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 harshalx
    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.


    So do u mean prices will go further up for some time and they they will crash??
    What exactly mena by not in bubble?
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  • Originally Posted by kothrud_pune
    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

    All has been hyped, RE, gol_d & stocks. IF one wants to buy something, better buy consumer durables & auto. These are only 2 to put money in.
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  • Originally Posted by kothrud_pune
    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

    I dont think the RBI is concerend about the stock markets or go_ld. Both these instruments are extremely well regulated -- the levereging is very well regulated as well. About 50-60% of the markets work in cash.

    Thr stock markets can only CRASH if the Indian "economy" has issues going forward, and I dont think thats going to happen.

    BANKS are the heart of any economic system -- and its important to control banks --exposure to Real Estate. This is exactly what RBI is doing.

    I seriously believe -- RBI and the Govt will take more steps to make sure that the Real Estate BUBBLE doesnt build up --- even if it does -- it HAPPENS through the GREED of Builders or Consumers --- and BANKS just stay out of it.
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  • Originally Posted by pcpune
    I dont think the RBI is concerend about the stock markets or go_ld. Both these instruments are extremely well regulated -- the levereging is very well regulated as well. About 50-60% of the markets work in cash.

    Thr stock markets can only CRASH if the Indian "economy" has issues going forward, and I dont think thats going to happen.

    BANKS are the heart of any economic system -- and its important to control banks --exposure to Real Estate. This is exactly what RBI is doing.

    I seriously believe -- RBI and the Govt will take more steps to make sure that the Real Estate BUBBLE doesnt build up --- even if it does -- it HAPPENS through the GREED of Builders or Consumers --- and BANKS just stay out of it.


    Not an expert in this matter....but market crashed 2 years back...many r saying it's a bubble...
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  • Central Banks always think they are in control ...

    Originally Posted by realacres
    All has been hyped, RE, gol_d & stocks. IF one wants to buy something, better buy consumer durables & auto. These are only 2 to put money in.



    Central Banks are always tweaking parameter in their control assuming that they actually control the economy. In reality, they are being reactive rather than proactive. The fact that, under most normal circumstances the markets balance themselves out also supports the belief that Central Banks actually control the way the economy moves forward ...

    Kothrud, the markets are always moving up, down or sideways. When its going up, the number of Greater Fools are large and so there is always a higher price to be got for any asset (stocks, land, RE, whatever). But there comes a point when this number dwindles and at some point there are more seller than buyers (when people's appetite for assets end). Then the Greatest Fools (the ones who bought last) are left holding the can and suffer in the following decline or crash.

    At this point, Central Banks and Govts find that they are not actually in control and markets simply find their level (like the crash from 21206 to 7597). The only thing is the Govt likes to take credit for the boom since it makes them look good (not that they had much to do with it :), and blame the opposition for the crash citing that it all started when the opposition was in power!!! :D

    As far as I can see, Stocks are well into a bubble (and pretty close, 2-3 months, to bursting). RE is also in a bubble but it may last longer as this market has its owne characteristics. G.old is DEFINITELY NOT in a bubble since a vast majority of people do not own it, let alone speculate madly in it.

    According to some, g.old can rise anywhere from $2500 to $10000 OR MORE, depending on how far the world's economies go down! Do you believe it?:)

    cheers
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  • Guys my sixth sense tells me something-
    Looks like we are heading for a gol-d scam along with stock markets scam soon.
    We just had property scam, rather properties scam.

    See all these things go hand in hand:D
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  • You may have got it accidentally right ...

    Originally Posted by Munish Malhautra
    Guys my sixth sense tells me something-
    Looks like we are heading for a gol-d scam along with stock markets scam soon.
    We just had property scam, rather properties scam.

    See all these things go hand in hand:D


    Everyone believes that the US has 8332 (or so) tons of in their reserves. But it steadfastly refuses a physical audit of these reserves. The only time an audit was permitted was decades ago when some congressmen were taken on a tour of Fort Knox and shown a room with stockpile from the outside. And Congressman Ron Paul is trying to force a bill to fully audit both the G.old as well as the FED and the Govt is fighting this tooth and nail. Why? Because, if there is all the g.old as believed, things will be fine. But, IF it is found that it has been secretly transfered/sold in the past, the $$$ will be toast and there may be a chatic scene globally.

    Here is a story which many conspiracy theorists believe could actually force price of g.old much higher when the s.cam is discovered ...

