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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  • DSK Frangipani Price Fall

    Guys,

    In late 2007-early 2008, I was quoted INR 7000-7200/sq ft for DSK Frangipani, Sadhu Waswani Chowk, Camp, it was nearing completion then.

    Now, they are quoting INR 5200/sq ft, ready possession:bab (34):.

    See, a price drop of whopping 37% + money enjoyed for 2.5 ys as well:).
    CommentQuote
  • Originally Posted by realacres
    Guys,

    In late 2007-early 2008, I was quoted INR 7000-7200/sq ft for DSK Frangipani, Sadhu Waswani Chowk, Camp, it was nearing completion then.

    Now, they are quoting INR 5200/sq ft, ready possession:bab (34):.

    See, a price drop of whopping 37% + money enjoyed for 2.5 ys as well:).



    This is conveniently ignored by bulls.:D:D.

    They look at prices during last so called slump some where in mid 2009. Prices might be 4800, and now 5200, they immediately say see prices are rising again.

    LOL...:D:D
    CommentQuote
  • Pune Corporation

    http://www.punecorporation.org/pmcwebn/informpdf/EcoHousingPolicy/SIDA_RambollProgressReport_Jan09/Progress%20Report%20January%202009.pdf

    Did not know the right thread to put this, so adding this here, since this is like the all encompassing thread on everything to do with anything.
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  • Originally Posted by realacres
    +1.

    Today morning I met my neighbor who had gone to Singapore to meet his son. He stayed there for over 3 weeks. And he told me that a 3BR flat in 18 floor building costs just a tad under INR 1Cr:). Add to it that the buildings are constructed by Govt, he said not a single leakage seen. Infra, I won't discuss, it is well known.

    Man, 3BR for under 1Cr & this is Singapore, & there are some who pay this amount in Pune at Balewadi & Kharadi:D.


    This is where the population plays the role. Limited resources are chased by unlimited population :) . In Singapore govt always forward plans keeping in view future demand in view of growing/shrinking population. This keeps the prices of essential commodities under check(at least on which govt has some control). Given the size of Indian population even best govt in world cannot do anthing (and many reknowed world figures agree to this fact). Its simply a mammoth task.

    The numbder of people who came in good earning bracket (due to Infotech and other fields) , suddenly pushed up the prices. The price rise has been in all metros including Pune, so no use in bashing builder cartel etc (no cartel can do anything if no buyers are there in first place).
    CommentQuote
  • Originally Posted by compuwalah
    The price rise has been in all metros including Pune, so no use in bashing builder cartel etc (no cartel can do anything if no buyers are there in first place).


    There is more thriving IT industry in Banglore/Hyderabad as well right?
    Builder cartel exists in pune because of politico support and not due to buyers.
    How come pune-builders charge 30-50% loading with 100% terrace?
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  • Originally Posted by compuwalah
    This is where the population plays the role. Limited resources are chased by unlimited population :) .


    Sometimes I wonder why farmers, medical drug companies, textiles guys, etc. do not hike prices to some three to four times.

    They too can hoard essential items, form cartels, and start looting common people; and all this in the name of unlimited population chasing limited resources/produce.

    Why only RE boys should have all the fun?


    India is surely shining for Builders ...
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  • Originally Posted by enduser

    India is surely shining for Builders ...


    Right said enduser. Add to that black-marketeer, politician and babus.
    Is this irrational-exuberance in RE due to ill-gotten/easy wealth?

    BTW Montek-singh (like builders delaying-possession) has said that by December (last-time it was July) inflation will be 5-6%.
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  • Originally Posted by enduser
    Sometimes I wonder why farmers, medical drug companies, textiles guys, etc. do not hike prices to some three to four times.

    They too can hoard essential items, form cartels, and start looting common people; and all this in the name of unlimited population chasing limited resources/produce.



    Rightly said enduser. Compuwala, you should ask this questions to yourself try and find the answer yourself. :bab (6):
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  • To buy or to rent?

    Nice article, many factors discussed. Read for more:-

    http://economictimes.indiatimes.com/quickiearticleshow/6016593.cms
    CommentQuote
  • Just for change, see how Gurgaon infra got crippled in heavy rains:-

    http://economictimes.indiatimes.com/articleshowpics/6135955.cms
    CommentQuote
  • money vs wealth

    Ajit dayal, in todays article writes about US RE bubble, Link

    "The problem arose when home owners started assuming that their wealth was money and hence, would never go down. Infact, they went ahead and even borrowed fully against this new found wealth of theirs. The end result? When prices collapsed, their wealth came crashing down, leaving them with the huge debt burden. So, where did homeowners go wrong in US? They made the cardinal sin of equating wealth with money. To make matters worse, they even borrowed against wealth. We hope you would be careful not to make a similar mistake in your lifetime. Please bear in mind that difference between wealth and money is day and night. If debt is made available, the former can be increased at will. But not the latter. "
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  • Originally Posted by realacres
    Nice article, many factors discussed. Read for more:-

    http://economictimes.indiatimes.com/quickiearticleshow/6016593.cms


    This is a good article.

