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 khbarilal

      The references given do not correspond to any analyst work but the fact of 2009 correction.
      In 2008 4thQ & 2009 2nd Q, I have seen a substantial correction based on own survey in Pune.


      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).

      Right khabrilal.
      In 2009 when I decided to cancel-booking due to seemingly high-price, the same builder offered another smaller flat in the project at 15% discount (i.e. at 2100psf v/s original booking rate 2450psf).
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  • Originally Posted by rohit_warren
    there is something called base effect - even if the inflation remains high after some time it would be accepted as the norm and rbi will start lowering the repo rates which would start a reverse trend in long there interest rates.

    This has happened in US and Japan and is bound to happen in every economy at some point of time.

    By 2030 I see interest rates on deposits somewhere around 4% in India

    rohit




    I do not think anyone can predict interest rates of 4% in 2030, there are a lot of macroeconomic factors to look into before making such a type of prediction.
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  • No one is offering for 20 years.
    Currently the best interest rates from good banks is 9.5% for 10 yrs from canara bank and 10% for 10 yrs from state bank of jaipur and bikaner

    Originally Posted by rohit_warren
    please please please give me the organisation which is paying 10% for 20 years - I would be happy to sell all my holdings everywhere and put all the cash there.

    rohit
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  • Originally Posted by khbarilal
    Looks like you are working in builder’s office OR real estate broker’s office.

    Are you trying to buy onion or potato? If you are expecting Mandai type of market with big shout, :bab (61): sorry Pune builders are much more sophisticated at least for price negotiation.


    Although this post is not addressed to me, I find it quote offensive. This is the problem I can see with some blind perma bears with their head in sands.

    They just get irrational, angry and illogical. Start making personal attacks. For last many years the market is against them but they wont listen to the market and make some populist comments like our politicians make against neighboring countries. That doesnt help the discussion in any way.
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  • Came across this article:
    'Credai to make code of conduct mandatory for members' in Business Standard.

    Didn't find any other thread to post this. :bab (38):

    Key points:
    1. Any member advertising their projects in the media should clearly mention about their affiliation with the apex body.
    2. They should also clearly mention the saleable area (which is the super-built area) and the carpet area in brochures.
    3. Credai would arrange for arbitration between two parties to avoid going to the court. Any member who was found not adhering to the code of conduct would be expelled from the body.
    4. a single-window mechanism was needed to cut down on the transaction costs by almost 30% which would in turn reduce the prices of the properties.

    Credai to make code of conduct mandatory for members

    Doesn't it sound like the rule breakers themselves are trying to make rules as per their convenience? :o
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  • Originally Posted by VishalPrabhakar
    A simple understanding which I have failed to understand. Maybe, my friends out here would be able to explain.

    Assuming I buy a 40L house (with the current crazy rates..) - I make a down payment of my hard earned 20% of the Flat cost = 10L.

    So now I need a loan of 30L.
    I take a loan from XYZ bank for 20yrs at an interest of 10% (which is more actually) and religiously keep paying my EMI for nest 20 yrs.

    i.e EMI = 28951
    Therefore, after 20 yrs I end up paying = (20 * 12) months * 28951 = 69.5L

    So basically I have ended up paying 69.5L to the bank (pls correct me, if my understanding is incorrect)

    SO my total house cost after 20yrs= 10L (Initial Down) + 70L + 5L (Donation to the govt. on Registration/Stamp/VAT/etc etc..) = 85L

    So yes, after 20 yrs I can proudly say that I bought the house for 40L and its not 1 crore or 90L...but I actually have ended up paying almost that much too...

    On the other hand, let me open a FD with my hard earned 10L...
    after 20 yrs, its anyways gonna be close to 25L or more...

    and the 28K that I pay to the bank every month, I keep saving them too....
    So what I end up with, is 70L + 5L ( minimum interest on 70L in 20yrs) + 25L = 1 crore...

    And, add to it, all of the above being Risk Free....

    Pls break my logic and prove me wrong. Would be more than happy to understand otherwise and try to undersyand, are these crazy prices really worth.

    Thanks,
    Vishal


    You are not taking into account what 1 Cr will be worth after 20 years. The rentals will jump to 60K to 1Lakh per month by that time (read inflation). You would be hardly able to afford that rent then even with your 1 Cr FD and assuming bank are still giving interest rate of 8% (you would say retire by that time). Buying a house then would be a real distant dream.
    On the other hand the EMI you are paying 28K now which feels painful will be hardly a issue 7 years down the line and neglegible by 15 years down the line. Added bonus you would be laughing as how cheap you bought house 15 years back :) . Sure some testing times will be there between now and then.
    You will find all the bears here on a new forum - which old age home is giving better deal . Sure some bear then also will say don't strech yourself as you hardly have any life left :) .

