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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  • I was only pinpointing the MBA part ...

    Originally Posted by vatsalbajpai
    wiseman

    it is not a mistake if i expect them to be aware about economic reality in india, may be not as an MBA but as a qualified individual who needs to have a common sense ,some basic funda in economics, reading various newspaper and articles..........
    well i could not expect a auto driver to be aware about economic scenario in india ....if he is aware then it is a pleasant surprise...



    Folks,

    I was only trying to dispel the top MBA school myth. I believe that there are many, many people who do not go thru these institutions who are as savvy if not more.

    In fact, if you ask me, the roadside tea shop guy or panwala (who has been around a decade or two, OR the villager who farms and lives hand-to-mouth is probably far more sensitive and savvy to macro-economic issues (since they affect them much more severely) than the MBA executive who is mostly overpaid for what he does (mostly buggy s.oftware delivered or pushing mails from one manager to another thinking he is contributing something concrete to society :)) and is generally fairly out of touch with the real world (other than overpriced pubs, restaurants and other retail and entertainment joints where they throw around their hardly-earned money - pun intended) that, place them into a non-s.oftware job in (say) the manufacturing sector at half the pay or less, they would not be able to cope.

    Just a very prejudiced rant!!! :D

    I'm sure it will draw a lot of interesting comments!

    cheers

    BTW, I happen to have been all of the above - top MBA school, overpaid s.oftware executive. But thankfully, I never let it get to my head (other than being opiniated!) :D And earn all my livelihood for some time now in the real world outside of the s.oftware export sector ...
    CommentQuote
  • Originally Posted by wiseman
    Folks,

    I was only trying to dispel the top MBA school myth. I believe that there are many, many people who do not go thru these institutions who are as savvy if not more.

    In fact, if you ask me, the roadside tea shop guy or panwala (who has been around a decade or two, OR the villager who farms and lives hand-to-mouth is probably far more sensitive and savvy to macro-economic issues (since they affect them much more severely) than the MBA executive who is mostly overpaid for what he does (mostly buggy s.oftware delivered or pushing mails from one manager to another thinking he is contributing something concrete to society :)) and is generally fairly out of touch with the real world (other than overpriced pubs, restaurants and other retail and entertainment joints where they throw around their hardly-earned money - pun intended) that, place them into a non-s.oftware job in (say) the manufacturing sector at half the pay or less, they would not be able to cope.

    Just a very prejudiced rant!!! :D

    I'm sure it will draw a lot of interesting comments!

    cheers

    BTW, I happen to have been all of the above - top MBA school, overpaid s.oftware executive. But thankfully, I never let it get to my head (other than being opiniated!) :D And earn all my livelihood for some time now in the real world outside of the s.oftware export sector ...


    Wisey you nailed it :D
    CommentQuote
  • Originally Posted by wiseman
    Folks,

    I was only trying to dispel the top MBA school myth. I believe that there are many, many people who do not go thru these institutions who are as savvy if not more.

    In fact, if you ask me, the roadside tea shop guy or panwala (who has been around a decade or two, OR the villager who farms and lives hand-to-mouth is probably far more sensitive and savvy to macro-economic issues (since they affect them much more severely) than the MBA executive who is mostly overpaid for what he does (mostly buggy s.oftware delivered or pushing mails from one manager to another thinking he is contributing something concrete to society :)) and is generally fairly out of touch with the real world (other than overpriced pubs, restaurants and other retail and entertainment joints where they throw around their hardly-earned money - pun intended) that, place them into a non-s.oftware job in (say) the manufacturing sector at half the pay or less, they would not be able to cope.

    Just a very prejudiced rant!!! :D

    I'm sure it will draw a lot of interesting comments!

    cheers

    BTW, I happen to have been all of the above - top MBA school, overpaid s.oftware executive. But thankfully, I never let it get to my head (other than being opiniated!) :D And earn all my livelihood for some time now in the real world outside of the s.oftware export sector ...


