoff

    Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China. China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month.

    As much as 60% of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fuelled bubble in China may trigger a regional recession within a decade.

    The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7% across 70 cities in March from a year earlier, the most since data began in 2005.

    The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, finance minister Xie Xuren said officials remained committed to expansionary policies to cement the nation’s recovery.

    Stocks ‘Fully Priced’

    The nation’s economy grew 11.9% in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8%.

    The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of , he said.
    BlackRock is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked.

    The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5% from 4.6% at the end of March, the fund’s London-based co-manager Dan Tubbs said.

    Industrial & Commercial Bank of China, China Construction Bank and Bank of China, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.

    Local Governments

    Citigroup warned in March that in a “worst case scenario”, the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.

    Housing prices nationwide may fall as much as 20% in the second half of the year on government measures to curb speculation, BNP Paribas said on April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10%.

    Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.