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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  • In Delhi, commercial shops and offices are being sold as "investment" to salaried people already having own flat or two - the business plan is to sell an empty building with high overheads to suckers as "commercial property investment"

    Correlation to actual mall operation or retail operation are non-existent.

    Commercial property has become just another RE hype and dump scheme, for people already having flats and kothis.
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  • Ground Realty: Delhi, Mumbai, Pune

    Ground Realty: Delhi, Mumbai, Pune - The Economic Times

    DELHI

    A 2,587-sq-ft luxury apartment was sold in Sector 57, Gurgaon at a price of . 1.45 crore, all inclusive . This is a secondary sale transaction. This apartment is located on the eighth floor of one of the high-rise towers and the buyer had to pay . 100/sq ft as preferred-location charges, which is included in the price. The unit comes with two car parking spaces. This group housing project is built on around 14 acres of land area with ample open spaces. The apartment comes with amenities like 100% power backup for flats and common areas, security and door- facility, a well-equipped club and a swimming pool. The developer is also providing laminated wooden flooring in all the bedrooms and vitrified tiles in living and dining area.

    MUMBAI

    In a recent transaction, a 1,900-sq-ft 3-BHK apartment measuring around. located in Meher Apartments at Altamount Road was sold for . 10.9 crore which was inclusive of a covered car parking space. This was a resale transaction for the apartment located on the sixth floor of the building. Altamount Road, one of the most expensive streets of the world, is the most premium residential location of South Mumbai, boasting of famous properties like Antilla - Mukesh Ambani's famous 27-storied building. This area is also home to several Bollywood stars, Consulates and top state government officials . The current residential rates at Altamount Road range from . 50,000-75 ,000/sq ft, depending on the building, location , amenities provided, floor, view from the apartment and age of the building.

    PUNE

    Recently, a 3-BHK apartment with an area of around 1,482 sq ft located at Kunal Crimson project was sold for . 75 lakh, all inclusive. The possession of the property is due in 18 months. Kunal Crimson located at Aundh Annexe is easily accessible from Khadki Station , University Circle, Shivajinagar as well as Pimpri-Chinchwad . Presently, this project has an availability of 27 apartments of 2-1 /2 and 3-BHK configurations with saleable area varying between 1,382 sq ft and 1,482 sq ft. The residential price in the area ranges from . 3,500- 4,500/sq ft. The project offers amenities like a club house, gymnasium, jogging track and a children's play area . Aundh Annexe is an established area of Pune and commands a premium on account of good connectivity to the rest of the city.
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  • Mumbai Slowdown

    "The past six months have seen the return of negotiability in asking prices, and saw the return from a sellers' to a buyers' market. Both registration data and home loan disbursals are indicating a distinct slowdown. The number of apartments being sold in the first quarter of 2011 is considerably lower than in the corresponding period of 2010. Developers who were selling their entire projects in a few weeks are now taking months to sell their unsold stock," said Nair.

    'Mumbai's residential market facing slowdown' - The Times of India
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  • Without providing any transaction details, this is just a advertorial. In many cases, the time lag between booking & agreement execution takes around 6 months to 1 year. So without any transaction details, any one can make false claim.
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  • Originally Posted by Venkytalks
    In Delhi, commercial shops and offices are being sold as "investment" to salaried people already having own flat or two - the business plan is to sell an empty building with high overheads to suckers as "commercial property investment"

    Correlation to actual mall operation or retail operation are non-existent.

    Commercial property has become just another RE hype and dump scheme, for people already having flats and kothis.

    Dilli mai paise ke bhookh badti jaati hai har laakh ke saath - aur end mai kuch crore chale jaate hai kuch logo ke

    rohit
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  • Notices Issued To Developers

    Some of the well-known public sector banks including State Bank of India, Bank of Baroda, Bank of India and Indian Overseas Bank have served notices to several real estate companies to recover nearly Rs 20,000 crore of their exposure by March 2011. The banks are now making efforts to recover their real estate loans, which were restructured in the aftermath of global financial crisis in the year 2008. Some of the real estate companies which are currently witnessing low volume of business have however asked for further restructuring of these loans, a proposal which banks are generally not willing to endorse. Some banks have taken action under the SARFAESI Act, which empowers the banks to seize and sell assets in case of defaults to recover their dues.

    M Narendra, CMD, IOB confirmed that the bank has sent notices to some of the real estate firms.

    Nagesh Pydah, CMD, Oriental Bank of Commerce and RK Bakshi, executive director, Bank of Baroda, said efforts were being made to recover the loans to realty companies. A senior SBI official requesting anonymity said that the bank has taken action under the Sarfaesi Act which empowers the banks to seize and sell assets in case of defaults to recover their dues.

    The implication of this is that there could be a fall in prices, particularly in the commercial segment, as the developers would need to raise monies soon in order to pay up to the banks.
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  • realacres

    sending notices under SARFARESI ACT or tightening screws on RE sector
    would not necessarily means a sudden collapse is on the way.....

    if everything goes on like this then you may only see stagnation in the
    property prices while new properties are being launched at a much higher rate............

    longer the delay in crash ,bigger the bubble would become and more spectacular will be the crash ......

    however for crash to happen something extraordinary ( black swan event...??) need to happen in indian economy ,let us see what that would be...........but there will be one ............
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  • Originally Posted by rohit_warren
    Dilli mai paise ke bhookh badti jaati hai har laakh ke saath - aur end mai kuch crore chale jaate hai kuch logo ke

    rohit


    Dilli ki bhookh to haram ke paise ki bhookh hai - jis tarah se kamaega, usi tarah woh haram ka paisa ud jayega.

