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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • Fact is current RE buyers think that bad times are thing of past & builders think people have infinite incomes or ability to pay exorbitant loans. When either of the 2 or atleast 1 understands what members have said above, all things will fall in place. Just hope that RE bulls give up the lame excuse of Pune being close to Mumbai:o.

    Btw, 3 yrs ago, ever thought that now the salary in IT would be such that they will be exempted from income tax due to the 0% tax slab?
    The things happened like rocket without any supporting base, so it was bound to go for a toss!
    CommentQuote
  • Originally Posted by Munish Malhautra
    For all those who think that RE is not a worthwhile investment in the current scenario-

    What will u do in 2011?

    -If prices come down by 15% and rental go up by 15%

    -If prices remain at current level, rentals go up by 15%


    In either cases I would buy if price of the flat equals rent * 200, otherwise not.

    Simple answer isn't it?
    CommentQuote
  • Originally Posted by hitmady
    My company hired fresher devs & testers for 1L package with no medi-claim, insurance, food benefits. People with decent soft-skills are readily working. Few BPO workers had also applied as they see no long-term future in BPO industry.

    .


    so those are not "employees" of your company.. those must be contractors.. :)

    this was bound to happen as everyone is moving to computer field now.. every other guy in the neighborhood is doing Btech or BE in computers..


    in this IT race, girls are securing an advantage as they are moving to different fields like fashion designing, accounts, law, mass media, etc ..
    CommentQuote
  • Originally Posted by m_square
    so those are not "employees" of your company.. those must be contractors.. :)

    this was bound to happen as everyone is moving to computer field now.. every other guy in the neighborhood is doing Btech or BE in computers..


    Yes, Now everyone is doing BE, I know many guys who were unable to clear the BSc entrance exam test but doing BE from Bang, Pune or Ghaziabad. Quality is not up to the mark.
    CommentQuote
  • Originally Posted by Saurabh01
    Yes, Now everyone is doing BE, I know many guys who were unable to clear the BSc entrance exam test but doing BE from Bang, Pune or Ghaziabad. Quality is not up to the mark.

    And some private colleges where seats are sold in advance like Bharati Vidyapeeth are making grads with no understanding of the subject at all.:o

    Todays problem is demand is there for grads but 'employable' grads are very few in the market.
    CommentQuote
  • Realty body MCHI gets tough on builders

    Some good news for buyers, that too courtesy MCHI. Don't know whether PBAP/Credai is going to follow MCHI or not though.:bab (38):

    http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=10626&cat_id=3
    CommentQuote
  • Flat sales in under-construction projects being probed

    MUMBAI: Construction projects in the city and the state are once again under the scanner. The sales tax department has threatened to take action against many builders after having come across several cases of tax evasion.

    For each flat sold in an under-construction property, builders are liable to pay 1% of the agreement value of the sale as value-added tax (VAT). "Most builders have already collected this amount from the buyers. However, only a few have deposited it with us. Action will be taken against those found guilty." Sanjay Bhatia, commissioner of sales tax, said, adding that the department has shot off notices to all such builders.

    "We have sought information on sales of flats during the current fiscal. Information has also been sought on agreements entered into with the buyers, and whether the tax has been collected from them," Bhatia said.

    "Under the scheme, which was introduced at the start of the financial year, a firm could face an imprisonment of up to six months and penalised up to 100 times the tax amount for evasion. The tax is not applicable for apartments sold in completed residential or commercial projects. According to our calculations, we are looking at a projected collection of Rs 800 crore," an official said.

    The department has also sought relevant information on ongoing projects from various builders' associations, including the Maharashtra Chamber of Housing Industry (MCHI).

    http://timesofindia.indiatimes.com/city/mumbai/Flat-sales-in-under-construction-projects-being-probed/articleshow/6756190.cms

    --------------

    >> This means that despite taking additional amount from buyers under the name "TAX", builders are keeping this money for themselves . So, why pay taxes to builders?? Why not demand earlier paid receipt of tax from the builder?? This is what is called as PURE LOOT.
    CommentQuote
  • I had posted this and posting yet again, its relevant here.
    In past one 2 years, in my team of 25, some 7 mid and senior (5-10 years) people have left. And managers have hired 8 freshers instead of this 7 senior guys. so go the point. saving will be more than 60% salary of those 7 guys.

    This has happened across many teams here. In one team, where 10 mid,senior guys were working, now it has 4 senior guys and 8 freshers. The company is adding some headcount, but reducing overall cost by getting rid of costly people. My company is not one of the services giant, its a product based US MNC.

    Originally Posted by hitmady
    My company hired fresher devs & testers for 1L package with no medi-claim, insurance, food benefits. People with decent soft-skills are readily working. Few BPO workers had also applied as they see no long-term future in BPO industry.

    With recession coupled with currency-volatility and INR strengthening, future IT salaries seems under-strain.
    As per Infy chief (Gopal Krishnan), it can impact operating margin by 100-300 basis points and kill few export companies.

