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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  • Site offices closed on sunday?

    We went for site visiting today evening to Wanowrie. Except Raheja gardens the rest of the site offices like Kumar gulmohar, ganga sampatti and ganga pavillion were closed on Sunday. We had reached about 4 pm. When i had called up the builders earlier, everyone said that their site offices will be open on all days including Sunday from 10am to 6pm. . When we called the person at Ganga pavillion he sounded very casual, he said that "I am the person who has to show you the flat, but I am not there".. I thought that usually buyers utilize the weekends for these activities since they will be working on other days. Either there are not enough buyers to keep them busy during weekends or they have a lot of potential buyers taht they are very casual.
    CommentQuote
  • Baner-Pashan Useful info with pics.

    Got a nice blog which talks about, Baner,Pashan & Baner-Pashan link road. Good one complete with pictures. Have a look, hope this helps you all.

    http://whisperingwindonline.blogspot.com/
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  • Another Rediff Masterpiece

    A few days after posting realty prices will fall, rediff has an article on prices rising 15%.

    ]http://business.rediff.com/slide-show/2009/sep/03/slide-show-1-housing-prices-likely-to-rise-15-percent.htm
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  • However, the report added that with builders not able to deliver projects within the stipulated time, property seekers are now taking a more cautious approach and preferring to invest in ready- to- move- in property. " A major impact.

    http://indiatoday.intoday.in/index.php?option=com_content&task=view&id=60061§ionid=110&secid=0&Itemid=1&issueid=110
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  • Balanced news

    ]http://propertybytes.indiaproperty.com/index.php/city-scape/demand-is-still-rising-2


    So apply good economics to get economy going


    So apply good economics to get economy going
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  • Compounding

    Just c the componding effect and false expectations

    ]http://www.ibtimes.com/contents/20090729/unlearned-lessons-from-housing-bubble.htm
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  • DLF and Other Companies Take Sales Route to Fight Slowdown

    Take DLF, for instance. If there’s no demand and its revenues and profit dry up, it doesn’t have any other option but to dilute equity or sell its assets to repay the large debt it has accumulated. ‘‘If the product markets were doing well, this debt would not have looked excessive. With the contraction in the business, the leverage looks large,’’ says an investment banker with Yes Bank. ‘‘If end-product markets don’t revive in the next one-and-half years, you will see many more business on sale where leverage is large,’’ he warned.

    http://www.indianrealtynews.com/real-estate-india/dlf-and-other-companies-take-sales-route-to-fight-slowdown.html
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  • Parsvnath Developers will Sell Shares to Overcome Debt

    “The quarter for the sector has been good, but the sustainability will have to be checked,” said Nitin Idnani, an analyst with Enam Securities Pvt. Ltd in Mumbai. “Any increase in prices may dampen demand.”

    http://www.indianrealtynews.com/real-estate-india/delhi/parsvnath-developers-will-sell-shares-to-overcome-debt.html
    CommentQuote
  • How to become bankrupt once a loan is approved

    ]http://indiahousingbubble.blogspot.com/2009/08/how-to-become-bankrupt-once-loan-is.html


    Pl do the calculations:


    Pl do the calculations:
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  • I did exactly this calculation a few months ago!

    Originally Posted by Sansei
    ]http://indiahousingbubble.blogspot.com/2009/08/how-to-become-bankrupt-once-loan-is.html


    Pl do the calculations:


    Sansei,

    On this very forum, somewhere buried deep within is a post of mine contradicting Nats with just such a calculation on the basis of 20% drop, level price and 20% appreciation in 2 years. Similar conclusion.

    Too lazy to trace it now :D

    cheers


    Sansei,

    On this very forum, somewhere buried deep within is a post of mine contradicting Nats with just such a calculation on the basis of 20% drop, level price and 20% appreciation in 2 years. Similar conclusion.

    Too lazy to trace it now :D

    cheers


    Sansei,

    On this very forum, somewhere buried deep within is a post of mine contradicting Nats with just such a calculation on the basis of 20% drop, level price and 20% appreciation in 2 years. Similar conclusion.

    Too lazy to trace it now :D

    cheers


    Sansei,

    On this very forum, somewhere buried deep within is a post of mine contradicting Nats with just such a calculation on the basis of 20% drop, level price and 20% appreciation in 2 years. Similar conclusion.