    As you say, its a musical chair, the smart will sell high and move on, the sucker will be left holding the bomb. Someone will pay at the end.

    BTW, Bombay is also a major den of corruption - every private sector contract and purchase involves major under the table money - every real estate deal is corrupt - every govt permission in Maharashtra is by corruption - to an extent which will completely dwarf the amounts involved in Delhi's corruption. Even Delhi's corruption is received from the "loose change" of Bombay's black money only.

    Corrupt people in Bombay have so much ill gotten wealth, they dont know what to do with it - bars, night clubs, escorts, foreign trips, s - people have run out of ways to blow up money and so end up buying "real estate investment".

    Common man (middle class) in Bombay on the other hand is extremely hard working - much more than in Delhi. In fact, the middle class of Bombay, Chennai and Bangalore basically sustain most of the weight of the whole of the country on their shoulders.

    Such a business environment is not sustainable - something has to give way sooner or later.
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  • i am following the forum from almost 18 months and lot of people including me had posted that rates are higher and not worth considering the infrastructure .

    and then i moved to GURGAON last month and suddenly realised what really means by gap between the infrastructure and price demanded.

    THEORY OF RELATIVITY, seems to be at work
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  • hporwal

    if you could pls elaborate it, then a lot of people outside NCR would also come to know about scenario of gurgaon as viewed from your eyes.
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  • hporwal

    - do you mean Gurgaon has no/pathetic infrastructure?

    - or do you mean it has better infrastructure than Pune?

    Both above statements are probably true
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  • Mumbai realty heads for more correction

    Real Estate prices in Mumbai are set to decline further in overheated markets as sales have fallen due to unaffordable pricing, brokers and market analysts said.

    Developers, so far holding on to their prices, have started offering discounts to woo buyers to mobilise fund inflows through sales as money flow from other channels have dried up.

    Residential property prices in Mumbai, the most expensive market in India, have already seen a correction of 20 per cent from the peak level and it is expected to decline further in the range of 15 to 25 per cent, said analysts.

    "After surpassing the peak valuations of 2008 by 20 per cent in 2010, Mumbai's residential property rates today are back on par with the 2008 benchmarks. This could be considered a correction due an increasingly urgent need for capital by the city's developers," said Sanjay Dutt, chief executive officer (CEO) (business), Jones Lang LaSalle India (JLLI).

    "For Mumbai, I am expecting a further correction of up to 35 per cent. There may be a case that you could see 25 per cent correction in the next two quarters and then prices would not appreciate for the next year or so," said Pankaj Kapur, CEO, Liases Foras, a real estate research firm.

    He said these land acquisitions were predominantly funded by non-banking financial companies (NBFCs) at 15 per cent plus interest rates in an already volatile real estate environment, where sales volumes had plummeted by close to 50 per cent.

    "Measures implemented by the Reserve Bank of India (RBI) to curb inflation further aggravated the pain as interest rates went up. Clear directions issued by financial institutions and the government led to a marked depletion of liquidity on the market and this put considerable pressure on the developers," Dutt said on the rationale behind the offer of initial soft schemes to woo buyers.

    He said in Mumbai prices have already dropped in Parel, Lower Parel, Mahalaxmi, Bandra East, Andheri East, Goreagon East, Mulund and Kurla. The overall sentiments of the market and the consistent rate of new project launches in Mumbai projects give a very clear indication of an impending oversupply by 2012 and a lot of developers in the most severely affected locations are currently open to closing sales at lower rates, he added.

    Mumbai realty heads for more correction : India: India Today
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  • My basic hometown is gurgaon, but i'm leaving in pune from last couple of years. You can't compare Gurgaon infrastructure to Pune's. New Gurgaon is beyond the imagination to people living in pune. Though life in pune is much better (calm and steady).

    So, for investment:bab (59): would recommend Gurgaon
    But for living think for pune/chandigarh :)(depending upon your job/family).
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  • Originally Posted by realacres
    "For Mumbai, I am expecting a further correction of up to 35 per cent. There may be a case that you could see 25 per cent correction in the next two quarters and then prices would not appreciate for the next year or so," said Pankaj Kapur, CEO, Liases Foras, a real estate research firm.

    It's hard to believe, will see. Usually the research firm makes some predictions and bite their nails when something goes the other way.
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  • Originally Posted by kirunOnly
    It's hard to believe, will see. Usually the research firm makes some predictions and bite their nails when something goes the other way.


    Its fair to come to the same conclusion of research firms about Mumbai rates when I see this irrational exuberance. Persons earning hardly 1L salary p.a and living in dilapidated parental-house think their house in far suburb is worth 1 Cr whereas persons earning million rs salary can't afford to buy a 2bhk within Mumbai limits :D
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