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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  • Precisely the reason to buy a ready construction property.
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  • Originally Posted by enduser
    RE is one of the few businesses where one buys a product (flat) before it is completed. It’s like booking a car when it is on the assembly line; or booking to buy food grains when the farmer start sowing the seeds.
    ...
    We as buyers, take loan, fund the Builder, pay Bank interest on the loan, where as the Builder enjoys a nice merry-go-round (with free funds, price as dictated by him, etc.).


    I think I will frame your post and hang it on a wall. Very insightful and true.
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  • ^^+1. Enduser, that was one insightful post, short but to the point.
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  • Originally Posted by enduser
    RE is one of the few businesses where one buys a product (flat) before it is completed. It’s like booking a car when it is on the assembly line; or booking to buy food grains when the farmer start sowing the seeds.

    Why can't the Builders themselves approach the Banks, construct the apartments and then sell the finished products instead?

    We, as buyers, take loan, fund the Builder, pay Bank interest on the loan, whereas the Builder enjoys a nice merry-go-round (with free funds, price as dictated by him, etc.).

    Not Fair


    I agree. BUT then Builders have this great ability (since they have huge margins) to make people run after their unbuilt apartments.

    This they do by increasing the prices of flats as and when some milestone of complition is reached. This gives the investors and Buyers incentive to buy earlier. I would probaby attribute things to greed (to earn more or to save more). Builders exploit this trait the most. Unfortunately the theory of Risk vs Reward is not understood by many.

    VK
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  • India’s Clogged Rail Lines Stall Economic Progress

    good article on our railways.
    http://www.nytimes.com/2010/06/16/business/global/16indiarail.html?src=twt&twt=nytimes
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  • Originally Posted by veeemkay
    I would probaby attribute things to greed (to earn more or to save more). VK


    Exactly.

    Buying under construction property is the same as being a crooked financier - you give money to the crooked builder knowing fully well that he will somehow manupulate a higher price for your flat and you will earn handsome rewards.

    You should not protest if this crooked investment goes wrong because of your bad timing!!!!

    Buying under construction property is the same as buying shares in a brothel (legal in many countries).

    If you buy when you have the money and buy what you can afford, you will have no cause for complaint - in RE and in a brothel.
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  • Originally Posted by monds
    check this link, I am speechless after reading this,,,try it and try to digest...


    http://www.thehindubusinessline.com/2010/05/31/stories/2010053150300900.htm



    I have always failed to understand how India survives inspite of such glaringly obvious horrendous problems.

    India is like a disfigured leper dragginh himself through the streets begging.

    "Incredible" is however the exact word for it !!!! Incredible that India is still existing !!!!

    How long can this last? Everything is just Ram Bharose - when we will collapse and implode (not if) is the question.
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  • Originally Posted by Venkytalks
    I have always failed to understand how India survives inspite of such glaringly obvious horrendous problems.

    India is like a disfigured leper dragginh himself through the streets begging.

    "Incredible" is however the exact word for it !!!! Incredible that India is still existing !!!!

    How long can this last? Everything is just Ram Bharose - when we will collapse and implode (not if) is the question.


    Now even western countries are stunned by the corruption in india, rather they are worried now and this may have a long term impact on the trade...take an example of satyam scam, that was the biggest in the corporate history of india, the latest one is corruption in Sarva Shiksha Abhiyan...almost all money came from UK evaporated in no time :D

    http://www.esakal.com/esakal/20100617/5189246978216601492.htm
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  • Its so embarassing to see how Europe and other countries sees India as a hub of corruption, its really outrageous that nothing can be done about it. Each and every post of authority is involved in some or other corrupt act - right from hawildaar to CM, from CM to PM, and nothing can be done about it
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  • Good one. If this is true, what is the visting faculty at IIM/Harvard Mr. lalu Prasad Yadav bragging about ?

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  • Large Numbers of Hard working tax paying individuals, who earn to ensure they are insulated from the ups and down of the country. Me included

    This tax + FII money is a perfect scene for corrupted ppl to ensure the country doesnt cripple plus pocket money. Rich dont care and poor dont have the power to be attended too.

