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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  • Real estate: On shaky ground

    Shrinking sales volumes are also adding to the woes. Many ongoing projects are stuck midway, with buyers shying away because of exorbitant prices. This has hit the cash flows of companies. Some experts believe developers will have to reduce prices if they want to raise liquidity. "The residential market is not expected to revive unless prices correct," says Pranab Datta, Vice Chairman and Managing Director, Knight Frank (India), an independent global residential and commercial property consultancy.

    Most observers feel that heated markets like Mumbai and Delhi could see a correction of around 20 per cent over the next six months. Prices inching above the peak levels of 2007 in Mumbai and Delhi NCR has been a matter of concern. With sales volumes shrinking, developers will have to clear inventories and reduce prices as well. There is turmoil in some residential markets like Chennai and Gurgaon, notes Datta. "Volumes have come down due to higher prices," he says.

    Read complete story here:-

    Real estate: On shaky ground - Business Today - Business News
    CommentQuote
  • Planning to ‘invest’ in real estate? Think again

    By commonsensical valuation methods followed globally, Indian real estate sports nosebleed valuations. It is important to be aware of this if you want to ‘invest’ in real estate

    Property prices across India have run up a lot between 2003 to 2008, appreciating as much as even 400%+ during the said period.

    Some places have now cooled down, like Hyderabad due to the Telangana agitation and Bengaluru. Meaningful correction is yet to be seen in metros like Mumbai and Chennai, etc.

    Recently, a prospective buyer wanted to purchase a second-hand flat in Chennai for Rs1.2 crore. This flat was purchased for Rs30 lakh by the original buyer in 2005.

    The buyer's line of thinking is as the value has multiplied by 4 times in the past 5 years, he would buy now and sell it in 2016 for Rs4.8 crore! He is assuming an absolute return of 400% in the next five years, a CAGR (compounded annual growth rate) of around 32%.

    The annual rental yield for his Rs1.2 crore investment is only Rs.2.4 lakh or a mere 2% per annum.

    Recently, a client of mine wanted to purchase a property she is residing at for Rs65 lakh. The rent she is paying is only Rs9,000 a month. Even by investing in fixed deposits, she may get around 9.5% p.a. whereas by investing in this
    20-year-old flat, her yield (or saving) would only be 1.67% p.a.

    The 'House price to (annual) Rent' ratio in her case works out to 60 times. Going by international standards, if this ratio is above 20, then the cost of owning is considered higher than cost of renting.

    The generally accepted range is around 15. This was the ratio prevalent in the US, before the great housing bubble began. Considering the crash in the US housing market during the last three years, this ratio may even be lower now.

    This means, the rental yield in case of the above client should be at least 5% p.a and preferably 6.7% p.a. Again, this implies that the Rs65 lakh flat's fair price is actually between Rs16.2 lakh and Rs21.6 lakh.

    You can use this back-of-the-envelope calculation for arriving at the fair value of the property you are looking at.

    Though no ratio can be blindly applied, this is a good point to start with.

    Another pointer worth looking at is that the value of the property you are planning to buy on a loan should not be more than 3 years of your annual income.

    I feel that your home loan EMI as a part of your income (debt to income ratio) should not exceed 35% to 40% (maximum). Anything beyond this may put a huge strain on you especially in a rising interest rate scenario or any other contingency in life.

    Teaser loan rates at lower EMIs in initial years would do more harm than good. The debt to income ratio would get skewed after the euphoria of owning the house has evaporated.

    Applying the above three-rental yield, loan to annual income and debt to income ratio, the current real estate market looks very unreal to me.

    Home ownership is becoming beyond a dream of the common man. I'm not even referring to the poor or lower middle class. Even for the middle class or higher middle class, it is not about a dream home but dreaming about a home.

    The strange thing about the real estate market is that many a times the prices do not come down but markets simply become illiquid. No transaction happens but still the price on paper remains high.

