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 realacres
    True, but atleast they were the first ones to owe & give up rather than wait for an enquiry. Also here are some facts:-

    The Adarsh soc was meant for Kargil martyrs kith & kin & was strictly meant for defence forces. This junk Ashok Chavan passed an ordinance making the soc open for civilians as well. It was then that netas jumped in:bab (45):. Had this change not been made, only martyrs family or those who served in Kargil would have been able to get a flat here.


    and now there is this "natak" of resignation... i really wonder why anyone gives a resignation to his party lead whereas the post is not a party post. it is a govt of maharashtra post, so if anyone needs to give a resignation letter it needs to go to 'Rajyapal'

    the moment someone offers to resign but actually submits it to a party leader instead of constitutional approver, people can safely assume that this person is guilty but still want to continue and hence has started some bargaining somewhere...

    the so called 'clean chits' then follow after large sums of money is transferred in swiss accounts.. :bab (34):
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  • Originally Posted by punerebuyer
    and now there is this "natak" of resignation... i really wonder why anyone gives a resignation to his party lead whereas the post is not a party post. it is a govt of maharashtra post, so if anyone needs to give a resignation letter it needs to go to 'Rajyapal'

    the moment someone offers to resign but actually submits it to a party leader instead of constitutional approver, people can safely assume that this person is guilty but still want to continue and hence has started some bargaining somewhere...

    the so called 'clean chits' then follow after large sums of money is transferred in swiss accounts.. :bab (34):

    PRB,

    Good to read this :). Seems everyone is now aware how dirty games are played.

    Btw, this Chavan chap is involved in land scam of 425 acres, which was given to 2 senior Cong leaders sons, one of which is Manikrao Thakre's son.
    Originally Posted by aditi sharma
    Read this somewhere :
    "Maharashtra is the new Bihar. Bihar 2.0. Scams after scams and the same faces."

    http://twitter.com/#!/fakebalthakre/status/29354326252

    The background image is very old, shows Udhav & Raj together!!
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  • Originally Posted by punerebuyer

    the so called 'clean chits' then follow after large sums of money is transferred in swiss accounts.. :bab (34):

    And guess who work hard for their life to fund this money trasnfers, mango man, who lives in cramped 2BHK for the cost of 50L, with no water and law to protect them and no pension at retirement.
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  • Originally Posted by aditi sharma
    Read this somewhere :
    "Maharashtra is the new Bihar. Bihar 2.0. Scams after scams and the same faces."

    http://twitter.com/#!/fakebalthakre/status/29354326252


    Irrespective, Pune and Mumbai, till date, have potential to employ many people, unlike Bihar.
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  • Originally Posted by hitmady
    It's time voters ask incumbent government this question, "When #90% of Mumbaikars can't afford decent flats (avg. price 1 crore), how come your ministers could afford 4 crores flat in Mumbai's Adarsh society?"


    As per today's DNA editorial, 99% of Mumbaiker can't afford flat in Mumbai due to Builder & Poltiician nexus. Mumbai's rates keeping, RE rates very-high in Pune and other metros as well.

    HDFC chairman Deepak-Parekh says "10-90 loans a bigger problem in reality.. it's time for the RBI to step in.."
    Follow DNA Money link: http://epaper.dnaindia.com/newsview.aspx?eddate=11/2/2010&pageno=11&edition=40&prntid=128042&bxid=30751590&pgno=11
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  • Originally Posted by hitmady
    As per today's DNA editorial, 99% of Mumbaiker can't afford flat in Mumbai due to Builder & Poltiician nexus. Mumbai's rates keeping, RE rates very-high in Pune and other metros as well.

    HDFC chairman Deepak-Parekh says "10-90 loans a bigger problem in reality.. it's time for the RBI to step in.."
    Follow DNA Money link: http://epaper.dnaindia.com/newsview.aspx?eddate=11/2/2010&pageno=11&edition=40&prntid=128042&bxid=30751590&pgno=11



    this is a good sign, permanent property exibhition has been set up ONLINE, real property exibhition happening every other month or every month, modular kitchen, foreign trips, SD reg free for booking, indicates what?:bab (45):

    i dont understand why builders simply dont follow MOFA in spirit and letter and bring up on transparency in their rating of projects.
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  • Originally Posted by hitmady
    As per today's DNA editorial, 99% of Mumbaiker can't afford flat in Mumbai due to Builder & Poltiician nexus. Mumbai's rates keeping, RE rates very-high in Pune and other metros as well.

    HDFC chairman Deepak-Parekh says "10-90 loans a bigger problem in reality.. it's time for the RBI to step in.."
    Follow DNA Money link: http://epaper.dnaindia.com/newsview.aspx?eddate=11/2/2010&pageno=11&edition=40&prntid=128042&bxid=30751590&pgno=11


    10/90 plans are something I have been waiting for till now. This is Step 1 for bubble. As I always maintained we are still not in a bubble.