    India (for complicated reasons) thinks about himself first and then society. Western countries first think about society. So we will remain rich individuals and a poor nation.

    Originally Posted by Venkytalks
    I have always failed to understand how India survives inspite of such glaringly obvious horrendous problems.

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  • +1 harshal, enduser.

    The problem which I feel here is that the aspect of having own house is much larger than having a good life. Some people mix up the two & then get screwed up.

    As far as corruption is concerned, it is mostly due to poverty. A politico who has never seen INR 1L suddenly sees few crores. Then he wants more money so that he can INVEST this money in SECURING his seat to earn more money. Later, these people try to keep poor people poor as they know that if poor get rich, they will be kicked out. This then becomes a vicious circle.

    Elections are won on voting %age of about 40%:bab (45): & we don't vote. Imagine if all of us vote, it will be us who will decide the power centre as we constitute 60%. Add to it, we together can also demand Right to NO VOTE on EVM as well.

    Man, whatever happens, good or bad, the rich & poor are insulated as one has lot of resources, the other is just making an existence. The one who is affected the most is the middle, upper middle class people. Now it is upto you to decide whether you want to stay in the same circle or change it .
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  • Flat buyers feel cheated when promised amenities not given

    Often facilities offered in brochures by builders do not materialise

    Good article about builders fooling buyers in Pune.

    http://3.bp.blogspot.com/_350OO1cwB1U/TBmk4Tw2KII/AAAAAAAAQBU/wb-0imoWzh0/s1600/amenities.jpg

    http://www.3dsyndication.com/showarticle.aspx?nid=DNPUN27543
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  • Originally Posted by realacres
    +1 harshal, enduser.

    The problem which I feel here is that the aspect of having own house is much larger than having a good life. Some people mix up the two & then get screwed up.

    As far as corruption is concerned, it is mostly due to poverty. A politico who has never seen INR 1L suddenly sees few crores. Then he wants more money so that he can INVEST this money in SECURING his seat to earn more money. Later, these people try to keep poor people poor as they know that if poor get rich, they will be kicked out. This then becomes a vicious circle.

    Elections are won on voting %age of about 40%:bab (45): & we don't vote. Imagine if all of us vote, it will be us who will decide the power centre as we constitute 60%. Add to it, we together can also demand Right to NO VOTE on EVM as well.

    Man, whatever happens, good or bad, the rich & poor are insulated as one has lot of resources, the other is just making an existence. The one who is affected the most is the middle, upper middle class people. Now it is upto you to decide whether you want to stay in the same circle or change it .


    VERY WELL SAID MAN...!!! and this all is just TRUE (Satyam) :D..our whole country is manipulated...I bet EVM's are easily manipulated, they are just dumb data loggers...
    BTW, I voted in the recent UK election and to my surprise, there were no EVM's but the voting was on paper. In the polling booth, they issued paper and pencil :D...we just have to put a cross in a square box in front of the candidate's name and fold the ballat paper and drop it in the box...that's it..and no ink mark on your fingers...they just tick on your name in their record paper, so simple...even no photo ID proof is required...you just go with the voting slip issued by the local council and show it to them :) it's all TRUST man...no hope that India will develop to this state at least in my life time...
    But I do agree that instead of saying 'Chaltaa Hai', we ourself can make a difference to some extend...at least we can try :)

    I will start a thread in this forum to awake voters...when are the next elections in the country or in our state or in Pune (I mean PMC elections)... the first and foremost is get your names in the voter's list...

    RealAcres, you can certainly help people in this process, can we register our name in the list any time in the year or are there specific days/period to do this...where to register, where we get forms etc.

    Let's discuss this more on a separate thread..
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  • Just yesterday an AP MLA's father was caught with 7 crores cash , stored in gunny bags.

    If we can extend this further one cannot even imagine the amount of black money floating in India.

    All this one has only one place to hide, Real estate.

    On a different note I spoke to Nandan Prospera and they have hiked rates of their project to 5500. Still digesting the news. 6 months ago the rate was 4100
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