    Don’t generalize it but accepting all the junk has been recruited by TCS, Wipro and Infy etc, those are not deserve even half of the package.
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  • No resale in noida extension flats

    Dear all,

    couple of days back myself and a very close relative of mine met with
    a very high ranking GDA official for some personal reasons, slowly the chat turned towards noida extension flats ,and then he was telling us that there is almost no resale in noida extension flats also he was skeptical about construction quality of some of the builders .in fact GDA is trying to sell lot of flats in its madhuban bapudham scheme with not much success.
    it seems to me premium in all the flats in NCR is disappearing.
    however ordinary investors will see it much later.
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  • There are no resales anywhere in NCR. Boom times are over, correction is around the corner. I expect by 2011 July there would be a 15% stock and RE correction (in NCR at least).
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  • RBI credit policy: Key rates up by 50 bps

    The RBI raised key rates for the ninth time since March 2010 by a larger-than-expected 50 bps. this will further lead to interest rate increase by state owned banks, and private banks.And, ultimately, leading to sentiment of the buyer for WAIT and WATCH for the property prices to correct.
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  • Damn!

    Here comes the correction - both stock and RE can look forward to 15% to 25% correction.

    India can look forward to 10% inflation (India is contrary - rate hikes actually CAUSE inflation - because it makes everything (bikes, homes, gold - everything cost is passed on) expensive and India always has supply side inflation only with everything in short supply). India can also look forward to 5% growth next year.

    This looks to be a mistake by RBI. 25 bp was more than enough. They have gone too far. Subba Rao never impressed me vs. YV Reddy.

    Bad bad bad
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  • Originally Posted by Venkytalks
    Damn!

    Here comes the correction - both stock and RE can look forward to 15% to 25% correction.

    India can look forward to 10% inflation (India is contrary - rate hikes actually CAUSE inflation - because it makes everything (bikes, homes, gold - everything cost is passed on) expensive and India always has supply side inflation only with everything in short supply). India can also look forward to 5% growth next year.

    This looks to be a mistake by RBI. 25 bp was more than enough. They have gone too far. Subba Rao never impressed me vs. YV Reddy.

    Bad bad bad

    I m loving it :) - don't expect the price correction in RE markets in affordable segment - it would be the high end segment that would bear the brent ;)

    enjoy the fall

    Rohit
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  • Originally Posted by Venkytalks
    Damn!

    Here comes the correction - both stock and RE can look forward to 15% to 25% correction.

    India can look forward to 10% inflation (India is contrary - rate hikes actually CAUSE inflation - because it makes everything (bikes, homes, gold - everything cost is passed on) expensive and India always has supply side inflation only with everything in short supply). India can also look forward to 5% growth next year.

    This looks to be a mistake by RBI. 25 bp was more than enough. They have gone too far. Subba Rao never impressed me vs. YV Reddy.

    Bad bad bad


    well venky,
    india does have some demand side inflation also...........
    else how could one has seen lakhs of applications for 15000 flats ......
    either there is a genuine need for lakhs of houses in delhi-NCR (which i doubt)or so many people are ready to play bigger fool game.

    regarding manufactured goods cost will not pass on fully to consumers some cost increase will have to be absorbed by the manufacturer as well.....thanks to the competition in consumer durables market.

    Also a 50bps rate hike was done keeping in mind ,the imminent fuel price hike after the elections,which will fuel the already high inflation to a new high.

    Actually this will be a good time for people who are in FD ,as they can lock in higher interest rates for 8-10 years .
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  • Originally Posted by vatsalbajpai
    well venky,
    india does have some demand side inflation also...........
    else how could one has seen lakhs of applications for 15000 flats ......
    either there is a genuine need for lakhs of houses in delhi-NCR (which i doubt)or so many people are ready to play bigger fool game.

    regarding manufactured goods cost will not pass on fully to consumers some cost increase will have to be absorbed by the manufacturer as well.....thanks to the competition in consumer durables market.

    Also a 50bps rate hike was done keeping in mind ,the imminent fuel price hike after the elections,which will fuel the already high inflation to a new high.

    Actually this will be a good time for people who are in FD ,as they can lock in higher interest rates for 8-10 years .


    not all the demand is genuine... i have few people who's relatives/parents are in high administrative posts and they have applied for these flats (and some have even received it too)... this segment is just an opportunistic segment to get yourself a flat since government is selling it cheaper..
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  • The recent hike by RBI is double whammy for RE;

    1.) Borrowing cost goes up for the flat buyer,
    2.) Borrowing cost goes up for the builder too.

    Those who have bought using over leverage will face foreclosures while builders holding power will reduce drastically.