    10/90 is the first step towards it. I want all the banks to sign up to it.
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  • Avoid 10-90, 15-85, 20-80.... loans

    Originally Posted by hitmady
    As per today's DNA editorial, 99% of Mumbaiker can't afford flat in Mumbai due to Builder & Poltiician nexus. Mumbai's rates keeping, RE rates very-high in Pune and other metros as well.

    HDFC chairman Deepak-Parekh says "10-90 loans a bigger problem in reality.. it's time for the RBI to step in.."
    Follow DNA Money link: http://epaper.dnaindia.com/newsview.aspx?eddate=11/2/2010&pageno=11&edition=40&prntid=128042&bxid=30751590&pgno=11

    Similar type of schemes are in Pune by Amit for Colori & Akcruti at Katraj-Kondwa rd. It is best to avoid such schemes :bab (66):.

    Here is how buyers fall in trap in such cases:-

    Builders state that buyers need to pay just 10% as downpayment, & the builder will pay EMIs till possession. This means, he uses all your money at cheaper rates than market rates & pays your LESS EMIs than his HEAVY EMIs. This indicates that either builder is unable to raise money from the market, he himself is short on funds or he can't afford the market rates for commercial use. This is a sign to get wary.

    Buyers loose this way:-

    >> In such schemes, the price/sq ft is generally more....so that builder can use more money at less interest rates,

    >> If one opts for teaser rates (which one shouldn't), the low EMIs benefit is taken by builder & by the time you start paying EMIs, you get existing interest rates,

    >> The builder generally ties up with some particular bank only from where you can borrow. So, better options from other banks can be lost,

    >> Most importantly, the loan is given to you by the bank & not to the builder & it is the buyer who is liable to pay EMIs & not the builder according to the agreement. So, if the builder defaults or delays the EMIs, your CIBIL ratings is going to fall + the penalties & rest of the consequences of being a defaulter is to be borne by you & not by the builder.

    >> It is also possible that builder takes the payment, pays EMIs for sometime & then defaults. In such case, not only you loose the money, but flat as well + pay EMIs for house which doesn't exists.

    Seeing all these factors, it is better to avoid such offers. It can be like ice-cream on top followed by left-over food at the bottom.
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  • Originally Posted by hitmady
    HDFC chairman Deepak-Parekh says "10-90 loans a bigger problem in reality.. it's time for the RBI to step in.."
    Follow DNA Money link: http://epaper.dnaindia.com/newsview.aspx?eddate=11/2/2010&pageno=11&edition=40&prntid=128042&bxid=30751590&pgno=11


    RBI has paid some heed to HDFC chairman's advice. It proposes to increase the standard asset provisioning by commercial banks for all such loans to 2 per cent.

    Besides, RBI also directed banks loans should not exceed 80 per cent of the value in order to secure assets of the lender in case of default.
    Follow ET link: http://economictimes.indiatimes.com/news/economy/indicators/RBI-asks-banks-to-keep-more-money-aside-for-teaser-rates/articleshow/6858837.cms
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  • News Flash SPICEJET: BOARD APPROVES ORDER OF 3O AIRCRAFT; DELIVERIES FROM 2011 Expand

    he Reserve Bank of India has tightened home loan norms by asking banks not to lend more than 80 per cent of the value of the house to borrowers. This means that new borrowers will have to shell out at least 20 per cent of the total value of the house from their pockets. The central bank has also increased the risk weight for housing loans above Rs. 75 lakh to 125 per cent. It implies that loans above Rs. 75 lakh will now become more expensive. (Read: RBI policy sends realty stock reeling; Sen ends flat)

    The RBI has also made it harder for banks to offer teaser rates where the interest rate is fixed for few years and later it turns into a floating rate. (Also read: RBI impact: EMIs not to go up immediately, say bankers)

    In a move to curb inflation, the central bank on Tuesday hiked the repo and reverse repo rates by 0.25 per cent, making loans costlier if banks decide to pass on the rate hike. (See: RBI's measures aimed at curbing property prices: Realtors)

    Accordingly, the short term lending rate or (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

    The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.


    Read more at: http://profit.ndtv.com/news/show/rbi-changes-rules-for-home-loans-117561?trendingnow&cp



    http://profit.ndtv.com/news/show/rbi-changes-rules-for-home-loans-117561?trendingnow
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  • RBI changes rules for home loans

    Some more news to what members have posted above:-
    NDTV Correspondent, November 2, 2010 (New Delhi)

    The Reserve Bank of India has tightened home loan norms by asking banks not to lend more than 80 per cent of the value of the house to borrowers. This means that new borrowers will have to shell out at least 20 per cent of the total value of the house from their pockets.

    The central bank has also increased the risk weight for housing loans above Rs. 75 lakh to 125 per cent. It implies that loans above Rs. 75 lakh will now become more expensive.

    The RBI has also made it harder for banks to offer teaser rates where the interest rate is fixed for few years and later it turns into a floating rate. In a move to curb inflation, the central bank on Tuesday hiked the repo and reverse repo rates by 0.25 per cent, making loans costlier if banks decide to pass on the rate hike.

