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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  • cool guys..the discusssion is going deviated...
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  • Very nicely explained Wiseman!
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  • Originally Posted by SanjanaSingh
    Wiseman

    I'm not shouting -- I typed out the text and now I can't reduce the text size ! I tried editing it twice, but like the US debt, it just won't reduce :D

    Sorry.



    You dont have to apologise, dude! I understand! :D

    Just thought I could post something a little humorous!

    Now back to the discussion!

    cheers
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  • Good reminder wiseman.

    SPEECH IS GREAT.
    SILENCE IS GREATER.

    :):):)
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  • Originally Posted by Venkytalks


    Among my IT friends, most have made purchase on CLP using only their salary surplus to pay the flat cost. Loans if taken were for 4-6 years and for less than 50% of the flat cost - let us start paying from salary surplus and see if we need a loan was their approach - most wil lnot need loan because of construction delay. If 2 people are earning and salary is 1.5L and 1 L per month, thats about 30L per annum. I they buy a 60L flat, and have 20-30 L savings in the bank - obviously they can afford it.

    India is not USA. Bank loans have significantly tightened norms from 2006 onwards. Dont worry, end user is on a strong wicket - but if his builder has overleveraged and runs away without delivery, what will this well heeled ITG do?

    That is the question - only time can provide the answer



    Kya baat karte ho venkybhai....
    30L per annum vale couples ka count.....100 mein se 1 kya....1000 ITGs mein se 1 rahega.....
    and overall Indian couples ki baat kare to sayad 10000 mein se 1 couple aisa nikale ga jisko 2.5 L per month income ho raha ho....usme se baki ke 8000 ka to 2.5L per annum se bhi kam rahega :D

    IT mein salary hai, no doubt... per itna bhi nahi hai.....10 sal experinace wale ko bhi koi 18L nahi de raha.....may be mumbai ki baat alag hai....

    and again....jiska 18L ka salary hai.....uska 3-5L to tax mein jayega....
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  • One more rate increase! People who took loans at 8.5% 4 yrs ago are now paying 14%+ after so many increases. Just think about their budget. RBI sure should have other means to reduce inflation. How about Govt opens up the retail sector and remove the 10 middlemen between the farmer and the consumer? This is getting ridiculous and no body cares, it seems.
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  • Originally Posted by wiseman
    You dont have to apologise, dude! I understand! :D

    Just thought I could post something a little humorous!

    Now back to the discussion!

    cheers


    Give her a break, Wisey, dont call her a Dude!!!!

    Rajtrl, sorry if my experience of IT guys is restricted to friends, mostly classmates. They are all much richer than I am, so maybe a little envious as well.

    Just for my education, could you tell me just how much do people in - say - Infosys - make? How much when they join, how much after each promotions etc?

    My own impression was:

    50,000 on joining at 25 years
    65,000 after 2 years
    75000after 3 years
    1L after 5 years
    Then 10-15000 extra each year.
    2L after 12 years of experience
    3L after 15-17 years of experience or leaves company
    Retires at 50 if still in company and does something else

    Sunny bright, i think floating rate is currently 11.5% only. Still low by historical standards, remember 2002 when rates were around 12%?

    Even car loans are around 11.5% - again remember your first car which you might have bought at 18% interest if you were as old as I am?
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  • Dude why you keep on making wrong statements without facts. Unitech did not took out 6400 cr from telenor. Please understand the technicalities of an investment deal before commenting. Last time also you made the same remark and ran away.
    ********************************************************

    Pre Money Valuation - valuation of a company or asset prior to an investment or financing.

    So before the investment of Telenor in Unitech Wireless...

    The pre value money of unitech wireless was 2480 crores, as calculated above...Unitech has acquired the license only for 138 crores, so unitech made a profit of 2340 crores by getting the licenses cheap....

    As per the deal structuring between Unitech and Telenor, the post money valuation of equity was decided to be 9100 crores..

    Post money valuation - Post-money valuation is the value of a company after an investment has been made. This value is equal to the sum of the pre-money valuation and the amount of new equity

    Post money valuation = pre money valuation + investsment made

    9100 crores = 2480+ 6620 crores

    Of this total amount Telenor brought 67.25%, so 67.25% of 9900 crores = 6120. This amount was put in the venture and not paid to Unitech

    out of this 9100 crores

    Telenor share = 67.25% = 6120 crores, it brought 6120 crores in the venture.