    I am not even discussing the scenarios of hyperinflation etc where worth of money falls much rapidly.
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  • Originally Posted by khbarilal
    Looks like you are working in builder’s office OR real estate broker’s office.

    Are you trying to buy onion or potato? If you are expecting Mandai type of market with big shout, sorry Pune builders are much more sophisticated at least for price negotiation.



    Originally Posted by stoxxx
    Although this post is not addressed to me, I find it quote offensive. This is the problem I can see with some blind perma bears with their head in sands.

    They just get irrational, angry and illogical. Start making personal attacks. For last many years the market is against them but they wont listen to the market and make some populist comments like our politicians make against neighboring countries. That doesnt help the discussion in any way.


    Khabarilal-das-bhai-bhau- yeah whatever....

    you are against rate hike, against builders & RE bulls.....keep on typing all lab lab la..........without any real comment or justificatoin of your own....just speculation...

    so, according to you whoever is against your thoughts they are all from builder group...

    why you think i am from builder group.....just because i questioned your post!!!!! i can also suspect you are from ISI willing to harm indian people's interest.....by spreading false news and propogenda....hahhaha....


    now what say?????
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  • Good Bears have maximum patience!

    Originally Posted by stoxxx
    Although this post is not addressed to me, I find it quote offensive. This is the problem I can see with some blind perma bears with their head in sands.

    They just get irrational, angry and illogical. Start making personal attacks. For last many years the market is against them but they wont listen to the market and make some populist comments like our politicians make against neighboring countries. That doesnt help the discussion in any way.



    Stoxxx,

    Since you have never been a bear, you do not have a true perspective of the basic characteristics of a bear.

    Markets climb in the form of going up a staircase and take longer to top out than most people expect. When they come down, they come down as though jumping out of the window (without parachute).

    Therefore a good bear has to have a lot of patience waiting and watching for all the false signals to end. When the final top signal comes up, he must decisively enter putting a lot of money into shorting the market when it looks most risky for him.

    Being patient as well as decisive, he cannot afford to be angry, frustrated, etc, etc :)

    In fact, its the bulls who often get angry and frustrated.

    They always have it much easier when markets go up. So they see their money increasing in value for a long period of time and they get sucked in putting more and more of their money. After some time they get so used to making easy money that they start thinking its their birthright to make money in the market.

    When the top comes and crash ensues, they first suffer surprise, then shock and then anger and frustration that their "birthright" accumulated over several years is being snatched away from them suddenly and so quickly they are frozen with fear and cannot act quickly enough to save their assets falling 50% to even 95% of value (recall RE shares falling by 90 - 95% in 2008).

    Everyone must read "Who Took My Cheese" to understand entitlement.

    All this is in light spirit!! :)

    cheers
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  • Just one point ...

    Originally Posted by compuwalah
    You are not taking into account what 1 Cr will be worth after 20 years. The rentals will jump to 60K to 1Lakh per month by that time (read inflation). You would be hardly able to afford that rent then even with your 1 Cr FD and assuming bank are still giving interest rate of 8% (you would say retire by that time). Buying a house then would be a real distant dream.
    I am not even discussing the scenarios of hyperinflation etc where worth of money falls much rapidly.


    Folks,

    We have been through all these calculations and arguments on both sides in great detail last year and before.

    Compu, just one point. In Hyper-inflationary situations land and homes crash in value and lose almost all value for the duration of the situation. Possibly because, while it has value in normal times, in hyper-inflationary times, its liquidity that becomes primary requirement and land/homes become most illiquid. You cannot wait 1 year to sell a home to buy food today. You could do that with Gold OR even a cigarette packet (which incidentally becomes very valuable in these times).

    This is the peculiarity of an asset one would normally think of as a solid asset.

    cheers
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  • Originally Posted by compuwalah
    You are not taking into account what 1 Cr will be worth after 20 years. The rentals will jump to 60K to 1Lakh per month by that time (read inflation). You would be hardly able to afford that rent then even with your 1 Cr FD and assuming bank are still giving interest rate of 8% (you would say retire by that time). Buying a house then would be a real distant dream.
    On the other hand the EMI you are paying 28K now which feels painful will be hardly a issue 7 years down the line and neglegible by 15 years down the line. Added bonus you would be laughing as how cheap you bought house 15 years back :) . Sure some testing times will be there between now and then.
    You will find all the bears here on a new forum - which old age home is giving better deal . Sure some bear then also will say don't strech yourself as you hardly have any life left :) .

    I am not even discussing the scenarios of hyperinflation etc where worth of money falls much rapidly.


    I have a little point to make ... In scenarios of high / hyper inflation, RE prices decline -- and rather fast. Read up the history of Weimar Germany to understand this.

