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 aditi sharma
    The land pricing shows, builder are able to rip more profit from residential projects rather than commercial as Lunkad is planning a residential project on this land.


    Humm...Even DSK has scrapped his SEZ project at Fursingi and now building 10000-15000 flats on that land...
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  • Originally Posted by home123
    Humm...Even DSK has scrapped his SEZ project at Fursingi and now building 10000-15000 flats on that land...

    Who is going to stay there in FURSUNGI near Dumping Ground of Pune!!!
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  • Originally Posted by realacres
    Hey, just got the update:-

    RBI hikes repo rate by 25 bps (at 5.75%) and reverse repo rate by 50 bps (at 4.50%).:bab (6):


    It seems controlling inflation is high-priority. Now RBI would be reviewing rate every-month (earlier it was every quarter).
    More rate-hike are anticipated in Sept.
    Good news for savings in FD :D
    Bad news for loans with floatings-rate.
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  • More likely RBI will raise CRR and suck up liquidity next time - much more effective in drying up liquidity.

    Indian rates are already optimal - raising rates will stifle growth badly
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  • Majority see another RBI rate hike by Sept

    Originally Posted by Venkytalks
    More likely RBI will raise CRR and suck up liquidity next time - much more effective in drying up liquidity.

    Indian rates are already optimal - raising rates will stifle growth badly

    MUMBAI (Reuters) – The Reserve Bank of India (RBI) is likely to raise interest rates more aggressively in the rest of the fiscal year after tightening monetary policy more than was expected on Tuesday and sounding a hawkish tone, a new Reuters poll found.

    Most economists polled expect interest rates in India to reach their peak by the second quarter of 2011, the poll found.

    Read complete article here:-

    http://in.reuters.com/article/idINIndia-50433320100727
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  • Hi real,

    Yes the news channels were also full of analyst chatter along the same lines.

    Analysts - They are like meteorology dept - when it rains, they predict more rain. Analysts did not anticipate 0.5% RRR raise. Now they are predicting lots of rate rise.

    I believe RBI is more sensible than these analysts. They were prudent in 2006 when they predicted RE bubble. They were aggressive in raising rates, but lowered rates aggressively when the rest of the world followed suit.

    If I was running the RBI, I would raise CRR and not the repo. It would be more effective in beating enflation. In fact I was expecting 0.25% RRR increase and a CRR increase this time around.

    Maybe some specific things - some bond auctions etc - are anticipated by RBI and that is why they left CRR untouched.

    RBI can also increase the risk in commercial RE - which is probably substantial, and ask for more provisioning by banks - which will cool RE prices and also bring down bank stocks.

    I would lighten up on banks and RE stocks for now.
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  • Delays still ail realty sector, 25 projects to miss deadline

    Friends,
    This is what is one of the most worrisome thing to happen:- highly delayed possession . We keep warning everyone about this. Check out the following article & the woes of the buyers here:-

    http://www.livemint.com/2010/07/26224137/Delays-still-ail-realty-sector.html
    Attachments:
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  • The project delays are actually result of extreme greed of developers. Iam wondering why there is no regulator for real estate industry.
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  • The bank deposit rates have been increased anywhere between 25-75 bps & this will make home & auto loan expensive from Sept-Oct.

    In today's interview to DNA, the RBI Gov, Subbarao has said that liquidity will be pulled out from the system in next couple of months & lending for realty will be expensive from Nov 10. This includes home loan + loan to builders as well:bab (34):.
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  • 10 Ways Investors Sabotage Themselves

    A good article from Forbes, nice tips to help you avoid from going bust.

    http://www.forbes.com/2010/06/10/investor-stocks-behavioral-finance-personal-finance-odean_slide.html?partner=seealso
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  • UK residential property prices start falling as lending remains restricted

    To me it looks like India is trailing the path of UK in terms of credit offtake for realty. Come Nov will see interest rates go up as indicated by RBI this week. Lets see how this impacts RE sector, of now the sales have dipped QoQ in India as well.

    Residential property price fell in July as buyer demand remained weak and there was a substantial drop in annual house price inflation, according to the latest index from the Nationwide.