    I am in doubt, if i have 50Lacs liquidity in bank and i am getting avg 8 or 9%return, why should i take a loan 9%. Considering that i will continue to work/earn for the next 15 - 20 years. Considering that the property i am going to buy is free from all disputes and is from a reputed builder at a good location.

    Also same Query in case of living on rent. Why should i risk my future staying on rent if i have money to buy. (When i say risk my future i mean getting a 2bhk flat in average location mumbai/delhi after 10 years will be 2-3 crore. leave aside good location.)Property is the best gift to children and is the only investment/asset that stays with you for generations, also the security of having a shed is more satisfying than saving money now.

    need advise and comments from seniors: real, venky, rajesh, wise, puser etc
    CommentQuote
  • Originally Posted by Munish Malhautra
    This is a good article.

    I am in doubt, if i have 50Lacs liquidity in bank and i am getting avg 8 or 9%return, why should i take a loan 9%. Considering that i will continue to work/earn for the next 15 - 20 years. Considering that the property i am going to buy is free from all disputes and is from a reputed builder at a good location.

    Also same Query in case of living on rent. Why should i risk my future staying on rent if i have money to buy. (When i say risk my future i mean getting a 2bhk flat in average location mumbai/delhi after 10 years will be 2-3 crore. leave aside good location.)Property is the best gift to children and is the only investment/asset that stays with you for generations, also the security of having a shed is more satisfying than saving money now.

    need advise and comments from seniors: real, venky, rajesh, wise, puser etc


    you didnt ask an advise from me but i will give you anyway... :)

    In general, the folks here agree that one should go ahead and buy if you can afford it and want the property for self use. By afford, it means either you have full cash available or you manage to restrict the EMI below 30% of your net take home.

    You are assuming that property prices will keep on rising forever and that is not the experts opinion here. Simply because today if a property costs 50L, banks are offering credits to many buyers since their take home is around 50-60K. If the same property costs 3 CR (after 10 years), one would need to have a net salary of 3L per month which is 36L per year after tax.

    I don't think people with 10 years of experience can get this salary (even ITGs) after 10 years.

    Take the case of Mumbai... there are high costs but these are simply labels because almost 5000+ premium flats in Mumbai are unsold.
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  • Originally Posted by punerebuyer


    You are assuming that property prices will keep on rising forever and that is not the experts opinion here. Simply because today if a property costs 50L, banks are offering credits to many buyers since their take home is around 50-60K. If the same property costs 3 CR (after 10 years), one would need to have a net salary of 3L per month which is 36L per year after tax.

    I don't think people with 10 years of experience can get this salary (even ITGs) after 10 years.

    Your forgot to add inflation factor in this.
    Salary after 10 yrs of exp + compounding inflation of 10 years ( take avg inflation 5 % pa, today it is very high thanks to govt)

    You are assuming that property prices will keep on rising forever and that is not the experts opinion here. Simply because today if a property costs 50L, banks are offering credits to many buyers since their take home is around 50-60K. If the same property costs 3 CR (after 10 years), one would need to have a net salary of 3L per month which is 36L per year after tax.

    I don't think people with 10 years of experience can get this salary (even ITGs) after 10 years.

    Your forgot to add inflation factor in this.
    Salary after 10 yrs of exp + compounding inflation of 10 years ( take avg inflation 5 % pa, today it is very high thanks to govt)
    CommentQuote
  • Originally Posted by realacres
    Nice article, many factors discussed. Read for more:-

    http://economictimes.indiatimes.com/quickiearticleshow/6016593.cms


    The article says "Moreover, owning a house is a form of forced savings".

    I find that the most significant statement here. I recently adviced my niece to buy a villa on bank loan.

    She earns more than me already, has zero savings and spends all her money on gadgets, clothes, parties and holidays.

    The "lalach" of owning and living in a much better house (big villa instead of her parents flat) was a much better incentive than any homilies about savings etc (ant and grasshopper stories dont cut ice with current generation.

    Best that she takes a home loan, pays an EMI for 15 years and has some enforced savings, even if it is in the least favoured investment of RE, rather than stocks or bonds.

    She doesnt even have interest in jewelry or diamonds - considered old fashined.

    Sometimes the reasons for RE investment are not sound financial sense but just psycological
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