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 compuwalah
    Wheer did you saw this ? I have rather read different that there is no link between residency (or even work permit) and you buying property there.

    This topic related to Dubai RE, VISA is discussed at large in Yahoo. That's where it was appeared first. More than article, read the comments posted by yahoo user, you will come to know how messy is the situation and rights issue in Dubai. Sheikhs change the rules as they want which will favor only them.
    The basis question is what major industries Dubai have other than Honeymoon resorts for Celebrities ?
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  • Originally Posted by kirunOnly
    This topic related to Dubai RE, VISA is discussed at large in Yahoo. That's where it was appeared first. More than article, read the comments posted by yahoo user, you will come to know how messy is the situation and rights issue in Dubai. Sheikhs change the rules as they want which will favor only them.
    The basis question is what major industries Dubai have other than Honeymoon resorts for Celebrities ?

    provide link plz :-) my relative who has been living in dubai for years bought in pune; i dont know why but i mayu discuss it with him
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  • Originally Posted by khbarilal
    During the next two years the probability of the INR (Indian Rupee) to depreciate is the highest (about 50 per cent) as compared to an appreciation or a status quo scenario," Evalueserve said, adding that the depreciation could be in the range of around 20 per cent.

    Rupee could depreciate by 20% in two years: Report - The Economic Times

    The Indian macro, which was looking solid, has weakened right now. It is surprising that we didn’t see it coming but I think it was pretty obvious. The fact is that you are running a large fiscal deficit; I don’t know where the numbers will end up. Considering just the composition, it is difficult to fathom how it will improve given the fuel subsidy, the food security bill, there is so much more to happen. You have a revenue deficit within that, trade deficit, current account deficit, which all is possible when you have a high growing economy.

    Expecting 9% growth unrealistic, says KKR India - CNBC-TV18 -


    Best way to gain from the depreciation is through gold
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  • Indiareit in talks to sell Pune SEZ stake........

    The negotiations are progressing and a transaction agreement could be signed in a couple of months, said the sources, declininig to be identified as they are not authorised to speak to the media.

    The SEZ, Blue Ridge at Hinjewadi in Pune, is being developed by Paranjape Schemes (Construction). Indiareit has invested about 2.5 billion rupees in phases between 2006 and 2008, said one of the sources.


    Indiareit in talks to sell Pune SEZ stake for Rs 5 billion - The Economic Times
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  • Pune have 19% Vacant Unit.....

    "A price correction is imminent. How long can developers hold back... I think prices will correct by a maximum 15%," says B Niyogi, chief general manager, real estate and housing, State Bank of India , India's largest lender. Real estate research firm Liases Foras says approximately 471.9 million sq ft of residential stock, one-fifth the size of Chandigarh, is lying un-sold in the country's top six markets.

    For real estate firms, with bad memories of the 2008-09 slump, these numbers are scary. But they also illustrate what could go wrong in a highly price-sensitive industry hugely susceptible to the vagaries of consumer sentiment, interest rates and commodity price changes.

    Realtors grapple with huge unsold stock; rising prices & costlier loans hit buying plans - The Economic Times
    Attachments:
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  • Why real estate investments are getting riskier

    Must read :

    Why real estate investments are getting riskier - The Economic Times
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  • Enabling this forum for apps

    Hi Guys,

    I had posted a suggestion in the suggestions forum few days back but it seems very few people visit that thread. I am posting it here as this is my most favorite thread. What do you guys think about this?
    https://www.indianrealestateforum.com/forum/city-forums/more-cities-states/jaipur-real-estate/182-jaipur-will-the-heritage-city-sustain-the-investment-boom?p=116436#post116436
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  • India poised for $5 billion wave of PE exits from real estate: Nomura

    Originally Posted by khbarilal
    "A price correction is imminent. How long can developers hold back... I think prices will correct by a maximum 15%," says B Niyogi, chief general manager, real estate and housing, State Bank of India , India's largest lender. Real estate research firm Liases Foras says approximately 471.9 million sq ft of residential stock, one-fifth the size of Chandigarh, is lying un-sold in the country's top six markets.




    For real estate firms, with bad memories of the 2008-09 slump, these numbers are scary. But they also illustrate what could go wrong in a highly price-sensitive industry hugely susceptible to the vagaries of consumer sentiment, interest rates and commodity price changes.

    Realtors gr with huge unsold stock; rising prices & costlier loans hit buying plans - The Economic Times

    With investments maturing, pressure is mounting on fund managers to exit holdings as the Indian property sector has not convincingly shown profitable exits, said a fund manager at a U.S. bank, which has exposure to India's property sector.

    Commercial property prices in India have fallen this year as supply exceeds demand. Residential prices have been steadier in some cities while falling 10-20 per cent in others, said Surajit Pal, sector analyst at Elara Capital.

    Prices in India's key markets are expected to decline after rising last year as inventories pile up and rising interest rates deter buyers.

    Private lenders not ready to invest in Real Estate, buyers are postponing their decisions, leading to large volume of inventories in the real estate.Every symptom is of sure prices correction, in downward direction.
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  • Real estate headed for a significant correction

    :)

    Real estate headed for a significant correction - The Economic Times

    Developers who find themselves unable to sell built units cannot pay back loans and find it hard to raise capital for new projects. Sensible economics suggests that if they can't sell at high prices, they should cut rates and find buyers. But most builders would rather hold on, hoping for gullible buyers to buy dream homes at prices dreamt up by the sellers.