    I can only hope that the real estate prices correct significantly. I believe that there is a powerful vested interest lobby which keeps the price artificially high.

    Robert Shiller, by tracking the US home prices data from 1890, has mentioned that in the longer run, property prices grew at an annualised return of around 3%, just keeping pace with inflation.

    This means the real rate of return in real estate, after adjusting for inflation, is nothing.

    Out of curiosity, I browsed to find out how much the S&P 500 index (equity) has given since 1890. It works out to 9.24%.

    This again means the real rate of return in stocks, after adjusting for inflation, is 6%+.

    This further strengthens my conviction; in the long run (even after I'm dead and gone) equities are capable of providing superior return than any other asset class and investing in equity is the best way to beat inflation.

    In India there are no broadly accepted transparent indices across various locations for real estate. The real estate market is not well regulated, like, say, the securities market.

    Black money, goondas and political clout play a significant role in this market.

    Maybe that's why the regulator has not so far allowed REITS (Real Estate Investment Trusts) in India, which would make it easier for even a common man to participate in the real estate market.

    You may not be able to buy a house but at least be able to own a portion of it, doors or roof or wall through REITS!

    In the current scenario, the only way to bring down the abnormal real estate prices is to opt for renting rather than owning a house.

    Though this idea may not sound pleasant to your ears, try giving it a serious thought.

    Maybe you can consider starting a movement against ownership. I would be glad to join the same, if you don't disqualify me for already owning a house!

    In a poorer country like Bangladesh, 90% of the houses are owner occupied. Whereas in a richer country like Switzerland, only 33% of the houses are owner occupied. This is not the latest data but at least should serve as a good pointer.

    Follow the Swiss!

    As I'm in the profession of reviewing people's financial health, I find that once I remove the value of self-occupied property, which is usually a loan under 20 years, loan, and gold jewellery, the net worth is very meagre even for high income people.

    People who talk about appreciation in property over a 20-year period do not take into account the interest they are paying on their long-term housing loan and other costs like taxes, periodical maintenance and repairs etc.

    Also the focus is on absolute returns and there is no clue about annualised returns.

    Once these are pointed out, I'm able to see a surprise on their face.

    As leverage (borrowing) is freely available, the next move is to start planning to buy another house!

    Housing bursts always lead to banking bursts, who are the providers of the much required leverage, both to home builders and buyers, which is also responsible for keeping the home prices high.

    Bankers are one tribe who can actually help in bringing down home prices.

    Is it in their interest to do it?



    Planning to ‘invest’ in real estate? Think again - Moneylife Personal Finance site and magazine
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  • America has already become a Banana Republic some time ago

    Notwithstanding what some Desis settled in America say, watch the following video and think how systemic the corruption in America has become.

    It has been common practice to show how Indians on the street are corrupt and therefore India is a most corrupt place. But in America the Congress is corrupt, the President himself is corrupt (allowing Wall Street to own them via contributions and tell them to make crooked laws itself so that they can be "legal" crooks! :)).

    The Video about how some of the biggest mortgage banks in America "create" lost documents to cover up their previous crokedness.

    YouTube - 60 Minutes - The Next Housing Shock (April 3, 2011)

    I instantly was reminded of a project in Africa where a similar situation arose. There too the exact same thing was done. Millions of documents were cooked up in record time. And that country surely is a Banana Republic!

    If Anna Hazare was in America, he would be so shocked he would have simply killed himself seeing the deep nature of corruption in America at all levels at the top!

    Sure, you don't get gyped by a dirt poor Auto driver for 10 bucks. But your country gets taken for Trillions of $$$ by the Banksters and Politicians! Which is better?

    While the corruption in India has not put anyone at risk, the corruption in America has put the whole world's financials at risk!

    I'm not defending corruption here. But we need to have a relative perspective and not go on judging India's corruption on an absolute scale as though the West is pure as the driven snow!

    cheers
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  • Originally Posted by wiseman

    I'm not defending corruption here. But we need to have a relative perspective and not go on judging India's corruption on an absolute scale as though the West is pure as the driven snow!
    cheers


    In many ways US is different than India. There top level people are involved in corruption & very few low level officials involve in it. Where as in India from lowest levels till highest level everyone in involved, yes we are united on one motive.

