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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  • PMC should keep posting number of registerations in respective areas every month. Only then can there be some real number. btw during my househunt I observed that rates by builders r much less than resales of investor flats...if builder quotes 47-48lakh, investor says 37-38 lakhs (negotiable)
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  • Originally Posted by puser
    PMC should keep posting number of registerations in respective areas every month. Only then can there be some real number. btw during my househunt I observed that rates by builders r much less than resales of investor flats...if builder quotes 47-48lakh, investor says 37-38 lakhs (negotiable)


    Better to buy a re-sale, not just for the price difference, society would be ready and see the problems live, before you buy.
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  • The fund tap at banks is closing for realtors

    Ashutosh Kumar New Delhi
    Dec 17, 2010,Fri

    Real estate developers are unlikely to get funds easily from banks, even for refinancing debt.:)
    "Banks will insist on repayment of loans. Nobody will go for rollovers because of what has happened," said a banker who did not wish to be named, alluding to high property prices and shady accounting and financing practices in the sector.
    At State Bank of India, project viability is being scrutinised more stringently than before. "Now people are examining projects very carefully. That said, if someone is fulfilling, say 70-75% of our requirement, we could show some flexibility," said a senior SBI official.
    S Sridhar, chairman and managing director of Central Bank of India, said project monitoring will be the key to funding future real estate projects.
    "At present we have a 7% exposure to real estate and we are doing away with corporate loans. We are providing only project-specific loans that too we are monitoring them tightly. Such vigilance is necessary because diversion of funds has taken place," said Sridhar.

    "The Reserve Bank of India is watching the banks. So if a developer has to repay, he will have to go to other sources, such as private equity, which charge much higher rates, or alternatively he has to reduce the prices of property to generate money. We will see the impact of liquidity crunch from April when prices will go down," the unnamed banker said.
    Renu Sud, managing director, HDFC said the basic concern is right-pricing in the sector. Right-pricing of the real estate projects is also likely to emerge as the key deciding factor in the funding of projects, said another banker. “So developers need to take a call on that.”
    "That is what the developers must understand," she said.

    Source:- 3dsyndication
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  • WikiLeaks unplugs cables from India, Sonia and Rahul Gandhi face heat

    The rotten-head moron, Raul alias Rahul supports Pak based attitude towards terrorism & states that local right wing orgs are bigger thread to India than Pak based terrorist orgs like LeT.

    WikiLeaks unplugs cables from India, Sonia and Rahul Gandhi face heat - India - DNA
    Attachments:
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  • COINCIDENCE

    Originally Posted by realacres
    Here is the chart which shows the debt of builders & the amount they plan to raise by IPOs. You will be surprised that they want to repay the debt on basis of IPOs itself.


    The RBI, in its credit policy last week, has made 48,000/- crore additional liquidity available to banks. RE companies' repayments of around 15,000/- crores are also falling due in Q 4. Hmmm, how convinient. Is the RBI really serious about controlling inflation and RE bubbles? Doubtful, very doubtful.
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  • Agree. I used this logic to compute potential overpricing long ago

    Originally Posted by RAJESHP

    As I said earlier if 50L flat fetches 25K rent I would buy it today. But if fetches only 12K I only willing to pay 25L for it.


    I used this very logic to compute that intrinsic price of a house can go all the way down from 1C to 24 lakhs based on rental yield on a long term mean basis.

    But for this to happen there has to be one of two things happening ...

    - A major catastrophic event like a systemic financial system failure OR

    - A long term declining trend in profitability or sustainability in a business sector that brings down real wages over a long period, which, in turn will bring down prices to intrinsic value via stagnating prices for long periods of time

    cheers
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  • Originally Posted by wiseman
    I used this very logic to compute that intrinsic price of a house can go all the way down from 1C to 24 lakhs based on rental yield on a long term mean basis.

    But for this to happen there has to be one of two things happening ...

    - A major catastrophic event like a systemic financial system failure OR

    - A long term declining trend in profitability or sustainability in a business sector that brings down real wages over a long period, which, in turn will bring down prices to intrinsic value via stagnating prices for long periods of time

    cheers

    Sigh. Here we go again. .. catastrophe ...

    'Per capita income can double in 9 yrs at present growth rate' - The Economic Times

    If price of RE sustain (no need to even rise) for 3 more years, its no way going southwards. If above growth rate sustain (even drop 1 to 2 point), IMO the value of 50 L today will be worth 25 L in 5-7 years (fear it may be earlier).
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  • Cant believe, I agree here with you, Mr Diwali

    Originally Posted by compuwalah
    If price of RE sustain (no need to even rise) for 3 more years, its no way going southwards.


