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 rambarve3

    Welcome to www.Janata Party.org

    I think when Sonia Gandhi will be arrest that day will consider historic day of india on corruption front.
    I am sure congress will not allow to happen that. When lokpal bill activated then if somebody files cases against Sonia then congress will try hard to save Sonia.
    Kanimozhi arrest helped congress to divide DMK party.

    :bab (29)::bab (28)::bab (3)::bab (30):
    :bab (29)::bab (28)::bab (3)::bab (30):
    :bab (29)::bab (28)::bab (3)::bab (30):
    :bab (29)::bab (28)::bab (3)::bab (30):
    CommentQuote
  • Inventory Mis-management

    The healthy sign in RE is when the inventory is for 8-9 months. In cities like Pune, it is 23 months, for Mumbai, it is over 37 months!! The price hikes have been done by the builders despite this inventory + 55% drop in sales in past quarter. The more the delay, the greater will be the pain for RE when prices dip hard.

    Home loan amount being restricted to 75% by banks is yet another indication that banks too expect correction in prices, else why such a margin of 25% ??
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  • Where Are Townships

    During RE boom, one builder after another was behind township. If I am correct, the Mah state govt got more than 30 applications for townships, majority of whom were located around Pune. Now check this:-

    Amanora Park Town, Nanded City, Blue Ridge, Megapolis.

    Not a single township above has delivered a single flat in past 3+ years.

    Now, there is Kumar Ecoloch at Mhalunge rd, Hinjewadi near BR.

    Hiranandani had plans for township at Hinjewadi but is now scrapped.

    The numbers simply don't add up. If there is indeed SOLD OUT projects, why is it taking so long to get it completed ? Why are the same builders offering FDs ??
    The calculations have gone horribly wrong for the builders.
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  • Not sure if this is posted here earlier, but worth a read.

    An article about Sharad Pawar's land grab in pune.

    Tehelka - India's Independent Weekly News Magazine
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  • 30% drop in Mumbai’s property registration

    30% drop in Mumbai

    Increasing interest rates, excess supply and mounting prices of real estate leads to 30% fall in Mumbai’s property registration in April 2011. According to the Maharashtra government’s stamp duty and registration offices reports this drop is higher than the previous two fiscal years.
    According to the property brokers grim era is ahead market situation can change at any time as the sale deed registration has decreased by 16% and enquiries are also going downward in the previous month, connecting to the following previous nine months.
    Whereas developers and buyers were expecting increase in sales on the occasion of Gudi Padwa festival as it considered an auspicious occasion for buying asset. But on other hand real estate markets conditions are going worst day by day as rising interest rates, decline in demand, increasing property rates and the biggest hurdle which is pushing buyers to the back is civic bodies are deterring forthcoming projects.
    And this is not end here Reserve Bank of India (RBI) has added fuel into this crisis by hiking interest rates nine time in the last 12 months including the recent 50 basis points hike in repo rate taking the cumulative rate hike to 100 bps since January.
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  • Pune forum is so pouplar :)

    https://www.indianrealestateforum.com/forum/city-forums/ncr-real-estate/noida-real-estate/15717-fire-spreads-to-noida-7-x-sectors/page11?t=17962&page=11

    It has been quoted as a example in other forums. I am so proud to be Pune forum member :-)
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  • Originally Posted by compuwalah
    Pune forum is so pouplar :)

    https://www.indianrealestateforum.com/forum/city-forums/ncr-real-estate/noida-real-estate/15717-fire-spreads-to-noida-7-x-sectors/page11?t=17962&page=11

    It has been quoted as a example in other forums. I am so proud to be Pune forum member :-)



    hahahaha....gud sarcastic comment...
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  • Originally Posted by aditi sharma
    Not sure if this is posted here earlier, but worth a read.

    An article about Sharad Pawar's land grab in pune.

    Tehelka - India's Independent Weekly News Magazine

    Very good article aditi :). What surprised me here was the land of Rohan Tapovan was also a grabbed one :bab (45):. This was new news to me.

    The issue of ICC on SB Marg by Panchasheel Realty, The Mariott Hotel are just part of bobada Pawar & Co. It was no wonder then Ajit Yeda Pawar inaugurated this hotel. Yeda Pawar is also the one who is close to several Pune builders. The new office of Darode-Jog builders off JM Rd, was also inaugurated by NCP chaps.
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  • COrrection is on the way.....

    The real cause of RE bubble was the policy change in 2005, the government liberalized FDI norms for real estate. Then prices skyrocketed in a year. The black money(BM) is coming into RE because prices skyrocketed.


    In 2005, the government liberalized FDI norms for real estate. The buoyant economy and low interest-rate regime helped the sector register strong growth across both residential and commercial segments.
    Real Estate Needs to Pay its Dues - WSJ.com

    Private equity investors are poised to exit roughly $5 billion worth of Indian real estate investments in the next two or three years, a Nomura report said, adding pressure to a sector struggling with access to capital and falling property prices.