    Anecdotal evidence suggests that many builders are selling land holdings to finance loans, rather than cut prices. This too is good, because it will bring more land back into the market, creating further pressure for property prices to fall. For many years, India has not seen a property crash, so many people still believe in the phrase 'safe as houses.' But globally, property has been prone to long cycles of price appreciation and decline

    For salaried professionals , cash was never an option, so the easy money, low interest rate regime earlier was a good time to get cheap mortgages and buy homes. But with interest rates hardening , these people have become cautious about what prices they're willing to pay for real estate. This too is welcome: it'll force builders to build homes that buyers can afford, rather than try and peddle overpriced merchandise . All markets have gone through corrections, it's time real estate also got its reality check.
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  • Originally Posted by patilbha
    :)

    Real estate headed for a significant correction - The Economic Times

    Developers who find themselves unable to sell built units cannot pay back loans and find it hard to raise capital for new projects. Sensible economics suggests that if they can't sell at high prices, they should cut rates and find buyers. But most builders would rather hold on, hoping for gullible buyers to buy dream homes at prices dreamt up by the sellers.

    Anecdotal evidence suggests that many builders are selling land holdings to finance loans, rather than cut prices. This too is good, because it will bring more land back into the market, creating further pressure for property prices to fall. For many years, India has not seen a property crash, so many people still believe in the phrase 'safe as houses.' But globally, property has been prone to long cycles of price appreciation and decline

    For salaried professionals , cash was never an option, so the easy money, low interest rate regime earlier was a good time to get cheap mortgages and buy homes. But with interest rates hardening , these people have become cautious about what prices they're willing to pay for real estate. This too is welcome: it'll force builders to build homes that buyers can afford, rather than try and peddle overpriced merchandise . All markets have gone through corrections, it's time real estate also got its reality check.


    Kuch hone wala nahi hai.........likh lo.....
    Prices will remain the same, wont reduce.....
    and next quater onwards will again go high...
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  • Inflation untamed: RBI hints at more monetary tightening

    Originally Posted by rajtjrll
    Kuch hone wala nahi hai.........likh lo.....
    Prices will remain the same, wont reduce.....
    and next quater onwards will again go high...


    Inflation untamed: RBI hints at more monetary tightening - Indian Express

    Please, prepare for few more interest rates hike in next few days..

    Troubles increasing for builders...
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  • Originally Posted by patilbha
    Inflation untamed: RBI hints at more monetary tightening - Indian Express

    Please, prepare for few more interest rates hike in next few days..

    Troubles increasing for builders...

    I think in this whole mess of high inflation, high rates with ltl correction and high interest rates, only buyers will suffer. Even if correction occurs, buyer will shell out equal or more money on his EMI + Monthly expense and even loose his saving.
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  • Originally Posted by patilbha
    Inflation untamed: RBI hints at more monetary tightening - Indian Express

    Please, prepare for few more interest rates hike in next few days..

    Troubles increasing for builders...


    So as for buyers.........
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  • Originally Posted by rajtjrll
    So as for buyers.........

    Buyers will be affected only if they took loan to buy property at jacked up rates. Hence, the buyers with a loan will be affected, not ones who are PROPOSED buyers!! Higher loan interest would mean more withdrawals from the buyers' end from property market, which will put more pressure on the RE market as there will be even less sales.

    Man, just see the rise in home loan NPAs in SBI. The loan disbursement has fallen by 17% in just a quarter. Aren't you getting any signals from it??
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  • Builders bleed with expensive loans

    Published: Tuesday, May 17, 2011, 0:48 IST
    By Kishore Rathod | Place: Mumbai
    3dsyndication

    Mumbai’s cash-strapped developers are raising loans from Private Equity (PE) investors and individual lenders at interest rates as high as 36% per annum to stay afloat.

    Despite this, developers will not be dropping their rates as it would be the beginning of a downslide. “If the consumer decides to hold on for the prices to fall further, the builders would bleed beyond redemption. The builders are holding on to the prices but it’s a question of who blinks first,” said an industry observer.

    The high rate of interest apart, the terms of the loans are pinching the developers. “The high net worth money-lenders are not only deducting the interest component upfront, but also drastically re-valuing the under-construction properties they are keeping as guarantee for the loans,” says a finance-broker who spees in real-estate deals. He added that barring a handful of cash-rich developers who weren’t affected by the rebound in 2009, most builders are facing a severe funds crunch. This has resulted in disrupted payment schedules.

    The builders are also sourcing funds to meet the ‘extra’ expenses involved in real-estate projects, as institutions give funding only for construction costs.

    “60% of the project cost goes towards taxes:D:D,” revealed Kruti Jain, director, Kumar Builders, adding that since real-estate doesn’t enjoy industry status, it does not have access to low-cost funds.

    Many developers went overboard with their expansion plans during the bounce-back after the slump in 2008, and those loans taken for 18-24 months are now due. “With the cash flow drying up, the builders are now choking. The worst affected are large townships, thanks to uncertainty due to FSI and the regulatory environment,” says RK Narayan, Director, Infinite India Investment Management.

    Even the foreign investments have reduced to a trickle as interest rates have shot up and emerging markets are no longer attractive for foreign investors. “The PE investors from abroad came with their cheque books four years back and many of them did not even get their principal amount back,” said Parry Singh, MD, Red Fort Capital, a PE firm that spees in real-estate sector.
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