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 harshalx
    Real,

    There is almost no other avenue for investment with returns like the stock market. So your claim that you have other avenues to park your money are false.

    Man, why do you think only of white collar investments? There are many other alternatives which give you returns more than RIL in boom:bab (34):. The only things required:-

    Contacts & risks as these funds are routed through unofficial channels.

    Btw, how about funding a Pune builder? Either you get 200%/annum or go bust:D.

    Frugal,

    Liked your post:).
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  • Originally Posted by Manoos
    in 1996 a govt person with 10 yrs of exp used to have a salary of 5k.
    A fresher engineer would have had that 5K salary.

    Today would a IT/MBA fresher earning around 25K a month put all the money in MF?. i hardly know any frnds aged around 25 who are ready to even put 5K a month in MF.

    Also timing is very imp in MF.

    My point is: Few ppl have patience to hold things for long like 5+ years.

    Old generation (born before 1960s) used to sacrifice their present for a stable future. that is missing in most of current 'youngistan' generation (specially those born after 1985s)
    Everyone thinks what will i do with crores when i am old. all need good amount in young years to 'live a quality life'

    Agree with this. I would like to add some:-

    When young, the blood is hot, so it requires more amount of coolant. Add to it the lifestyle, how many of current youngistan people will be able to do things which we do today when they will be old?:bab (35): Many people I see say, " Who the hell knows how long we are going to live? Don't waste today for tomorrow".

    I believe in Kabir, Kal kare so aaj kar, aaj kare so ab (I use this statement only according to my convenience though:D).

    Bottomline is; there has to be balance, yeah, balance in life w.r.t. your work + play. If you are able to maintain a balanced life, you go miles......having balanced life earns you a beautiful life. Have a beautiful life:).
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  • Balance is v imp.
    Totally agree. in college days i remember we frnds used to spend atleast 2 hrs in the evening doing 'nothing'.it was known as 'chilling out', freaking out etc. today i am ready to buy that wasted time at a premium price.

    After learning that lesson, once i joined my job i spend 1 hr a day learning new things or following my creative constructive hobbies.

    once career and life has settled, i exactly know where and how to spend my free time. whereas other friends really have no idea how to spend their free time and end up watching every movie that comes out, malls, shopping, regular drinking, gossiping, computer games. these things are easy to get used to and it become your 'lifystyle'. And they say they are bored in life and life sucks.

    point is: chase and become mad about a hobby/side business which will take up your free time. will add lot of purpose in life


    Originally Posted by realacres
    Agree with this. I would like to add some:-

    When young, the blood is hot, so it requires more amount of coolant. Add to it the lifestyle, how many of current youngistan people will be able to do things which we do today when they will be old?:bab (35): Many people I see say, " Who the hell knows how long we are going to live? Don't waste today for tomorrow".

    I believe in Kabir, Kal kare so aaj kar, aaj kare so ab (I use this statement only according to my convenience though:D).

    Bottomline is; there has to be balance, yeah, balance in life w.r.t. your work + play. If you are able to maintain a balanced life, you go miles......having balanced life earns you a beautiful life. Have a beautiful life:).
    CommentQuote
  • NEW YORK: The housing slump isn't over

    http://economictimes.indiatimes.com/news/international-business/Falling-home-prices-raise-fears-of-new-bottom/articleshow/5974849.cms

    Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 per cent in March from February, according to the Standard & Poor's/Case-Shiller 20-city index released on Tuesday.

    The co-creator of the Case-Shiller index, who predicted in 2005 that the housing bubble would burst, is raising concerns that the worst may be ahead. That fear is shared by other economists who point to weak job growth, tight credit and many more foreclosures ahead.

    "I'm worried still about the risk of a double-dip," economist Robert Shiller said in an interview.
    .................
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  • CommentQuote
  • We will see new lows in Western Markets ... India? ...

    As it is widely known, I've been very bearish from 2008 when I joined this board and before that had advised all my clients to exit in Dec 2007 itself. The reasons are becoming clear now.

    US market is now starting the C leg of a 5 or 7 leg downward move. Historically this is the most violent and sharp leg as well as being the largest leg. This is the leg when most people having hopes of recovery after the first violent fall and recovery, lose hope after having thrown in all their money into the market to recover from losses made in the first leg down. Therefore it will be the most painful. Most of my clients sold out at least 50% of holdings in the 17500-18000 levels and are selling more every small rally today.