    Too lazy to trace it now :D

    cheers
    CommentQuote
  • Do u deal in Bond mkts.

    pl comment on thread in emerging trends.
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  • Scrapped, Execution Failure

    Here is yet another news which shows how the builders are abandoning the projects due to low bookings, & importantly lack of funds. Good article from IE. If you read carefully, it were buyers though who trusted builders blindly & fell in their trap. Hence, cross-verify the builders' claim before giving any firm commitment & as of now, go for ready poss only, be it from builder or investors.

    http://epaper.indianexpress.com/IE/IEH/2009/09/05/ArticleHtmls/05_09_2009_019_002.shtml?Mode=0#
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  • Divergence

    Hi Real & Wiseman,


    I have started getting a feeling that the best time to buy is the coming yr.

    Reasons r enumerated below:

    1. Investor ready possession flats r coming in the mkt. now these flats were booked in the initial lot thus, the base effect was low. These investors would be more ready to sell at lower prices, since their booking price was lower. Now as u progress fwd, more and more flats r available in the mkt, but these were booked at higher and higher rates , so they would not be sold at lower rate as before.

    2. The fair mkt price has been reached. Fair means, taking into the current land + materials + bribery + labour + etc : the flat would cost the current price. So obviously the resistance to lower prices further discounting other causes.

    3. The inventory will deplete slowly, leading to hardening of nego. positions of bldrs.

    4. Affordable bookings will provide the breather to bldrs to continue their cash flows albeit at lower settings than before.

    5. The new Tax code will cause investors to dump flats next yr more and more. Thus choices will increase so also the price points as investors have bought at different locations and different price points.

    6. The positive eco growth will up lift sentiments and some prices in mkt.


    Extrapolating these factors, a buyer should start striking deals.
    CommentQuote
  • How about this methodology?

    Originally Posted by Sansei
    Hi Real & Wiseman,


    I have started getting a feeling that the best time to buy is the coming yr.

    Reasons r enumerated below:

    1. Investor ready possession flats r coming in the mkt. now these flats were booked in the initial lot thus, the base effect was low. These investors would be more ready to sell at lower prices, since their booking price was lower. Now as u progress fwd, more and more flats r available in the mkt, but these were booked at higher and higher rates , so they would not be sold at lower rate as before.

    2. The fair mkt price has been reached. Fair means, taking into the current land + materials + bribery + labour + etc : the flat would cost the current price. So obviously the resistance to lower prices further discounting other causes.

    3. The inventory will deplete slowly, leading to hardening of nego. positions of bldrs.

    4. Affordable bookings will provide the breather to bldrs to continue their cash flows albeit at lower settings than before.

    5. The new Tax code will cause investors to dump flats next yr more and more. Thus choices will increase so also the price points as investors have bought at different locations and different price points.

    6. The positive eco growth will up lift sentiments and some prices in mkt.


    Extrapolating these factors, a buyer should start striking deals.



    Hi Sansei,

    You have only taken supply into account and have not treated demand with equal rigor. In addition, each point may be better off being ennumerated in terms of impact (add to inventory or reduce from inventory, etc).

    Then we can total up the positives on one side, negatives on the other and see if net-net ...

    1. Will there be more inventory in the market or less

    2. Will there be more buyers in the market or less

    3. Will buyers on an average be able to afford more or less

    Then you can take a calculated guess whether there needs to be more correction or prices as well as volumes have bottomed (real turnarounds happen only after volumes and price bottom, not price alone!).

    One more factor will be the financial strength of builders then. Also market sentiment then will determine whether buyers would decide to stay out for a further period till market sentiment turns positive based on sound fundamentals.

    But your post takes off in the right direction in terms of trying to figure out what will happen.

    My Take:

    I believe (gut feel rather than calculation) that the real bottom (price as well as demand) will probably happen in 2011 and maybe solidify in 2012. Simple reason is trends always take longer than humans expect (like the bull market that should have ended in 2006 but went on till end-2007) and there will always be factors you have not taken into account, or existing factors may be more seriously affected than we thought, that will prolong trends longer than expected. So, don't rule that out ...

    cheers
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