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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  • Arithmetic, Population and Energy

    http://www.youtube.com/watch?v=F-QA2rkpBSY

    Check this video (8 part video, the link is for first part.) A professor giving lecture on the Exponential function, Population growth, Economic Growth and the Energy reserve.
    It gives some mind blowing examples and explains the Exponential functions, doubling time, etc...

    The professor predicts a very gloom picture of our Economy. A huge hit video.
    CommentQuote
  • Browsing through the data this way is very difficult with so many new launches happenning from time to time. To save us all time and make data more informative i have compiled the information as an excel and shared it for view and edit purpose
    below is the link...happy researching

    http://spreadsheets.google.com/ccc?key=0AniayqTaeTD4dEVfLTE2OGl5SG56VGdvOFdkdmdaVlE&hl=en
    CommentQuote
  • Originally Posted by aditi sharma
    http://www.youtube.com/watch?v=F-QA2rkpBSY

    Check this video (8 part video, the link is for first part.) A professor giving lecture on the Exponential function, Population growth, Economic Growth and the Energy reserve.
    It gives some mind blowing examples and explains the Exponential functions, doubling time, etc...

    The professor predicts a very gloom picture of our Economy. A huge hit video.


    Nice. excessive cell growth leeds to cancer in the body... excessive growth in anything is bad.
    CommentQuote
  • Buying a house on resale? Four experts you need to take along

    A very useful info for all of us:-

    Walking through the house like a tourist will cost you big. You need experts on your side for the right deal:-

    http://www.livemint.com/2010/05/10214446/Buying-a-house-on-resale-Four.html?h=B
    CommentQuote
  • Clarifications ...

    Originally Posted by enduser
    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 ...



    puser, enduser and others,

    puser - You do me a disservice by saying I only appear during down times. Maybe you only notice my posts during down phases! :)

    In general, the world is suffering from a massive overdose of excess debt and consumption levels based on that. This debt has created huge levels of excess liquidity globally. This is one of the reasons why you are able to afford a car as soon as you pass out of college while your father's times most people never owned a car in their entire lives!

    One of the problems of excess debt is that, you do not make enough money to repay it and as income always remains below expenditure a deficit is created (like when you use a Credit Card to pay your way through the rest of the month because your salary ran out too soon) and this is covered with even more debt.

    At an extremity, this is called a debt trap where the borrower is just able to cover the interest on debt through earnings and does not even have enough to eat. The final end is bankruptcy. This is what is facing Greece and a whole host of nations, including Japan and the US eventually.

    There is no way out of this situation except to reduce debt to serviceable levels. And the only way to do this is to face a reduction in consumption and thereby poduction. This means less things produced which implies lesser employment levels (job losses), much lower salaries, very low savings and a general drop in living standards.

    Normally this is called a recession. When it is long and deep its called a depression. In extreme cases, its called a Great Depression. We are already in a depression in many regions of the world. Govts of the world are following policies that will lead us into a Great Depression.

    GDs normally last over a decade and come around once in 70-80 years like the Haley's Comet! :)

    GDs also do not spare countries / people who have high debt levels and who have put this money into assets of most kind. Gld (and to a small extent land) are the only exceptions.

    Within this period there will be huge falls and significant rallies. We just saw two of them. There will be more in the coming years. If you are not carefuland spend like you did before 2008 in the belief that jobs are always easy and ever-increasing salaries will ensure that any amount of debt is repayable, you could find yourself facing many years of hardships with crippling debt and no way to repay it.

    I'm not hiding when markets are going up. I'm making money on both sides. Since 99% of people are bullish I mostly come out during bearish times to continue the warning that most people refuse to acknowledge - that we are in a long-term bear market that can cripple you or make you very rich, depending on the actions you take!!! :) And taking on huge amounts of debt at very high leverage ratios (RE is normally taken on at 9:1 ratios) is the most wrong thing you can do in such a market. In the first 5 years after taking on a loan at 10% down payment, any drop of 15-20% in price will see you underwater and 3 EMIs not paid will see you being foreclosed. All it takes for 3 EMIs being missed is being out of a job for 4-6 months (as most people do not save in the belief that they will always get plenty of offers). And even if you can sell the home, poor liquidity will see it take 3-4 months to sell and you will run out of time.

    cheers
    CommentQuote
  • Strane behaviour...

    People have an strange investment habit.. be it stocl exchange or real estate.. they invest in a bullish market.. and panic and exit in a bearish market...

    Property prices are so high.. but people still feel it will never go down and want to buy.. There are a few waiting for a crack in price to invest..

    which gives an impression property prices in metro cities will not see any major decline.. there is enough demand.. Eurozone crisis or the decline of DOw Jones that the charts indicte..
    CommentQuote
  • Originally Posted by wiseman
    Normally this is called a recession. When it is long and deep its called a depression.


    As always good post Wiseman.

    Here is a different definition of the above - "It's a recession when your neighbor loses his job; it's a depression when you lose yours." :bab (59):

    VK
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  • Interesting article posted in the Mumbai Forum by SameerK26.
    http://www.moneylife.in/article/81/5809.html

    Some key points just in case you don’t want to read it.


