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 asliarun
    Realacres, I agree with what you're saying, and in fact, was trying to say the same thing in a different way. In my opinion, real estates prices are artificially inflated, which I tried to prove by saying that rents have not increased proportionally. Most people are still fooled only because the up and down cycles are much longer in RE (~10 years, correct me if I'm wrong)

    Fine. However, most people are fooled also due to over-trusting the builders' words. Let me admit that after coming on such forums, I have learnt a lot from all the members here. If many people come on forums like these, atleast they will be forced to think twice before signing the dotted line.:)
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  • Originally Posted by tpshere
    which bank is/was lending 60-95lacks for 6-8 lacks gross?


    True, Bank lend almost 5 times of your gross yearly salary or 55-60 time gross monthly salary (thats almost 5 time gross yearly salary)...

    a person earning 6 lacs can not get loan more than 30 lacs, be it any bank....Even after seeing so many defaults from IT PPls now, banks are very cautious to lend IT ppls more than 50% of their Take home salary....

    Even a guy earning 6 lacs can not imagine to buy a house more than 25-30 lacs...I dont know how u thought abt 60 las:)
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  • This one is from The Economist
    Link: http://www.economist.com/businessfinance/displaystory.cfm?story_id=14573531&fsrc=rss

    America’s housing bust may be close to the global average but the declines in some countries are mind-boggling. Latvia, with a wrecked economy propped up by emergency IMF funding, saw an annual decline in house prices of nearly 60% to the end of the first quarter. During that period Estonia and the United Arab Emirates also saw collapses of nearly 40%. In Britain they fell around 20%.


    But despite the severity of the slide, house prices in several countries are still high by historical standards, according to The Economist’s, which covers a smaller sample of important countries than the IMF’s study.
    In Britain prices fell by around 11% in the year to the second quarter of this year but are still slightly higher than in the third quarter of 2003. In America the Case-Shiller index of national prices is back to where it was in the fourth quarter of 2000. And, despite the falls, the ratio of average prices to average incomes, a measure of the affordability of housing, is still nearly 20% above where it was in 2000, a few years into the house-price boom. In Britain, this measure of affordability is still nearly 60% above its level in 2000.

    All of this prompts the question of how much further prices have to fall. Are the slight rises of recent months a sign of broader recovery, or blips on the way to further pain. The IMF’s analysis of past housing cycles provides some clues. On average house prices in rich countries rise for around six years by around 50%, before falling for five years by 24%. But this time around, the boom was twice as long and prices rose by more than twice as much as during past upturns. The IMF argues that although house prices have already fallen by 20%-close to the historical average–“there could still be significant corrections to come”. This conclusion will not please those hoping for a sharp recovery.
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  • Rent Unlikely to go high

    Originally Posted by mahesh pune
    Your question is very valid. I amnot economist to answer in terms of figures. As per my understanding real estate prices are going high because perople are buying it as they can afford it. It is not purely based on requirement. Rent is low because pure requirement drived rent market. Again when rates will go beyond buying capacity people will prefer Renting it and Rent may go high.


    Even so everyone stops buying , still the rent are less likely to go high
    Reason : Availability
    Not every company is hiring in 1000's what earlier was the case and so supply is more. And rent can never exceed the monthly salary % component. While buying the house has crossed that.
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  • Consumers Equally Responsible for Unfinished Projects- NAREDCO

    Now look at the shameless builders; they are now blaming buyers for incomplete projects.

    ]http://www.indianrealtynews.com/real-estate-india/consumers-equally-responsible-for-unfinished-projects-naredco.html
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  • RE Delays & Suffering Of the buyers.

    ]http://epaper.indianexpress.com/IE/IEH/2009/10/03/Article//019/03_10_2009_019_010.jpg
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  • Housing: Where and what to buy.

    Refer to this article in Rediff.com called 'Housing:Where and what to buy'.

    http://business.rediff.com/slide-show/2009/oct/06/slide-show-1-housing-where-and-what-to-buy.htm

    Some highlights from the article.
    "Capital values in Wanowrie are now in the region of Rs 2,500-3,000 per sq. ft, around Rs 2,000-2,400 per sq. ft in Wakad and Rs 2,600-3,000 per sq. ft in Baner. In the more upmarket locations of Koregoan Park, Bund Garden Road and Kharadi, capital values are in the region of Rs 4,000-4,500 per sq. ft."

    "What to do: If you are planning to buy a house in Pune, it is advisable to wait for some time before finalising a deal. Even though prices are expected to remain stable in the short term, in most places, locations such as Wakad could see more price falls."
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  • Kharadi an upmarket area ?

    Originally Posted by MJHome

    In the more upmarket locations of Koregoan Park, Bund Garden Road and Kharadi, capital values are in the region of Rs 4,000-4,500 per sq. ft."
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  • Originally Posted by MJHome

    Some highlights from the article.
    "Capital values in Wanowrie are now in the region of Rs 2,500-3,000 per sq. ft, ."


    I never found these rates at Wanowrie. Lowest was 3300 and that too at the fag end of Wanowrie up the hill.
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  • Originally Posted by Navina
    I never found these rates at Wanowrie. Lowest was 3300 and that too at the fag end of Wanowrie up the hill.

    2500-2900/sq ft. You need to sit with the seller. Nothing is done on fone.
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  • Homes still out of reach, price fall a mirage

    ]http://economictimes.indiatimes.com/markets/real-estate/news-/Realty-developers-tall-claims-fail-to-impress-buyers/articleshow/5095684.cms

    Btw, few people are now canceling their bookings at Paranjapes Blueridge due to financial implications. In this process, they tend to loose INR 2.5L+the interest paid till date. Think about this.
    BR is charging INR 1L as penalty & one has to forego the SD+reg amount too.

    Btw, few people are now canceling their bookings at Paranjapes Blueridge due to financial implications. In this process, they tend to loose INR 2.5L+the interest paid till date. Think about this.
    BR is charging INR 1L as penalty & one has to forego the SD+reg amount too.
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  • Mumbai Pics

    Just for change, taking break from RE a bit, have a look at +ve sides of Mumbai. Nice pics.

    http://www.funonthenet.in/content/view/390/56/
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  • Originally Posted by realacres
    Just for change, taking break from RE a bit, have a look at +ve sides of Mumbai. Nice pics.

    ]http://www.funonthenet.in/content/view/390/56/

    Unbelievable pics. Mostly upmkt and new areas of Mumbai.

    Unbelievable pics. Mostly upmkt and new areas of Mumbai.

    Unbelievable pics. Mostly upmkt and new areas of Mumbai.

    Unbelievable pics. Mostly upmkt and new areas of Mumbai.
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  • A Saga Of Delays

    Very good article of delays of projects & builders apathy. What's more, flats priced at INR 4Cr are down to INR 79L, yet no buyers & hence no work. Sufferers:- Buyers who booked here. Though this news is from Delhi-NCR, it has striking similarities with Pune RE.

    Good info & eye opener for many.

    ]http://epaper.indianexpress.com/IE/IEH/2009/10/10/Article//019/10_10_2009_019_012.jpg
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  • Realtors feel debt vice tightening

    Good to see realtors getting hammered. Read on:-

    ]http://www.dnaindia.com/money/report_realtors-feel-debt-vice-tightening_1297852
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