    People discuss about US bailout & mortgage fraud because there is news, various financial data is available. In India there is no news, no one revel the data. So no one have clue. In 2008, Indian govt bailout RE sector, the loans are rolling over year after years. There was a huge stimulus to lot of sectors & RBI did huge money printing which we can see in double digit inflation. India do not have unemployment data so there is nothing to track, the GDP figure keeps changing even after release. To avoid the parliamentary hassles, finance minister announce favorable policies after budget.

    RBI has given autocratic authority to credit bureau, you can not dispute/rectify the record; can not get info under RTI about credit bureau operation & policies.
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  • Mumbai residential prices set for fall of up to 35%

    After surpassing the peak valuations of 2008 by 20% 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,’ explained Dutt.'It is fairly certain that this correction phase will continue for the next three months and inevitably extend into the traditionally slower monsoon-cum-vacation period,’ Dutt added.


    However, analysts tracking the prices and unsold flat inventory levels said the fall would continue for a longer period and prices would remain stagnant for some time because the industry hiked prices in a hurry to make quick profits soon after revival of the sector.:bab (35)::bab (35)::bab (35):

    Mumbai residential prices set for fall of up to 35% | Asia | News
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  • Very apt post vatsal.
    The problem with home buyers is fear, greed with lack of financial knowledge. Even seniors citizens/parents gets carried away by RE.
    CommentQuote
  • Originally Posted by home123
    Indian Express :

    Property in Dubai cheaper than Mumbai

    A growing number of investors from India are showing interest in Dubai as they look to capitalise on 60 per cent savings per square foot in the Dubai property market, a Dubai-based real estate company has said.
    DAMAC Properties said in addition to the price disparity, Dubai's property market is becoming increasingly attractive to foreign investors due to the implementation of a raft of new regulations, such as the new Strata law, which favours home owners.
    "As these new tougher and more stringent regulations take hold, Indian investors are looking to take advantage of the plethora of investment opportunities that exist within the emirate's real estate market," it said in a statement.
    At an average price per square foot of USD 264 in Dubai, according to Colliers International, property is now 60 per cent less expensive than in central Mumbai, where the price per square foot is USD 664 according to Jones Lang LaSalle.



    DAMAC Properties Senior Vice-President Niall McLoughlin said: "At DAMAC Properties, we have seen a marked rise in interest across our Dubai portfolio from Indian investors; in January 2011 we had double-digit growth in enquiries on the same period last year.
    "Not only are we seeing a surge of interest from potential Investors from India but also from other emerging markets such as sub Sahara Africa and China who are looking for quality assets, at competitive prices.”
    According to McLoughlin, even though confidence was shaken following the global slowdown, the introduction of new regulations in Dubai gives property buyers more security over their investments. DAMAC Properties has also welcomed the return of liquidity into the mortgage market, which it cites as another major factor in the revival of the emirate's real estate sector.


    Dubai properties 60pc cheaper than Mumbai - Yahoo! India Finance

    Guys, read the comments posted below the article.
    Grass is not always green on other side, But is definitely greenest on PMC septic tank.
    CommentQuote
  • Originally Posted by khbarilal
    After surpassing the peak valuations of 2008 by 20% 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,’ explained Dutt.'It is fairly certain that this correction phase will continue for the next three months and inevitably extend into the traditionally slower monsoon-cum-vacation period,’ Dutt added.