    Unitech share = 32.75%= 2580 crores, it already had the premoney valuation of 2480 crores, so it infused equity of close to 500 crores in Uninor...

    So as you saw how unitech benefited out of the deal, its pre money valuation was over valued by 2340 crores, and tht what Unitech gained by getting the licenses cheap
    Originally Posted by wiseman
    Amit,

    Have you checked their Liquidity ratios, Inventory Turnover ratio, etc?

    They have taken a huge amount of Capital Premium, loaded further Debt on the basis of D/E ratio, further screwed up by over-building with all that money & are stuck with all that inventory at high cost (input cost + debt servicing costs) & now find the market sliding down & sucking them down.

    To add to this, there is the danger of having to set aside the 6400 Cr money they allegedly fraudulently took out of Telenor in 2G.

    Imagine the flat ground under you suddenly became a steep slope, some oil was poured onto it & a heavy load was put into your hands & nothing to hold on to!:D

    I think they are heading into that position. D/E ratio will not help if you do not generate enough surplus to service the debt & for that you need healthy sales at good margins & with low bad debt situation. Debt at what cost is also important

    cheers
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  • Wiseman - I dont know why do you keep on throwing this 6400 crore figure ....i know you want to make killing when unitech comes single figure...

    But please throw proper facts and dont mis guide opeople
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  • The maximum gain unitech made was by 2340 crores....

    UNitech has not taken even a single rupee from the 6120 crores brought in by telenor
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  • Now see from the horses mouth..unitech do not owe even a single rupee to Telenor... its maximum liability as already disclosed by ED is 2340 crores,

    ***********************************************
    Joint venture investments in Unitech cleared by Centre: Telenor
    4 April 2011, Sandeep Joshi
    Telenor on Monday distanced itself from the 2G spectrum scam and the naming of its joint venture (JV) partner Sanjay Chandra, managing director of Unitech, in the CBI charge sheet. The Norwegian telecom major said the CBI investigations covered the period prior to the Telenor Group's entry into India and that its investments in the JV with Unitech Wireless were cleared by the Government of India at each stage.

    “When Telenor invested Rs. 6,120 crore for a 67.25 per cent ownership in Unitech Wireless, it was in a company that already had a genuine licence issued by the Indian government with all necessary approvals. These investments were cleared by the Government of India at each stage,” Telenor said in a statement. In 2008, Telenor joined hands with Unitech Wireless to provide telecom services under the brand name Uninor.

    Defending its JV with Unitech, Telenor said: “The investment was made in the operating company and not to its promoters. This is the equity that has been used as working capital to fund the establishment of Uninor as a successful young operator in India with over 2.1-crore subscribers now. It is Telenor Group's intention to fight for its rights and continue the operational progress that has been achieved in the Indian market.”

    Telenor said the CBI charge sheet had named Mr. Chandra as managing director of Unitech, besides naming Unitech Wireless for actions when it was a fully owned Unitech Company. “This was a period prior to the Telenor Group entering India. Unitech Wireless will argue its case in court, and we expect Mr. Chandra to do the same. Telenor fully supports these proceedings. Telenor has zero tolerance for corruption. If any malpractice has indeed occurred, those responsible must be brought to book,” the company said.


    As evident from this independent article....all 6120 crores did not go in the unitech pocket....the profit they made from this deal is 2340 crores, which ED has said it will recover from unitech if it is prove guilty
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  • Indian real estate sector: In a tougher spot

    "The residential property prices are exorbitant at Mumbai's prime locations. 180 units sold in Mumbai from January to March 2011 were priced above an average capital value of Rs20,000/sq ft. No wonder the market is slowing down perceptibly now. Around 3,350 units priced at Rs20,000/sq ft and above remained unsold by the end of March 2011 in the city," said Himadri Mayank, manager-research & real estate intelligence service, Jones Lang LaSalle India.

    Indian real estate sector: In a tougher spot - Moneylife Personal Finance site and magazine
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  • Originally Posted by Venkytalks
    Give her a break, Wisey, dont call her a Dude!!!!

    Rajtrl, sorry if my experience of IT guys is restricted to friends, mostly classmates. They are all much richer than I am, so maybe a little envious as well.

    Just for my education, could you tell me just how much do people in - say - Infosys - make? How much when they join, how much after each promotions etc?

    My own impression was:

    50,000 on joining at 25 years
    65,000 after 2 years
    75000after 3 years
    1L after 5 years
    Then 10-15000 extra each year.
    2L after 12 years of experience
    3L after 15-17 years of experience or leaves company
    Retires at 50 if still in company and does something else

    Sunny bright, i think floating rate is currently 11.5% only. Still low by historical standards, remember 2002 when rates were around 12%?