    ‘So far in 2010, demand from buyers has made little progress in building upon the recovery seen during much of 2009. Despite the introduction of a second stamp duty holiday for the vast majority of first time buyers and record low interest rates, the number of properties changing hands across the UK is still running at only half the levels seen prior to the financial crisis and recession,’ said Martin Gahbauer, Nationwide’s chief economist.


    http://www.propertywire.com/news/europe/-uk-real-estate-reports-201007304361.html
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  • What defines luxury homes? Is it only the price?

    http://economictimes.indiatimes.com/quickiearticleshow/6243536.cms
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  • Hi Real,

    Reading your posts above, and yesterdays Property Times and HT Estates (Huge spreads on luxury flats), it feels like 2008 never happened.

    Worst thing - even I felt like owning a piece of that luxury - and felt bad that my salary cannot support even 10% of the cost of those luxury apts. I mean 16 Crores is 4 million dollars !!!


    Property is on a 100 meter dash now - everybody is busy buying buying buying. Vatika plots sold in Sept for 20,000 psy (in Gurgaon) are now worth 35000 psy - and they were bookings, so people made 500% profits on booking amount - in 9 months.

    That could have been me - except I was busy wasting time in this forum !!! So that is 2 chances of a lifetime wasted in just one year - once in stocks and once in plots. Three if you include Yamuna Expressway plots.

    Reading this forum is deleterious to your financial health!

    (or is it capitulation phase - I dont know - thats the problem - one never knows!)

    All one can do is be sensible and safe.

    Anyway, there was an old internet forward which did th rounds in 2009 - perhaps on this very thread, I dont know - I found it on another blog and reproduce it here for those who came in late (cut and paste is in blue):

    "An old gem on the internet but still relevant..
    -------------------------------------
    http://tinyurl.com/25ea56x

    Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

    1. There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

    2. B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

    The net asset of the country now = 3 dollars.

    3. Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

    * A has a loan to C of 1 dollar, so his net asset is 1 dollar.
    * B sold his land and got 2 dollars, so his net asset is 2 dollars.
    * C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.

    Thus, the net asset of the country = 4 dollars.

    4. A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.

    1. B loaned 2 dollars to A. So his net asset is 2 dollars.
    2. C now has the 2 coins. His net asset is also 2 dollars.

    The net asset of the country = 5 dollars. A bubble is building up.

    5. B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

    1. As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.

    2. B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.

    3. C loaned 2 dollars to B, so his net asset is 2 dollars.

    The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.

    · Everybody has made money and everybody felt happy and prosperous.


    6. One day an evil wind blew, and an evil thought came to C’s mind. “Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.” A also thought the same way. Nobody wanted to buy land anymore.
    1. So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
    2. B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
    3. C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
    4. The net asset of the country = 3 dollars again.
    7. So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
    1. B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
    2. A owns the 2 coins, his net asset is 2 dollars.
    3. B is bankrupt, his net asset is 0 dollar. ( he lost everything )
    4. C got no choice but end up with a land worth only 1 dollar
    5. The net asset of the country = 3 dollars.

    ************ **End of the story; BUT ************ ********* ******

    There is however a redistribution of wealth.
    A is the winner, B is the loser, C is lucky that he is spared.

    A few points worth noting -

    1. When a bubble is building up, the debt of individuals to one another in a country is also building up.
    2. This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island’s own currency. Hence, there is no net loss.
    3. An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
    4. When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
    5. If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
    6. When the bubble was in the growing phase, everybody made money.
    7. If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
    8. As in the case of land, the above phenomenon applies to stocks as well.
    9. The actual worth of land or stocks depend largely on psychology"


    So went the internet forward.


    Now my speculation is this - if this island had paper currency as well - they would have printed as many dollars as they wanted and the price of this 1 dollar piece of land could have been 1000 dollars also !!!


    And if there were other nearby islands as well - we got a good description of world in 2008 onwards.

    By the way, I am positive that I have read this on this forum also, possibly on this very thread!!! Only, who will flick through 200 pages to find it !!!
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  • Does this apply to paper currency? It would if paper currency is backed by equivalent "tangible" item of equal worth, normally .
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  • Originally Posted by Venkytalks
    The actual worth of land or stocks depend largely on psychology


    This may be true for land, but stock goes on fundamentals most of the times.
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