    On Bloomberg, recently read about IT-services companies which has started operations in locations such as Missouri, USA. Some has headcount of 1000 and charging comparable to Indian IT-service companies.

    All certainly pointing to low interest in Pune-RE and slow-down in it for years to comes.
    CommentQuote
  • US has identified IT services as the most important growth area for employment generation, the single biggest. US students chose subjects based on such projections and their guidance councillors.

    Expect slow re-training of US citizens in IT and slow shift of jobs from India to USA.

    Similarly, BPO operations will also shift back to USA as low paying jobs in other areas like supermarkets become scarce.

    A lot of females working part time in real estate and currently out of the job market will also shift to call centers.

    Nursing is another career option being promoted in USA, but doesnt affect India much
    CommentQuote
  • All this is false talk!

    Originally Posted by Venkytalks
    US has identified IT services as the most important growth area for employment generation, the single biggest. US students chose subjects based on such projections and their guidance councillors.

    Expect slow re-training of US citizens in IT and slow shift of jobs from India to USA.

    Similarly, BPO operations will also shift back to USA as low paying jobs in other areas like supermarkets become scarce.

    A lot of females working part time in real estate and currently out of the job market will also shift to call centers.

    Nursing is another career option being promoted in USA, but doesnt affect India much



    What you guys are saying is strange!

    Govt is saying IT sector is going to boom like anything and reach countless billions in next 5 years.

    Stock market is saying, notwithstanding the single-digit growth figures and low-double-digit margin figures, IT sector is underpriced at 20-40 times trailing P/E and jacking prices up, up and away.

    IT sector CEOs are saying they are launching for the moon shortly (first halt will be the "cloud"s) and there is no stopping them.

    Can they all be wrong? :D:D

    cheers
    CommentQuote
  • Govt to allow realtors to book revenues at different work stages

    See how Govt is helping builders to allow them to openly fudge their accounts .

    NEW DELHI: The government will drop a key rule from the new international accounting norms Indian companies have to follow from next year to permit real estate companies to book revenues as they build a property, allowing them to maintain a healthy profit and loss account.

    A recent meeting of the expert group of the ministry of corporate affairs favoured the existing ‘percentage completion method’, even as the country prepares to align its accounting practices with the globally recognised International Financial Reporting Standards (IFRS), which allows developers to book sales only when the project is complete.

    The current move, which was cleared by the National Advisory Committee on Accounting Standards (NACAS), is expected to bring some relief to the country’s real estate sector, which is yet to recover fully from the impact of the economic downturn.

    A change in accounting practices would have weakened the position of real estate firms while dealing with investors and lenders.


    Read complete story here:-

    http://economictimes.indiatimes.com/news/economy/policy/Govt-to-allow-realtors-to-book-revenues-at-different-work-stages/articleshow/6744494.cms
    CommentQuote
  • Dussera Greetings

    Dear friends,

    Greetings, on the occasion of Dassehra :).
    Attachments:
    CommentQuote
  • Originally Posted by aditi sharma
    I had posted this and posting yet again, its relevant here.
    In past one 2 years, in my team of 25, some 7 mid and senior (5-10 years) people have left. And managers have hired 8 freshers instead of this 7 senior guys. so go the point. saving will be more than 60% salary of those 7 guys.

    This has happened across many teams here. In one team, where 10 mid,senior guys were working, now it has 4 senior guys and 8 freshers. The company is adding some headcount, but reducing overall cost by getting rid of costly people. My company is not one of the services giant, its a product based US MNC.


    some 7 mid and senior (5-10 years) people have left: They left, not laid off. They must be getting a good 30-40% hike in some other company. So they moved. Simple :)
    CommentQuote
  • Originally Posted by aditi sharma
    I had posted this and posting yet again, its relevant here.
    In past one 2 years, in my team of 25, some 7 mid and senior (5-10 years) people have left. And managers have hired 8 freshers instead of this 7 senior guys. so go the point. saving will be more than 60% salary of those 7 guys.

    This has happened across many teams here. In one team, where 10 mid,senior guys were working, now it has 4 senior guys and 8 freshers. The company is adding some headcount, but reducing overall cost by getting rid of costly people. My company is not one of the services giant, its a product based US MNC.



    If mid & senior posion guys are leaving for better paying opportunities then it is good news.
    CommentQuote
  • Originally Posted by vivek111
    Depends on individual capacity....

    -If prices come down by 15% and rental go up by 15%
    If prices come down by 15 % & someone gets a raise (by switching/promotion/onsite trip etc) he/she would line up to buy,

    Based on my regular discussions with my friends/relatives I believe most of the people take the "buy" decision if they can afford it instead of thinking about the "true Value".


    Yes i agree to your true value point as a house(barring exceptions) is considered as a must have where as other investments are nice to have:)
    CommentQuote