    One should not automatically link abnormal inflation with RE price increase. One could be in a beautiful jam, where cost of living is shooting up due to high inflation + added burden of EMIs + static or declining RE values due to inflation + margin calls by funding institution ... and all this in the face of great economic uncertainty. by funding institution ... and all this in the face of great economic uncertainty.
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  • Originally Posted by khbarilal
    In 2009 recession, prices had dropped around 30-40% from 3rdQ of 2008 till 3rd Q-2009.


    Actually you are wrong.

    What happened was that builders who had launched projects at say 1 crore had overleveraged for land bank and were forced to sell BOOKINGS for 60-70 Lakhs (or free BMW).

    These projects were not yet constructed - this was pricing for a castle in the air.

    Never did it happen that someonebought a ready built flat for 1 crore and then sold for 70 Lakhs - that is what price drop means - that is what is happening in USA.

    Pricing for yet to be built - that can go down - did in 2008 IN MUMBAI< CHENNAI AND BANGALORE - not in Delhi - and it can go up - as we have seen in Mumbai and Delhi and Pune. This is speculative pricing.

    After all, this is pricing for something which is not existing yet - builder has manytricks up his sleeve - if he sells cheap, he can delay construction or build poorer quality to recoup cost.

    Holding for 20 years - every Delhi wala does it - he doesnt rent out because North Indians steal flats.

    Every Mumbai wala or South Cities rent out for what they can get - because it is safe. Lots of people have multiple investment flats which fetches some rental 2% or even less - real game is cornering a scarcity and selling only for massive gain.

    Wisey and Sanjana, good points on hyper-inflation and RE value falling paradoxically. USA and Germany in those periods saw falling RE price -as well as falling rents - if you could get someone to rent that is - most people could not get a tenant - those dependent on rental income also starved.

    Both Germany and USA (latter after initial tightening) indulged in massive money printing and loose monetary policy. I am among those who believe that the loose money policy made things worse rather than better.

    If these kind of times come to India, we are all totally screwed.

    But even in such scary times, you will do better if you own the roof over your head.

    Despite all these dislocations, Germany was the most efficient war machine in the world and USA was an economic power house which could ramp up war material production massively to defeat Germany.

    Do not under-estimate the productivity of white people - or over-estimate Indian productivity. We have a long way to go yet.

    Re: Indian inflation - we have never had hyper-inflation. Instead, we have traditionally run fairly high inflation economy. Under BJP we came down to 5% inflation and 5% rates - which are unusual in India.

    Many people believe that India has crossed a bridge and has more rate/inflation stability.

    But it is equally possible - especially given Congress misrule - that we are returning to the old high rate highinflation scenario seen under many Congress govts.

    If so, expect 10-12% inflation (for consumers) and 10-15% bank deposit rates and a return to the 1980s economy. This is not hyper-inflation - which destroys currencies - but high inflation - which destroys middle class. If this is the scenario which pans out - you need to own RE - at least own house. Other wise inflation will destroy you.
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  • MUTHOOT FINANCE

    Somebody from MUTHOOT FINANCE approached me and told they are offering FD for 11.5-12.5% for 1 year and 13% for 18 months or more.
    seems to me muthoot finance is planning to go for an IPO.

    has somebody invested in this FD??
    kindly share your views.
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  • Originally Posted by Venkytalks


    These projects were not yet constructed - this was pricing for a castle in the air.

    Never did it happen that someonebought a ready built flat for 1 crore and then sold for 70 Lakhs - that is what price drop means - that is what is happening in USA.

    Pricing for yet to be built - that can go down - did in 2008 IN MUMBAI< CHENNAI AND BANGALORE - not in Delhi - and it can go up - as we have seen in Mumbai and Delhi and Pune. This is speculative pricing.


    I bought a ready possession flat at rate of 2400 in balewadi (Apr 2009), the builder quoted 3200 when I saw the same flat in Mar 2009.

    It was not a castle in Air, as I got possession as soon as the loan was sanctioned (Jun 2009)
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  • Example of oversupply

    Please check out this link for the real meaning of oversupply.

    There are more homes than population!:o

    To make it worse, there is very poor economic outlook in the foreseeable future for many of these places.

    The link ...

    american-ghost-towns-21st-century-247wallst: Personal Finance News from Yahoo! Finance


    Btw, for anyone who is interested, Nicholas Cage - who first tried to sell his home in 2008 at $15.5 million as he was in financial trouble - has finally managed to sell it at $6.2 million which is a 60% discount to asking price.

    You might recognise him as many of his movies are playing on TV now-a-days; Gone in 60 seconds, Face Off, Snake Eyes, and a TV serial.

    cheers
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  • Originally Posted by sanav3
    I bought a ready possession flat at rate of 2400 in balewadi (Apr 2009), the builder quoted 3200 when I saw the same flat in Mar 2009.

    It was not a castle in Air, as I got possession as soon as the loan was sanctioned (Jun 2009)


    Good for you Sanav.

    I wish we could hear more such tales of good negotiation. April-May-June 2009 were the very best time for buying ready-almost ready flats
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