    There will be another leg up after this down leg, the D leg which will be fairly weak (32% - 40% of C leg). The last leg E will also be a fairly small one (100% - 150% of D leg) when the last people holding out hope will give up.

    Expect the DOW to go below the previous low of 6400. The final target for DOW is between 4000-5000 in the good case and between 1000-1500 in the worst case. If there is catastrophe like a global war, the DOW can technically go all the way to 3-digits.

    The Indian market may not see new lows from 8000 levels and even if it does it will be brief.

    In a very significant move the FinMin is proposing to change the rules regarding Govt sticking to Fiscal limits (Fiscal Responsibility law) in the event the Govt has to print huge amounts of money to do similar bailouts for India when the world goes down the toilet. So, they are also seeing a possibility of such an event.

    Hold onto your hats. We are still in the early stages of a very lng bear market, the longest you will ever see in your life.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    As it is widely known, I've been very bearish from 2008 when I joined this board. The reasons are becoming clear now.

    cheers


    And also you appear whenever market is bearish or getting bearish and when market is bullish or getting bullish, you hibernate :bab (34):
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  • Originally Posted by puser
    And also you appear whenever market is bearish or getting bearish and when market is bullish or getting bullish, you hibernate :bab (34):


    Naturally, he's got to do the accounting in that hibernation period (profit, loss, etc.) and digest that...
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  • Originally Posted by wiseman
    Hold onto your hats. We are still in the early stages of a very lng bear market, the longest you will ever see in your life.

    cheers


    Will i have money to buy some Daru to do Cheers. ;-):bab (4):

    VK
    CommentQuote
  • Originally Posted by wiseman


    US market is now starting the C leg of a 5 or 7 leg downward move. ...
    ...
    There will be another leg up after this down leg, the D leg which will be fairly weak (32% - 40% of C leg). The last leg E will also be a fairly small one (100% - 150% of D leg) when the last people holding out hope will give up.

    ... in the event the Govt has to print huge amounts of money to do similar bailouts for India when the world goes down the toilet

    Hold onto your hats. We are still in the early stages of a very lng bear market, the longest you will ever see in your life.

    cheers


    C leg, D leg? E leg? What is all this boss?
    I thought only letter L stands for leg.

    Printing money means more money in the market, more inflation,
    more inflated RE prices, etc. '20L flat, 1-crore mein' type ...

    And rather than the Hats, I guess we need to hold our pants,
    since Builders have put so many Hats (Topis) till now that it would
    anyway be difficult to hold so many of them ...
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  • Govt Drafts A New Law To Guarantee Land Titles

    Another good link from IE:-

    http://www.indianexpress.com/news/govt-drafts-a-new-law-to-guarantee-land-titles/624366/0
    CommentQuote
  • Blue Ridge Township at Hinjewadi is available at INR 2800 per sqft

    It was sold at INR 3500 + some time back and lot of people got cheated ... now they are selling it at INR 2800 and these are ready possession apartments. Buy for need not for want! It is dirty with reputed builders also - be very cautious or else you will get cheated for sure! :bab (34):

    Trust me this is from horses mouth - i am victim of these greedy builders!

    CommentQuote
  • Originally Posted by prash_9

    Trust me this is from horses mouth - i am victim of these greedy builders!


    Can you pls share your experience Prash?
    CommentQuote
  • Originally Posted by prash_9
    It was sold at INR 3500 + some time back and lot of people got cheated ... now they are selling it at INR 2800 and these are ready possession apartments. Buy for need not for want! It is dirty with reputed builders also - be very cautious or else you will get cheated for sure! :bab (34):

    Trust me this is from horses mouth - i am victim of these greedy builders!

    Kindly explain in detail prash. Btw, it seems you meant that people lost money not only by buying at higher rates but under-cons as well. Ready (close) poss are cheaper than under-cons in such case, right?
    CommentQuote
  • Debt Deleveraging Process Will Take Many Years

    Originally Posted by wiseman
    As it is widely known, I've been very bearish from 2008 when I joined this board and before that had advised all my clients to exit in Dec 2007 itself. The reasons are becoming clear now.

