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 kingmanish
    I have always felt that the person not from ITG always beleive the salary of IT ppl to be same as what Venky had in mind.

    When someone asks me my package and they say
    "X lakhs ka to hoga hi kam se kam"...I am too embarassed to tell my real package as it is nowhere near what they are expecting :D:D
    and they beleive I earn much more that's why hiding facts

    ha ha ha :D

    Ditto... Even when someone ask the salary, ITG from Indian MNC feel low as salary package itself is less and they have to hide that there is variable component of 20-30 % which they get only till 10-15 %.
    If one compares their salary with person in Govt PSU like BSNL, then ITG losses the battle by gr8 margin.

    It's another thing that, ITG buys his flat, car and repays by the time he turns 35. The fact is that, he can't afford the EMI of House, Car at the same time if he is working in Infy, Cogni, TCS.. His hope is only onsite.. and after marriage and kids, onsite work becomes difficult to manage...

    Venky,
    Yes.. it becomes boring over the period of time..in first 1-5 yrs, ITG enjoys coding and then he develops on personel management skills and by 10-12, he wud be completely in personel and project management and loose his touch with technical stuff.. For Tech Architect, route wud be still technical...
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  • As SBI has stopped teaser rate schemes, the home loan demand has fallen by about 30% from last fiscal. If one reads between the lines, this clearly shows that large no. of buyers took loans on teaser rate & they may not be able to repay the loans properly once the actual market rates kicks in. The banks are also giving around 75% of total amount as loans, clearly indicating that banks to anticipate a fall in RE rates. This additionally also means that buyer has to pay atleast 25% amount from his own pocket.

    In Greece, people are on streets to oppose austerity move by the Govt to cut down the debt as Greece will go bust anytime soon.

    Btw, do you know why Europeans are lobbying very hard (especially French) to get the top post for IMF ? Coz they can bail out European economies with IMF money:bab (34):. It is therefore countries like China are opposing it.

    * PS:- I am getting conflicting reports about the incomes of ITGs . How can it vary between 3L to 30+L for same company ?? And why do ITGs differ with their own peers?? Seems some ITGs here are deliberately saying less salary so as to avoid other I-TGs (income tax) :D.

    Btw, personally I am against buying anything on joint loans. The men should take care of all the needs, let the ladies do whatever they want to with their money. If one can't manage family on his own earning, better be single then coz they can't be called real men. (I will be getting some brickbats now:D).
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  • Yeah Ladies are smart.

    They want to take joint loan so that they could save even more on tax.

    U pay her load as well.....she only enjoys tax benefits

    ha ha ha :D:D
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  • For every positon there salary slab and there the salary of two persons on same designation with same exp can vary.

    This depends mainly on factors like

    The company your are coming from.
    The company you are working for.
    Your package before you came here.
    How did you fare at the interview.
    City change if required.
    Market conditions.

    Etc.

    Hence no surprise that diff ppl giving diff opinons

    though everyone is sticking to the point that it is much less than perceived.

    :( :(
    CommentQuote
  • Originally Posted by kingmanish
    For every positon there salary slab and there the salary of two persons on same designation with same exp can vary.

    This depends mainly on factors like

    The company your are coming from.
    The company you are working for.
    Your package before you came here.
    How did you fare at the interview.
    City change if required.
    Market conditions.

    Etc.

    Hence no surprise that diff ppl giving diff opinons

    though everyone is sticking to the point that it is much less than perceived.

    :( :(


    IT's HR also looking for bakra and depend upon the current status of candidate. I know tow person joined had same exp and on same post but salary difference was by 50%.
    CommentQuote
  • Perception outside IT circle and reality is not that different.

    Using (3+N) x L and marked in blue, the earnings from 25 to 35 years are more or less similar.

    I have over-estimated earnings from 35 to 50 years or so by about 30-50%. But now when I think about it, most of the people I know who earn like this are more like managers and not like ITGs. I am sure they work like general managers and not like IT pros. MAny of them were from the early 90s and I find they know little about computers and in fact, a lot of them went from TCS/Infosys to IIMs and are working outside their field.

    Which raises another question - how much do business managers "manage" to earn???????

    Any managers here?

    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 (5L/12 = 40,000 pm) assuming 2 years probation experience from 23 to 25 years, at maybe 25000 pm)

    65,000 after 2 years 7L/12 = 60,000
    75000after 3 years 8L/12 = 65000
    1L after 5 years 10L/12 = 85000
    Then 10-15000 extra each year.
    2L after 12 years of experience 17/12 = 1.4L
    3L after 15-17 years of experience or leaves company 22/12 = 1.8L
    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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  • Venky people from a good MBA school start with a salary from 600,000-7,00,000 onwards...IN five years they can double this easily

    IF one is from top 10 - it starts from 900,000 for freshers and 12-14,00,000 for people with prior experience...