    Now the Indian FM says that inflation is being planned to be kept below 6.5% by Mar 2012!! Earlier, the date was June 10....Sept 10....Mar 11 & now it is Mar 12. Seems like builders, the FM too is banking on PROPOSED figs.:D.

    Btw, in past 10 days, I received the calls from following builders & or their agents:-

    Kumar Properties,
    Sobha,
    Mittal Developers,
    Rohan,
    Mittal Builders

    As I was out of state & in roaming too (incoming calls getting charged) ;)...so kept conversation short. However, everyone was open for nego. with good discounts offered if purchased in projects who possession date in after 1.5-2 yrs from now, according to builder. And surprises me is they were trying to sell projects which I was never interested in.....Kumar was selling a project in Kondhwa, same with Sobha & Rohan for Bavdhan project & the one near Lohegaon:D. Hmmm, can you all smell something in this??
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  • Originally Posted by vatsalbajpai
    Actually this will be a good time for people who are in FD ,as they can lock in higher interest rates for 8-10 years .

    +1. It is now even better to make FD coz soon the FD rates will touch 10% mark :). Better to make FD, keep your money liquid, accumulate more cash, stay on rent with good savings & once RE market falls, jump in with max down-payment :).

    Man, if you observe closely, day by day, in current situation, cash is the king.
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  • Originally Posted by vatsalbajpai
    well venky,
    india does have some demand side inflation also...........
    else how could one has seen lakhs of applications for 15000 flats ......
    either there is a genuine need for lakhs of houses in delhi-NCR (which i doubt)or so many people are ready to play bigger fool game.


    People taking loan to apply in the DDA/GDA/Noida Authority and taking the premium. Don’t count it number of applications. Banks are making big money to provide the loan for such schemes specially in NCR.
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  • Originally Posted by patilbha
    LARGE SCALE DISTRESS OF BUILDERS-

    MCHI Property exhibition Mumbai- MMRDA Grounds- 14 to 17 April 2011
    MCHI Property online exhibition Mumbai- 14 to 30 April 2011
    MCHI Property exhibition Thane - 29 April 2011 to 2 May 2011

    See, builders are engaged in the race to sale the flats, existing inventory,existing stocks to clear..somebody said it as LARGE SCALE DISTRESS..happening due to short of finance, and declining sales volume.

    Same is the case with Pune,

    First DNA Prop Exhibi,
    Then Times Property Exhibi,
    Latest was Sakal Vastu exhibi.

    Now some more are planned in which the same old projects will be showcased which had FEW FLATS LEFT/SOLD OUT :D.

    Btw, did anyone visit the prop exhibis in Pune held in past 2 months?
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  • Home sales at record 2-year low

    With real estate prices rising to exorbitant heights, the realty market continues to remain stagnant as sales of apartments in the city and its adjoining areas recorded the lowest figures in the last two years.

    According to the report prepared by Liasas Foras, a leading real estate research firm, sales in the first three months (January-March) of this year dropped to 9,000 from 10,500 recorded in the months of October to December 2010 in the Mumbai Metropolitan (MMR) Region, which includes Mumbai, Thane, Navi Mumbai and Raigad.

    Speaking to the Hindustan Times, Pankaj Kapoor, CEO, Liasas Foras, blamed builders for playing a major role in the crises. “The builders have escalated realty prices to such high levels that buying has become unaffordable to the majority of the population,” he added. He said reduction in flat prices was inevitable in the coming days. “They will do that when their holding capacity gets exhausted,” Kapoor said.

    Another factor that has contributed to low sales is the home loan market, where banks have tightened lending norms and also hiked interest rates. “Obtaining a loan, especially after the tightening of rules, has now become a major hurdle for homebuyers,” said Naresh Chheda, managing director, Happy Home Group, a leading group in redevelopment projects in the city.

    He said liberal lending norms would improve the market and also bring significant benefits to both buyers and the state exchequer.

    Though builders agree about the low sales, they rule out any significant price cuts. “We operate according to market dynamics and in the current scenario almost everything, like land prices, material as well as taxes, have gone up substantially,” said Anand Gupta, secretary, Builders Association of India (BAI), the apex body of builders.

    He said price cuts would be barely 5-7% in some pockets across the city. Chheda attributes the poor sales to a large pool of homebuyers who are sitting on the fence. “They are waiting for prices to come down and are hence deferring buying,” Chheda said.

    Home sales at record 2-year low - Hindustan Times
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