    Agreed, if price even stagnates for next 3 yrs, I do not see prices going south there after.

    But big question is if this price stagnation for 3 yrs possible when there are many investors in Pune market.

    Considering most of investors entered the market in 2007, prices not much increased from 2008 onwards, these overly optimistic investors would eventually realize their investment is not yielding.

    But they will continue with their social service with cheap rental right? LOL :D:D:D

    Either rents rise or price falls in next 3 yrs. Choose your pick.
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  • I have already observed rent rise in urban villages and DDA flats near where I live in Delhi.

    Rent for basic minimum housing went from Rs. 5000 to Rs.11000 during 2001 to 2008 period. From 2008 to 2010 currently it is now Rs. 13000 per month, thanks to metro.

    By 2014/2015, I expect Rs. 20,000 per month for basic minimum rent for very small 2BHK where I live (heart of South Delhi).

    Let us see how this prediction fares.
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  • Originally Posted by Venkytalks
    I have already observed rent rise in urban villages and DDA flats near where I live in Delhi.

    Rent for basic minimum housing went from Rs. 5000 to Rs.11000 during 2001 to 2008 period. From 2008 to 2010 currently it is now Rs. 13000 per month, thanks to metro.

    By 2014/2015, I expect Rs. 20,000 per month for basic minimum rent for very small 2BHK where I live (heart of South Delhi).

    Let us see how this prediction fares.



    Not the case with Pune. Rents are same from 2007/8. I see rents going down in Pune. First >5 yrs flat will be available for less rent and others will follow soon.
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  • 43% residential sales in city flagged artificial: report

    This is what many people state here & now it is official. The builders' sales figs. are fudged. An excellent article from Indian Express.

    Some important point mentioned are:-

    >> In what could possibly be seen as signs of a realty market teetering on its edge, a recent research report shows that as much as 43 per cent of the residential sales in Mumbai has been flagged as “artificial”.

    >> Of the total Rs 8375 crore that was supposedly generated from residential sales in Mumbai in July-September 2010, what remains after excluding these flagged projects is merely Rs 4774 crore.

    >> “There is no progress in the construction work on ground, none of the adjoining projects are selling nor are any other projects in the rest of the market. So when some projects, especially by the big players, still continue to claim that majority of their stocks have been sold out, it is very hard to believe,” said Pankaj Kapoor, CEO of Liases Foras. He says at least a 30 per cent correction is required to reduce the disconnect between the local demographics and the new residential projects in Mumbai’s over-heated property market.

    >> In some areas, the unsold flats are as high as 50%,

    >> Of the total Rs 8,375 crore that was supposedly generated from residential sales in Mumbai in July-September 2010 what remains after excluding these flagged projects is merely Rs 4,774 crore.

    For complete story, read here:-

    43% residential sales in city flagged artificial: report
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  • One fellas loss is another's profit :)

    PEs bet big on realty as cos run short of capital - The Economic Times


    Smart PEs have some money making oppurtunity here.
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  • Cash crunch hits Indian banking system

    Cash crunch hits Indian banking system - The Times of India
    EW DELHI: Year 2010 is proving to be a year of fund crunch for the Indian banking system.

    If use of Reserve Bank of India's overnight funding window is an indicator of things, Monday saw banks use the repo route to raise a record Rs 1.59 lakh crore.

    The high repo borrowings were despite the central bank announcing measures to inject Rs 48,000 crore into the system last Thursday.

    While the cash position might be tight, bankers are not losing sleep yet. Probably, reflecting the sentiment, interest rate in the call money market -- which is an overnight market used by banks to lend or borrow from other banks -- reached a high of 7%.

    RBI's move to lower the minimum holding level of government securities, referred to as the statutory liquidity ratio (SLR), has provided some comfort to the market. Compared to the new floor of 24%, banks have significantly higher surplus holdings of government securities.




    With growth in bank deposits failing to keep pace with the flow of loans, the pressure has only intensified to make the cash position in 2010 tighter than 2008, the year the financial crisis hit the world.
    ...................................
    ...................................

    Is it going to effect in the next financial year?
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  • Record Breaking Mumbai Land Deals!!!

    Here is link for some of the record breaking Land deals in Mumbai...If Builders are buying land at such a HIGH prices then how come prices will come down...

    Borosil sells 18 acre for Rs 830 cr - The Economic Times
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  • Originally Posted by ash7979
    Here is link for some of the record breaking Land deals in Mumbai...If Builders are buying land at such a HIGH prices then how come prices will come down...

    Borosil sells 18 acre for Rs 830 cr - The Economic Times

    Man, this is almost 5 months old news/link (pls check date....hey not that date:D). Situation has changed a lot in this quarter.
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