    However, analysts tracking the prices and unsold flat inventory levels said the fall would continue for a longer period and prices would remain stagnant for some time because the industry hiked prices in a hurry to make quick profits soon after revival of the sector.:bab (35)::bab (35)::bab (35):

    Mumbai residential prices set for fall of up to 35% | Asia | News


    In last one year Waked prices has increased by 40-60%. I don't know anyone salary increased by the same way. But problem is, still people buying it. I don't know how they are getting this money.
    CommentQuote
  • Originally Posted by kirunOnly
    Dubai properties 60pc cheaper than Mumbai - Yahoo! India Finance

    Guys, read the comments posted below the article.
    Grass is not always green on other side, But is definitely greenest on PMC septic tank.


    I urge all people thinking to invest in Pune to rather invest in Dubai esp people from Mumbai. Follow slogan Mumbai Dubai bhai bhai :)
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  • US budget deal elusive, government shutdown looms

    US budget deal elusive, government shutdown looms - The Economic Times
    CommentQuote
  • Stay away from delayed projects

    Don’t let discounts trap you into a project that comes with multiple risks. Weigh the options before signing a deal.

    A good link weighing the pros & cons of such projects. Read complete article here:-

    http://www.livemint.com/2011/03/27203639/Stay-away-from-delayed-project.html
    CommentQuote
  • It has been nearly two years since this thread was started. The prices have significantly gone up since it was started. So probably builder and RE bulls have been right on the money.
    CommentQuote
  • Originally Posted by stoxxx
    It has been nearly two years since this thread was started. The prices have significantly gone up since it was started. So probably builder and RE bulls have been right on the money.


    The US housing market had 'significantly gone up' between 2004 and 2008 and see where it is now!!! You don't want a $300,000(1.4 Cr) 3 BHK sword hanging above your neck, do you?
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  • 2 reasons to hold up the inevitable

    Originally Posted by stoxxx
    It has been nearly two years since this thread was started. The prices have significantly gone up since it was started. So probably builder and RE bulls have been right on the money.



    You are factually correct. But unnatural things are happening today.

    First of all the RE bubble is being kept intact and even being blown bigger due to the immense bailouts and stimuli all over the world. India has its own version. If you remove the bailouts, you would have found instant recession, deep job losses and inevitably home prices wold have come down rather sharply. Many builders would have gone broke and things would have gone ugly.

    But this very bailout will make things worse in future since one day confidence of lenders would end and when borrowing is no longer possible (or too expensive), the crash will come with added intensity.

    Simply means that many people (who could have otherwise avoided pain by not being able to buy a home at the wrong time) would now not only have bought at very high prices with large debts but also have paid several years of very high interest (and very low principal payback in the initial years).

    When your equity in the home is 20% and pricex cme down 25% and you lose your income or ability to pay, you lose everything.

    And many people save 10, 15, 20 years to pay up the down payment. And they gamble with losing all of it Just because it has not come by so far does not mean it will not eventually.

    People must never forget that Real Estate is the largest Govt-sponsored g,ambling / ponzi game in the world. If the Govt did not configure laws to allow such massive borrowing by private individuals with no other independent collateral (you can't say the home is the collateral since its being borrowed against) and provide tax sops and create a belief that homes are actually worth what they are and will never go down, this kind of bubble would never have been blown. Why is Govt not giving tax sops to buy stocks on borrowed funds (after all its productive investments, right?). Its rigging and all rigged games ultimately blow up because too many people enter it at unsustainable levels and it collapses under its own weight.

    If the same rigging (buyer financial support) was done in stocks or bullion (low interest loans and tax breaks for interest payment), imagine where stock prices and gold prices would be by now!

    cheers
    CommentQuote
  • And many people save 10, 15, 20 years to pay up the down payment. And they gamble with losing all of it Just because it has not come by so far does not mean it will not eventually.

    Right on the bulls eye.
    Everyone today talk about investment - no one talk about savings or primary housing needs - wow -

    It was mucule power, then came the crude weapon, then more and more technologically advanced weapons to enslave other countries.

    Now the ultimate weapon is here - the money power -raise the expectations until they become too compelling after than fuel them with cheap credit and once people get used to it pull up the strings ;)
    What you get ? Slaves :D

    I m loving it

    Rohit
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