    Accordingly, the short term lending rate or (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

    The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.
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  • Rising asset prices a concern: RBI

    Press Trust of India, October 30, 2010 (Mumbai)

    The Reserve Bank on Tuesday expressed concerns at galloping rise in prices of shares in stock markets, gol_d and property, but refrained from saying whether there is asset bubble in the economy.

    "Although the income levels of households and earnings of corporates in India have continued to rise, a sharp rise in asset prices in such a short time causes concern," RBI said in its second quarter monetary policy review.

    It said excessive global liquidity and higher market returns is bringing in more foreign capital into the country, which is leading the equity market close to its peak.

    Benchmark equity index Sen has already crossed 20,000 points, just over 100 points shorter than all time high of 21,207 it saw in January 2008.

    On housing and prices also, RBI noted: "Residential property prices in metropolitan cities have gone beyond the pre-crisis level. Gol_d prices are ruling at an all-time high level."

    Gol_d prices had touched a high of Rs. 20,120 per 10 grams on October 15. Currently the price of the yellow metal is Rs. 19,800 per 10 grams.

    The central bank said that huge capital inflows in the emerging market economies has resulted in appreciation in domestic currency and accordingly a surge in asset prices.

    To restrict the possibility of happening of an asset bubble, the RBI today asked the banks to set aside more money for offering housing loans.

    Expressing concern at rising asset prices, RBI capped housing loans to 80 per cent of the value of the property, and raised risk weight on loans of at least Rs. 75 lakh.

    The central bank upped risk weight on housing loans of Rs. 75 lakh and above to 125 per cent. Thus, banks will now have to keep more money aside for giving housing loans. The current weight ranges from 50-100 per cent.

    "Clearly RBI believes that there is a speculation going on in the property market and they want to curtail that. RBI has come heavily on the real estate sector. In larger cities, like Delhi, Mumbai, there is too much euphoria going on, but same is not true in case of Tier II cities.

    "In Delhi and Mumbai prices had dropped by 25 per cent from the peak during recession. Now, it has again risen back to pre-crisis level or even more," global property consultant Jones Lang LaSalle Meghraj (JLLM) Country Head Anuj Puri said.
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  • RBI move to hurt short-term growth: FM

    Press Trust of India, November 2, 2010 (New Delhi)

    Finance Minister Pranab Mukherjee on Tuesday admitted the RBI's move to hike short-term lending and borrowing rates will hurt growth in the near-term, but exuded confidence that economic expansion will gather pace later as a consequence.

    Mukherjee said the RBI took the decision at a difficult time, when the economy is still witnessing high prices and some slackening of industrial growth.

    "This tightening may have some negative impact on the growth rate, but I expect such an effect to be only a short one. In the medium to long-term, the changes announced by the RBI today should actually help the Indian economy do better in terms of growth," Mukherjee said in a statement in New Delhi.

    "Today is not such an easy time. The signals from the economy have been mixed. Industrial growth showed a slight slowing down in August. Inflation, while less than what it was some months ago, is still not in a zone where we can sit back," he added.

    Inflation moderated to 8.62 per cent in September, but is still above the comfort level of 5-6 per cent. Food inflation has also declined and stood at 13.75 per cent for the week ended October 16.

    Industrial growth, on the other hand, slowed to a 15- month low of 5.6 per cent in August. Recent output figures for the core sector also paint a dismal picture. Growth of the six core sector industries, which have over 26 per cent weight in the index of industrial production, fell to an 18-month low of 2.5 per cent in September.

    The Finance Minister said," I respect this (RBI) decision made in a difficult time. This will create the monetary tightening in the country without narrowing the LAF corridor."

    The RBI upped short term lending (repo) rate and borrowing (reverse repo) rates by 25 basis points each, thereby maintaining the difference between the two rates, known as the liquidity adjustment facility (LAF) corridor, unchanged at 1 per cent.
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  • I think the RBI is acknowledging that there is a build in real estate prices and we are close to a bubble situation. However, the "75 lacs" loan risk advantage will have minimal impact.

    Most banks are however wanting to increase rates and teaser rates are here only for 2-3 months more. Once we are on floating rate --9-10%, with 10% inflation, it doesnt really make any sense to buy.

    It should have been done for all loans above 20 lacs, and a subsidy should have been given for loans below 10 lacs.

    This way - people who buy above 20 lacs would have needed to pay a really high interest rate, making it un-attractive.
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  • Originally Posted by pcpune
    I think the RBI is acknowledging that there is a build in real estate prices and we are close to a bubble situation. However, the "75 lacs" loan risk advantage will have minimal impact.

    Most banks are however wanting to increase rates and teaser rates are here only for 2-3 months more. Once we are on floating rate --9-10%, with 10% inflation, it doesnt really make any sense to buy.

    It should have been done for all loans above 20 lacs, and a subsidy should have been given for loans below 10 lacs.

    This way - people who buy above 20 lacs would have needed to pay a really high interest rate, making it un-attractive.

    Hope u have same views for Stock market and as The Reserve Bank on Tuesday expressed concerns at galloping rise in prices of shares in stock markets, gol_d and property
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