    During the boom years of 2006-2008, India attracted an influx of private equity in property, a big chunk of it structured as debt, and in some cases developers will be forced to buy back the investment from the PE firms, the report said.

    India poised for $5 billion wave of PE exits from real estate: Nomura - The Economic Times
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  • Crash .........

    Folks looking for a external cause, is here. If the situation really gets worsen, crash is inevitable.

    lobal stocks sank the most in two months, while the euro touched an all-time low versus the Swiss franc and commodities plunged, amid signs Europe’s government- debt crisis is worsening and the economic recovery is slowing. Costs to protect Greek debt from default surged to a record.

    Stocks Tumble, Euro Weakens on Debt Concern - Bloomberg
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  • Originally Posted by khbarilal
    Folks looking for a external cause, is here. If the situation really gets worsen, crash is inevitable.

    lobal stocks sank the most in two months, while the euro touched an all-time low versus the Swiss franc and commodities plunged, amid signs Europe’s government- debt crisis is worsening and the economic recovery is slowing. Costs to protect Greek debt from default surged to a record.

    Stocks Tumble, Euro Weakens on Debt Concern - Bloomberg


    I have heard same kind of words some year and a half back on this forum.
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  • Debt has been building up to a crisis for last 25-30 years

    Originally Posted by khbarilal
    Folks looking for a external cause, is here. If the situation really gets worsen, crash is inevitable.

    lobal stocks sank the most in two months, while the euro touched an all-time low versus the Swiss franc and commodities plunged, amid signs Europe’s government- debt crisis is worsening and the economic recovery is slowing. Costs to protect Greek debt from default surged to a record.

    Stocks Tumble, Euro Weakens on Debt Concern - Bloomberg



    I will not repeat the "How to boil a frog" story, but thats been the problem of the ongoing Debt Crisis.

    All of this really began sometime in the early 1980s - which incidentally was theearly beginnings of the India boom as well. The US was coming out of the worst recession since the GD. Europe was also ending the ravages of World War 2.

    This was also around the time the Western powers decided to end the Gold regime. The final disconnect between currency and real money (represented by Gold) was put in place by Nixon. And the politicians and economists were free to print, print, print.

    The result was the supposed boom in living conditions of the "afflluent west", which made so many Indians, Chinese, etc migrate to the West with $$$ signs in their eyes and living the "American Dream"!

    Well, all of that is unraveling like the Emperor's clothes now. But back to the story of how the debt crisis evolved.

    First the Corporates created the marketing machine. Then they used this, coupled with banks loosening their strings to flood the marketplace with "affordable" things. Homes, Cars, Washing machines, TVs, Fast Food, etc, etc.

    Then they bought over the political class with bribes. The 1980s and 90s looked like the West was truly affluent. But all this was achieved by the over-exploitation of nature and the continued impoverishment of the developing and under-developed world.

    And the introduction of unimaginable amounts of debt with the help of "financial innivation" - nothing but risk created and pushed to another day!

    Unfortunately for the west various technological advances, coupled with the myopic and endless greed of the Corporates resulted in a massive, possibly one-way transfer of wealth-creation (JOBS) to the developing world.

    Now the West is left with an unbearable debt as well as a jobless economy which is hooked on the drug called consumption.

    Then the "whocudanode" debt crisis started as a small wave hitting corporate Japan, America and Europe. Then it became a bigger wave hitting the banks. In both cases, even more debt was printed to keep the machine going and the pretense that "all iz well" with the brand of Western Crony Capitalism on their propaganda screens.

    Finally it is the turn of the countries themselves to face debt default. This is the end of the road and although they have pushed the inevitable by around 10 years - 2000 was the year it all should have imploded, perhaps giving the western world a way to recover without too much trouble - the longer it has been pushed the worse it will impact the world's economies.

    So Compu, it is not as if no one knew. I would argue that it was the Govts and Central Banks which knew first, but chose to keep the pretense going and the drugged-on-consumption West happy in their stupor.

    And khb, it is not Greece which is the problem. Its only 3% of the EU economy. Greece, Ireland, Hungary are only the sideshows.

    Today, their worst nightmare is coming up quickly. Portugal, Spain and Italy are already headed that way for sure. Spain's ruling party and the the German ruling party have suffered their worst defeats in regional elections decades (like the Left got in WB). There are 30000 people camped in Central Madrid emulating Egypt. There are protests going on in Italy and even Germany. Greece is starting to have medicine shortages as pharma is leaving the country. Do you know what a drug shortage leads directly to - a revolution!

    When Ratan Tata talked about the Ambani monstrosity, he made one of the best statements I have heard in recent times - "This is what revolutions are made of!" He was talking about the responsibility and sensitivites of Mukesh Ambani to look around, see the largest slum in Asia within sight and NOT go ahead by throwing so much (ill-gotten) money into his monstrosity.