    Even car loans are around 11.5% - again remember your first car which you might have bought at 18% interest if you were as old as I am?


    Venky....IT salaries are not that bright....for infosys and other indian MNC definitly NOT!!!
    for few ultra innovative-Facebook/Google's core team may get something close to what you mentioned, but their team sizes are negligible compare to overall ITG count in India....

    I will put like this....for majors like infy, tcs, wipro, IBM etc...
    GET guys...campus recruit 3.5 to 4 LPA
    2 year : 5 to 5.5 LPA
    4 year : 6 to 7 LPA
    6 year : 7 to 8 LPA
    8 year : 8 to 10 LPA
    10 year : 10 to 13 LPA.....

    that too if you are above average performer and have pramotions regularly....in recession years.....2008-9 IT companys have even gave -Ve increments....can you believe?..but its true....salaries actually came down...

    again as i said....income tax is a major burden.....anything above 10 L attracts huge income tax....TDS-No escape what so ever....
    so, a guy as a GET might be getting 30K in hand and a guy with 8 years experiance after all taxes getting 60-70K in hand....sounds strange but its true...

    Major advantage to ITGs is Onsite Assignment.
    Its a huge chunk of money in short periode of time......ofcourse not much hard work goes into earning those allowances.....
    this also gives one fact, the more you are on-site....lesser you get the Indian salary increment!!!! Managers counts it carefully while deciding individual yearly increment....

    On double income....of-course it works for initial years of marriage and all.....but it doesn't go long in 8 out of 10 cases...
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  • Hi Venky,

    I am silent reader of posts by u veterans..

    But ur IT salaries assumptions is grossly wrong..

    General thumb rule that I observed is - (3+N) L
    where N stands for No# of years of experience

    This formula is applicable for IT service pack. I am not talking about Google, MS or Captive Banks etc. for some niche technologies, u can add 1-2 lacs.

    So for..

    Fresher - 3-4 Lpa -> 25-30K p.m
    2-4 yrs - 4-7 Lpa -> 30-45 K. pm
    4-6 yrs - 7-9 lpa -> 45-60 K pm
    6-9 yrs - 9-12 lpa -> 60 -75K pm..so on and so forth.

    This applies for ppl who have made atleast 1-2 switch. If a person sticks with 1 company only..he might be at loosing end by a lac or two. Conversely..if he makes more than 3 switches, he might gain a lac or two over this...but what I have posted is general figures for BE guy..


    Originally Posted by Venkytalks
    Give her a break, Wisey, dont call her a Dude!!!!

    Rajtrl, sorry if my experience of IT guys is restricted to friends, mostly classmates. They are all much richer than I am, so maybe a little envious as well.

    Just for my education, could you tell me just how much do people in - say - Infosys - make? How much when they join, how much after each promotions etc?

    My own impression was:

    50,000 on joining at 25 years
    65,000 after 2 years
    75000after 3 years
    1L after 5 years
    Then 10-15000 extra each year.
    2L after 12 years of experience
    3L after 15-17 years of experience or leaves company
    Retires at 50 if still in company and does something else

    Sunny bright, i think floating rate is currently 11.5% only. Still low by historical standards, remember 2002 when rates were around 12%?

    Even car loans are around 11.5% - again remember your first car which you might have bought at 18% interest if you were as old as I am?
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  • Originally Posted by fundoo158
    Hi Venky,

    I am silent reader of posts by u veterans..

    But ur IT salaries assumptions is grossly wrong..

    General thumb rule that I observed is - (3+N) L
    where N stands for No# of years of experience

    This formula is applicable for IT service pack. I am not talking about Google, MS or Captive Banks etc. for some niche technologies, u can add 1-2 lacs.

    So for..

    Fresher - 3-4 Lpa -> 25-30K p.m
    2-4 yrs - 4-7 Lpa -> 30-45 K. pm
    4-6 yrs - 7-9 lpa -> 45-60 K pm
    6-9 yrs - 9-12 lpa -> 60 -75K pm..so on and so forth.

    This applies for ppl who have made atleast 1-2 switch. If a person sticks with 1 company only..he might be at loosing end by a lac or two. Conversely..if he makes more than 3 switches, he might gain a lac or two over this...but what I have posted is general figures for BE guy..


    Also count variables :)
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