    One of my friend has just passed out from IIFT which is like comes in top 15. The average salary package for a fresher is 12,00,000 rupees, with no prior experience what so ever. Most of these people have their employment in Gurgaon.

    IN places like ggn noida we dont just have the IT guys we have tons of business managers etc who earn much more than the IT guys...

    Even if some body from an average business school like Fore, IMI, ICFAI Hyderabad etc they should be earning atleast 12-15 lakhs in 5 years from graduation...

    There are tons and tons of these people working in ggn, so for these people especially if their wifes are working earn 25+ package as a family, for them they can easily go for a 1 cr flat...

    Now coming to GGn v/s Noida

    Gurgaoon has more managment graduates than Noida. This is also the reason for the growth of GGn RE, the earning power and paying capacity of people working in GGn is much more than Noida. Noida mainly has the IT guys...

    What do you think!!!
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  • Originally Posted by amit001


    There are tons and tons of these people working in ggn, so for these people especially if their wifes are working earn 25+ package as a family, for them they can easily go for a 1 cr flat...




    amit001... sorry to differ with you on this particular point...

    Assuming a combined income of 25L for a couple (15L Husband + 10 L Wife) reasonable estimate for MBA's. Because of a high CTC these numbers look very attractive but this is not the real situation. For a 15L pckg what you get in hand in around 1L per month (hope you agree). Similarly for a 10L pckg net inhand is around 70K. So, in all total take home for the couple is 1 Lac 70 Thousand.

    Now, for the loan part of 1 Cr, assuming 25L was paid as downpayment(reasonable estimate) and 75L was taken as loan, a monthly EMI is 80K. So, a rough calculation of monthly expense for this couple is,

    1) EMI = 80K
    2) Monthly Expenses = 50K

    What remains after this is 50K of savings... I would say this is not 'easy' going for them. Plus this situation will continue for years... and I have not yet taken into account children, dependents etc...

    Hope you agree.
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  • Interesting discussions. Looks like ITGs are being analysed so critically because they fueled the pre 2007 absurd realty prices (especially in Pune). But everyone has to realize that there has been lot of easy money created in the bull run of 2004-08. Majority of that money has flown to realty. And ofcourse, everyone knows about the black money stories as well.

    It would be interesting to know how many 1 Cr flats are being bought bu ITGs. I can bet it won't be more than 10-15%. And all that would be bought by upper middle to senior management guys.

    The current prices are beyond an average ITG. But, I do know of certain guys working in the IT sector who have more than 12 flats in cities like Pune. But they are in there early fifties and cannot be called ITGs - they came from other sectors, got into managerial positions and rode the boom.

    Yes, I do agree that ITGs do have a role to play in fueling the prices. But today's realty is out of ITGs capacity as well. A normal 3 BHK is about 65 lakhs in Pune in remote locations. A guy under 30 will find it difficult to buy provided it is a well thought decision with future in mind. The genesis of this problem is quite simple... Onsite allowances... A guy with 2 years of experience goes onsite and starts saving 2-3 times of his monthly salary in India. This is significant and if one manages it judiciously, in 8-10 years, he/she will have a good corpus. By that time, the Indian salary will catch up and the differential in onsite and offshore is not attractive enough.

    We have to agree that times have changed very rapidly and now, everyone looks for short term profits - just look at the turnover in F&O compared to cash markets. Everyone wants a quick buck.
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  • I agree with all of your points.....

    Originally Posted by tarcap
    amit001... sorry to differ with you on this particular point...

    Assuming a combined income of 25L for a couple (15L Husband + 10 L Wife) reasonable estimate for MBA's. Because of a high CTC these numbers look very attractive but this is not the real situation. For a 15L pckg what you get in hand in around 1L per month (hope you agree). Similarly for a 10L pckg net inhand is around 70K. So, in all total take home for the couple is 1 Lac 70 Thousand.

    Now, for the loan part of 1 Cr, assuming 25L was paid as downpayment(reasonable estimate) and 75L was taken as loan, a monthly EMI is 80K. So, a rough calculation of monthly expense for this couple is,

    1) EMI = 80K
    2) Monthly Expenses = 50K

    What remains after this is 50K of savings... I would say this is not 'easy' going for them. Plus this situation will continue for years... and I have not yet taken into account children, dependents etc...

    Hope you agree.
    CommentQuote
  • Originally Posted by tarcap
    amit001... sorry to differ with you on this particular point...