    “Currently, there is a huge inventory pile-up that is not being bridged by consumer demand,” according to Pankaj Kapoor, founder of Liases Foras, an independent real-estate rating and research company. Buyers are not willing to step forward and absorb the rates at which prices are shooting upwards. At the prices quoted, sales are meagre.

    It is evident from the chart that a 20%-25% correction in prices is necessary to bring back the market to a level where people can afford to buy.

    Most likely. Prices are rising because the real-estate market is distorted in its current avataar, especially in metros. Developers and project investors are working hand-in-hand to block some part of the inventory, artificially jacking up prices for their properties.

    The media, which has the habit of picking up anecdotes and blowing them out of proportion, has also played a key role in facilitating this madness. During the past few months, a few rare high-priced deals got wide publicity in the print media, creating the mirage of huge demand at high prices. This puts things out of context and doesn’t present the true picture of how much sales are taking place and at what price points.

    According to Mr Kapoor, prices will fall when developers realise that increase in property rates leads to lower sales and increase the gestation period for projects. A survey conducted by Liases Foras over the past five years supports this. If the current trend continues, prices are bound to come down, sooner rather than later.

    VK
    CommentQuote
  • Breaking News

    Originally Posted by veeemkay
    Interesting article posted in the Mumbai Forum by SameerK26.
    http://www.moneylife.in/article/81/5809.html

    VK

    Good link VK
    Pawar, Family hold 16% in IPL bidder

    http://timesofindia.indiatimes.com/India/Pawar-Family-hold-16-in-IPL-bidder/articleshow/6009317.cms

    And 76 comments in 3 hours !!! 80 in next 15 min.... ...
    http://timesofindia.indiatimes.com/opinions/6009317.cms

    people are really pissed off from him
    So congress is pushing him in Corner

    Soon Amanora flats will be available in 1/4 the the Price :)
    CommentQuote
  • Pawar is not really popular with the educated middle class.. but the educated middle class is not really an vote bank .. Sad.. This is India.. So shit happens.. Pawar will continue.. till Cancer finally kills him and after death he will be hailed as a revolutionary leader someone who grew from a humble begining and grew to a great leader...

    Do we have anything -ve about any of our political laeaders... Most of them were :bab (5):..

    Originally Posted by frugality
    Good link VK
    Pawar, Family hold 16% in IPL bidder

    http://timesofindia.indiatimes.com/India/Pawar-Family-hold-16-in-IPL-bidder/articleshow/6009317.cms

    And 76 comments in 3 hours !!! 80 in next 15 min.... ...
    http://timesofindia.indiatimes.com/opinions/6009317.cms

    people are really pissed off from him
    So congress is pushing him in Corner

    Soon Amanora flats will be available in 1/4 the the Price :)
    CommentQuote
  • Originally Posted by veeemkay
    Interesting article posted in the Mumbai Forum by SameerK26.
    http://www.moneylife.in/article/81/5809.html

    Some key points just in case you don’t want to read it.


    “Currently, there is a huge inventory pile-up that is not being bridged by consumer demand,” according to Pankaj Kapoor, founder of Liases Foras, an independent real-estate rating and research company. Buyers are not willing to step forward and absorb the rates at which prices are shooting upwards. At the prices quoted, sales are meagre.

    It is evident from the chart that a 20%-25% correction in prices is necessary to bring back the market to a level where people can afford to buy.

    Most likely. Prices are rising because the real-estate market is distorted in its current avataar, especially in metros. Developers and project investors are working hand-in-hand to block some part of the inventory, artificially jacking up prices for their properties.

    The media, which has the habit of picking up anecdotes and blowing them out of proportion, has also played a key role in facilitating this madness. During the past few months, a few rare high-priced deals got wide publicity in the print media, creating the mirage of huge demand at high prices. This puts things out of context and doesn’t present the true picture of how much sales are taking place and at what price points.

    According to Mr Kapoor, prices will fall when developers realise that increase in property rates leads to lower sales and increase the gestation period for projects. A survey conducted by Liases Foras over the past five years supports this. If the current trend continues, prices are bound to come down, sooner rather than later.

    VK



    Yes and two wonderful charts ....
    :bab (61)::bab (30):
    A must link for new buyers to Go thru
    Attachments:
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  • Originally Posted by frugality
    Soon Amanora flats will be available in 1/4 the the Price :)


    Day dreaming leads you nowhere
    CommentQuote
  • What's so wrong here, am a bit confused

    Originally Posted by frugality
    Good link VK
    Pawar, Family hold 16% in IPL bidder

    http://timesofindia.indiatimes.com/India/Pawar-Family-hold-16-in-IPL-bidder/articleshow/6009317.cms

    And 76 comments in 3 hours !!! 80 in next 15 min.... ...
    http://timesofindia.indiatimes.com/opinions/6009317.cms

    people are really pissed off from him
    So congress is pushing him in Corner

    Soon Amanora flats will be available in 1/4 the the Price :)


    16% is a minority stake. And it's a legit stake in a company that decided to bid for IPL. How is that wrong in anyway? I really don't see anything wrong with it at all.

    It's not as if he created a company after IPL started, and then acquired a stake and then bid for a team?

    If he had done this via a company that was directly under his ownership it would've changed the dynamic. Don't you think?
    CommentQuote