    Europe is on the brink and is almost certainly headed for severe debt-related crisis. If any or more countries tell German, French and British banks to either restructure debts taking huge hits or go to hell, what can they do?

    Coming to India, read between the lines. Back when the Budget was presented I had specifically said in one post that the FM is either a fool or is a crook for leading this country on a dangerous path. And he is definitely not a fool!!!

    To create a pretense that he is bringing the Fiscal Deficit down, he took the rosiest of input prices (oil at $75 among others) and also the rosiest of revenue estimates, knowing fuly well that we were on a commodity bull market and the world was in crisis mode.

    So we assumed rosy export levels and a booming domestic economy. To help things along, banks were "encouraged" to flood the economy with credit (debt). The Indian Stimulus was in full flow.

    Now suddenly he feigns surprise that oil has gone up so much, that exports are not coming up to the mark, that domestic companies profitability is weakening and "surprise", the telecom sector is on a bearish path and the banks are suddenly showing such huge increases in NPAs (so much for a robust monitoring of the banking system).

    And all this is even before the EU, Japan, US crisis hit in a big way.

    Now he wants to sell everything including the kitchen sink (see the desperate hurry to sell all public enterprises as well as more 3G Spectrum) to keep the deficit as targeted. To make matters worse, some people are predicting a 7% GDP growth instead of the 8.5% the Govt is shouting about.

    Ok. So we sell all out Govt assets this year. What do we do about spending next year?! After all, this is nothing but pushing the deficit crisis to the next year in a much more virulent form! And when everyone is asking Greece to sell their Airports, parks, Islands and historic monuments, what exactly are we doing when we sell our public enterprises? Almost the same thing.

    The 2 kinds of scenarios that I see coming up are as follows ...

    1. The commodities boom takes a break. Govts are able to borrow more and push the crisis to the next year. Economies around the world see a flat trajectory and slight deflation resulting in flat to slightly falling prices and consumption.

    2. The whole thing goes for a toss. Major crisis erupts in the EU. The US sees their own Debt Ceiling crisis erupt in Aug as the 2 parties do not come to an agreement. The next crash comes followed by the inevitable contraction of major economies.

    If 1 happens, we will escape with a range-bound market with ongoing minor crisis in various sectors like Auto, RE, manufacturing, consumer durables, etc. The one shining sector will be agricultural and food related.

    If 2 happens, we will descend into a fairly strong "slow-down" ourself. Be prepared for GDP growth to reduce by 50% or more. Our export sectors will be hit substantially (especially s/w exports). And we will see recession-like slowdowns in most sectors. RE will probably be hit the most followed by banks (due to a much worse NPA situation).

    While we all hope for 1, the option 2 has a fairly good chance of happening this year itself.

    Who said all this was not seen? Many people around the world have seen and talked about it for years! We chose not to see it!!! :)

    cheers
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  • At the end of the day - what will happen nobody knows.

    I am willing to bet one thing only - that the crisis will come in unexpected ways. The watched pot will not boil.

    But another pot which nobody watched will suddenly explode.

    Already Jasmine and Japan have happened this year - nobody expected.

    The world is poised on a precipice just like in 2007 when Brar Stearns went under

    Some unexpected thing will crack the eggsgell thin economies wide open.

    Let us see what will be the Lehman brothers of 2011
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  • Commercial realty takes a hit

    Mumbai, India's business capital, is witnessing a fall in demand for office and commercial space with transactions down by more than half since last year. CNBC-TV18's Priyanka Ghosh finds out why.


    Swanky office space in the heart of Mumbai, but it seems there are few takers. According to a Knight Frank India report, "office traction at a glance", demand for commercial real estate is slowing. 0.88 million square feet of transactions were recorded in the fourth quarter (January to March) of FY11, versus the 2.81 million square feet transacted in Q4 of FY10—that's a 68% drop in demand.


    Commercial realty takes a hit in Mumbai - CNBC-TV18 -


    Commercial RE down, residential also down.
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  • Originally Posted by khbarilal
    Mumbai, India's business capital, is witnessing a fall in demand for office and commercial space with transactions down by more than half since last year. CNBC-TV18's Priyanka Ghosh finds out why.


    Swanky office space in the heart of Mumbai, but it seems there are few takers. According to a Knight Frank India report, "office traction at a glance", demand for commercial real estate is slowing. 0.88 million square feet of transactions were recorded in the fourth quarter (January to March) of FY11, versus the 2.81 million square feet transacted in Q4 of FY10—that's a 68% drop in demand.


    Commercial realty takes a hit in Mumbai - CNBC-TV18 -


    Commercial RE down, residential also down.


    Thanks Khabarilal for sharing latest news.
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