    **********************
    http://-quote.net/en/articles/fake-tungsten--bars.php

    This October, bankers in Hong Kong were in for a rude shock when they discovered some bars from the US to be actually plated tungsten i.e., fake bars. Acting fast, the Chinese officials found the perpetrators within hours. It seems that fake Tungsten blanks, between 1.3 and 1.5 million 400 oz, were manufactured in the US about fifteen years ago during the Clinton administration. Said to have been done by a very sophisticated refiner, 640,000 of these tungsten planks were plated and shifted to Fort Knox. The remaining also plated, but sold into the international market. (Fort Knox , as you may be aware, is the United States Bullion Depository, where the official reserves of the federal government are stored. This depository of about 4,603 tons (4 176 metric tonness) is the second highest depository in the US after the Federal Reserve Bank of New York's underground vault in Manhattan (5,000 metric tonness of ). Whoever pulled this one on the bars had connections inside the government, big banks and also a top-of-the-line fabrication facility.
    .......
    **********************

    Tunsten Alloy pretending to be G.old may increasingly become prevalent when g.old goes ever higher, demand shoots up and there is no physical metal to trade!

    Buy some g.old every month like an SIP.

    cheers
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  • Originally Posted by pcpune

    Thr stock markets can only CRASH if the Indian "economy" has issues going forward, and I dont think thats going to happen.

    .


    market doesnt move up or down because of economic activity

    market can crash in a single day but economy doesnt
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  • Originally Posted by simsim
    market doesnt move up or down because of economic activity

    market can crash in a single day but economy doesnt


    I DONT agree, specially after 2000. Even if the global markets dive -- the ET HEadline today --
    World in reverse gear, Indian markets in fifth gear
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  • Originally Posted by realacres
    All has been hyped, RE, gol_d & stocks. IF one wants to buy something, better buy consumer durables & auto. These are only 2 to put money in.

    You mean to buy consumer durables & auto as investment? Both depreciate instead of appreciating.. or you mean to say spend on them if you want to spend money somewhere?
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  • Originally Posted by deepak.patil
    You mean to buy consumer durables & auto as investment? Both depreciate instead of appreciating.. or you mean to say spend on them if you want to spend money somewhere?


    Real meant spending for better value. Pls follow below link to find out how value is drained in under-construction RE:
    https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/4411-oxygen-valley-b-k-chavan-builders-manjari-pune?p=248136#post248136
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  • I again advise "non-experienced" people in stock/go,ld to just to a SIP and forget where the "markets" are heading. MFs are the best instruments to date and SIP is really an excellent facility available to us.

    Make use of it, and dont think about where the markets are going.
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  • Originally Posted by deepak.patil
    You mean to buy consumer durables & auto as investment? Both depreciate instead of appreciating.. or you mean to say spend on them if you want to spend money somewhere?

    Originally Posted by hitmady
    Real meant spending for better value. Pls follow below link to find out how value is drained in under-construction RE:
    https://www.indianrealestateforum.com/forum/city-forums/pune-real-estate/4411-oxygen-valley-b-k-chavan-builders-manjari-pune?p=248136#post248136

    Deepak,
    I agree with what hitmady has said. It is more VFM to put money into these things than RE. Infact, even incase of RE, the flat depreciates in absence of boom. For investment purpose, start SIP in gol_d, silver + make some FDs. I have personally lost faith in stocks & MF in current times & won't put my money here for sure.
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  • Originally Posted by simsim
    market doesnt move up or down because of economic activity

    market can crash in a single day but economy doesnt

    True & it is even more true in case of Indian markets for the simple reason that all the upward movement is due to FIIs & not retail or domestic investors. If the FIIs pull out the money, it will be the Indian investors who will look dumb!!:o

    Never ever bet on growth out of foreign money in stock market. Foreign money is here coz markets abroad are not in good shape. Once they find better opportunity elsewhere, they will pull out, just in the way foreign money was pulled out from RE in case of REITs.
    Originally Posted by wiseman
    This October, bankers in Hong Kong were in for a rude shock when they discovered some bars from the US to be actually plated tungsten i.e., fake bars.

    Seems the FED is also on this forum taking ideas from Pune builders:D.
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  • From a well knows financial analysis firm ..

    --
    The number of advertisements and messages from builders offering to book apartments at a fraction of the cost has multiplied in the past few months. Eager to cash in on the rise in real estate prices, builders are trying their best to lock in buyers before a correction sets in. Profit hungry banks have done their bit in encouraging the builders' ploy. They are willing to fund 90-95% of a project with negligible contribution from the buyer.

    Mr Deepak Parekh, Chairman of HDFC, has come out strongly against a scheme offering booking against 10% down-payment on property value. Such schemes are being run by builders within days of acquiring the plot. Mr Parekh suggests that it is impossible for builders to get all approvals for the projects overnight. And that this is a ploy together by banks and builders to mislead the buyers. We could not have agreed more.

    The RBI too has taken note of the speculative interests of banks and warned them against taking in excessive risks. While most banks have an 85% loan to value policy, the recent attempts to sideline such policies has irked the central bank.

    Given the flood of hot money in Indian real estate and with more expected to come in after the Fed's third stimulus plan, risks in Indian real estate market are at an all time high. Investors hoping to gain from speculative bids in such markets would do well to take lessons from their US counterparts who have badly burnt their fingers
    --
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