    US market is now starting the C leg of a 5 or 7 leg downward move. Historically this is the most violent and sharp leg as well as being the largest leg. This is the leg when most people having hopes of recovery after the first violent fall and recovery, lose hope after having thrown in all their money into the market to recover from losses made in the first leg down. Therefore it will be the most painful. Most of my clients sold out at least 50% of holdings in the 17500-18000 levels and are selling more every small rally today.

    There will be another leg up after this down leg, the D leg which will be fairly weak (32% - 40% of C leg). The last leg E will also be a fairly small one (100% - 150% of D leg) when the last people holding out hope will give up.

    Expect the DOW to go below the previous low of 6400. The final target for DOW is between 4000-5000 in the good case and between 1000-1500 in the worst case. If there is catastrophe like a global war, the DOW can technically go all the way to 3-digits.

    The Indian market may not see new lows from 8000 levels and even if it does it will be brief.

    In a very significant move the FinMin is proposing to change the rules regarding Govt sticking to Fiscal limits (Fiscal Responsibility law) in the event the Govt has to print huge amounts of money to do similar bailouts for India when the world goes down the toilet. So, they are also seeing a possibility of such an event.

    Hold onto your hats. We are still in the early stages of a very lng bear market, the longest you will ever see in your life.

    cheers


    I agree with Wiseman ....
    if too much boring then just read the bold lines .. :)

    "...market reactions are widely out of proportion to the real problems...recent events are a disturbing comment on the power of fear...brave people will make a fortune buying in these days, and then we'll all wonder what the scare was about".
    "Right now the U.S. financial markets are trading very much out of fear and not any fundamentals."
    The first quote was written by a well-known "expert", and appeared in the Sunday New York Times on August 12, 2007. The S&P 500 had closed that week at 1453 on the way to 666. The second quote is from another "expert" on TV earlier this week. Human beings seem wired to always disbelieve the first move down from a market peak and, invariably, see it as a great buying opportunity. In our view the current fear is well-grounded in fundamentals, and the second observer will be proven to be as wrong as the first.
    The current debt crisis cannot be solved by mere declarations from official authorities. The debt crisis began with the decline of the housing market in 2006 and is continuing to this day. Phase I involved the transfer of private debt to sovereign debt by means of massive monetary and fiscal stimulus that has led to statistical economic recovery that remains anemic by historical standards. The problems that emerged with the Dubai crisis heralded the beginning of a sovereign debt crisis and phase ll---the transfer of weak sovereign debt to relatively stronger sovereign debt. The problem is that total debt is not reduced, but keeps getting shifted from weaker to stronger entities. Overall debt is too huge to ever be paid off and the relatively stronger nations will run out of ammunition long before the crisis is resolved.
    The only long-term solution is a deleveraging of global debt, a process that cannot be solved with a magic wand waved by central bankers and prime ministers. It is a process that will take many years and will be accompanied by slow growth, numerous recessions and financial turmoil. The weaker European nations are already going on austerity, and there is more to come. Greece will have to undergo severe budget cuts without the benefit of an independent monetary policy or the ability to devalue its currency. Spain is cutting its budget by $18 billion and Italy by $15 billion. The UK, too, had announced major reductions in healthcare, IT and civil service. This will lead to a sharp slowdown or recession in Europe with negative implications for the rest of the world at a time when the U.S. economy is still fragile and China is trying to restrain a major housing boom. The entire globe is in danger of becoming like Japan, which is still struggling after two decades of monetary and fiscal stimulus---and Japan was operating within a global economy which was still robust during most of its time of trouble.
    In that kind of financial and economic climate it is hard to conclude that the stock market is cheap or that it is oversold on anything other than the very short-term. Most major stock market bottoms have occurred with the S&P 500 selling at 20% or more under its 200-day moving average. The index sold at 28% under its 200-day average at the 2002 bottom and 26% under at the 2009 bottom. Even at the recent lows the market was only 6% under its 200-day average. In addition sentiment is nowhere near as gloomy as it usually gets at major lows. The Investors' Intelligence Survey show 29% of participants bearish as opposed to 50% or more at most of the past significant bottoms.
    Valuation metrics, too, do not indicate that investors are really fearful at current levels with the S&P 500 selling at slightly over 17 times trailing smoothed reported earnings. At major past market bottoms the P/E was below 10. In fact the P/E was below 10 at some point in 17 of the last 60 years going back to 1950. If anything, the current P/E is more indicative of complacency rather than fear. As we have stated many times "it's all about debt" and the deleveraging process has a long way to go.
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