    Assuming a combined income of 25L for a couple (15L Husband + 10 L Wife) reasonable estimate for MBA's. Because of a high CTC these numbers look very attractive but this is not the real situation. For a 15L pckg what you get in hand in around 1L per month (hope you agree). Similarly for a 10L pckg net inhand is around 70K. So, in all total take home for the couple is 1 Lac 70 Thousand.

    Now, for the loan part of 1 Cr, assuming 25L was paid as downpayment(reasonable estimate) and 75L was taken as loan, a monthly EMI is 80K. So, a rough calculation of monthly expense for this couple is,

    1) EMI = 80K
    2) Monthly Expenses = 50K

    What remains after this is 50K of savings... I would say this is not 'easy' going for them. Plus this situation will continue for years... and I have not yet taken into account children, dependents etc...

    Hope you agree.



    Well..I quite agree with u....MBAs from good college (talking of IIMs, SP Jain, MDI, ISB, FMS, Great Lakes, IIFT etc)....get good headstart.

    fresher.....9 lpa
    upto 2 yrs exp..11 lpa
    upto 4 yrs exp...14-15 lpa etc
    B-school is major factor...and hence can't generalize a formula..

    I am myself one such case...so u r hearing from horse mouth.

    BUT we must remember that these MBAs have additional liability of education loan..All colleges charge approx 12-13 lacs (on avg..except FMS and ISB..opp end of spectrum) as fees..assuming edu loan term being 5 to 7 years...EMIs easily run into approx 30-35K...

    So such MBA couple will not have easy going...Realty is at absurd level and cannot be justified ...whatsoever case we might take...ofcourse onsite is game changer.
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  • GGN has more concentration of these high earning MBA's as compared to Noida because Noida has majorly IT jobs.

    This is one of the reason why GGN is high end despite of having a poor infrastructurer
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  • Real,
    in pure IT companies, engineering grads with 3 to 7 yrs of exp are the most hot and maxium churning happens here (coz these are the only ppl who actually produce the final goods :bab (59):)
    1-2 yrs experience usually get 1.25 times his experience
    from 3rd yr IT guys gets a goove of the job and becomes more efficient and workworthy. it is here if he is ambitious he can command 1.5 to 2x of his experience while jumping jobs

    one more changing landscape is work is shifting from common programming languages to product/tools.

    5-7 yrs back any one knowing java/MS technologies was in demand. now they are commodities. So ppl learn tools. side effect of tools is, handful number of ppl know tools hence its hard to find ppl and hence salaries jump to get these ppl. So a person with 7 yrs exp and 2-3 yr tools experience easily commands 10 L+.

    after 8 yrs of exp the roles are v specific and low. so in around 2015 there will be tons of ppl with 8+ yrs experience and things will be v crowded there.

    Also in india once you burn day and night for 4-5 yrs you want to go into management and get some breather and timeout in life.

    Also product company employees will always have a 25% salary edge over regular IT companies. And lot of product work (of US companies) is now happening in india


    Originally Posted by realacres


    * PS:- I am getting conflicting reports about the incomes of ITGs . How can it vary between 3L to 30+L for same company ?? And why do ITGs differ with their own peers?? Seems some ITGs here are deliberately saying less salary so as to avoid other I-TGs (income tax) :D.

    CommentQuote
  • In the Indian branch of the product company I work for they just put out an offer of 18L for a engineer with 7 years experience in Bangalore. The Indian branch is unable to keep existing employees without hiking salaries by 20-25% YOY for the past 3-4 years where salaries have more then doubled in this time. I personally know Cisco bangalore pays average 25-30L for a manager with 10/12 years of work experience. This puts a guy in the early 30's with some solid cash to put to work and if the spouse makes another 10L 1crore houses are not that unaffordable. In fact my friend from Cisco who joined 3+ years ago missed out buying at lower prices as he didn't expect his salary to roughly double in 3 years to 45L for a director position
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  • with 10 yr exp and 25L pay isnt the outsourcing advantages almost negligible. at this rate either jobs will go back to US or far more in east !


    Originally Posted by rameshyahoo
    In the Indian branch of the product company I work for they just put out an offer of 18L for a engineer with 7 years experience in Bangalore. The Indian branch is unable to keep existing employees without hiking salaries by 20-25% YOY for the past 3-4 years where salaries have more then doubled in this time. I personally know Cisco bangalore pays average 25-30L for a manager with 10/12 years of work experience. This puts a guy in the early 30's with some solid cash to put to work and if the spouse makes another 10L 1crore houses are not that unaffordable. In fact my friend from Cisco who joined 3+ years ago missed out buying at lower prices as he didn't expect his salary to roughly double in 3 years to 45L for a director position
    CommentQuote