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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  • Any idea on salary packages in top (few) product companies present in Pune. I think Symantec is one of the best paying company in Pune. What about salaries in Nvidia, IBM-ISL, Avaya?
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  • The issue has to do with numbers. the 25L guy manages bunch of people in the 5L-20L range. This 25L is not a pure manager but technical guy as well. Gone are the days of pure people managers. That is now the directors responsibility. But you are right, jobs will move back to USA as salaries keep rising. Its sometimes cheaper to hire in US now then India for some positions. Symantec pays very good. IBM/Avaya/SAS/IFlex are good too. Persistent has over 6k people now and lots of folks are moving onsite. I expect half of these guys to start buying apartments in the next few years
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  • Originally Posted by rameshyahoo
    The issue has to do with numbers. the 25L guy manages bunch of people in the 5L-20L range. This 25L is not a pure manager but technical guy as well. Gone are the days of pure people managers. That is now the directors responsibility. But you are right, jobs will move back to USA as salaries keep rising. Its sometimes cheaper to hire in US now then India for some positions. Symantec pays very good. IBM/Avaya/SAS/IFlex are good too. Persistent has over 6k people now and lots of folks are moving onsite. I expect half of these guys to start buying apartments in the next few years

    Not to forget that east europe & small countries like Vietnam will take away jobs from India due to cost advantage. China is also emphasizing a lot on English skills for the same.
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  • See the impact of recent hikes by RBI on home loans. Nice vids alongwith text below:-

    Loans to get dearer, RBI hikes rates by 25bps | Firstpost
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  • Originally Posted by rameshyahoo
    The issue has to do with numbers. the 25L guy manages bunch of people in the 5L-20L range. This 25L is not a pure manager but technical guy as well. Gone are the days of pure people managers. That is now the directors responsibility. But you are right, jobs will move back to USA as salaries keep rising. Its sometimes cheaper to hire in US now then India for some positions. Symantec pays very good. IBM/Avaya/SAS/IFlex are good too. Persistent has over 6k people now and lots of folks are moving onsite. I expect half of these guys to start buying apartments in the next few years


    IBM is not a good pay master.
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  • We are already too high!

    Originally Posted by rameshyahoo
    The issue has to do with numbers. the 25L guy manages bunch of people in the 5L-20L range. This 25L is not a pure manager but technical guy as well. Gone are the days of pure people managers. That is now the directors responsibility. But you are right, jobs will move back to USA as salaries keep rising. Its sometimes cheaper to hire in US now then India for some positions. Symantec pays very good. IBM/Avaya/SAS/IFlex are good too. Persistent has over 6k people now and lots of folks are moving onsite. I expect half of these guys to start buying apartments in the next few years



    The industry has no clue OR are completely frivolous when they bandy around terms like 25L people manage other 20L people! (sorry Remesh, you are completely correct about your observation & I'm not piling onto you).

    Please note! It used to be a good bet to come to India when salaries here were 1/5th or 20% of US salaries.

    Second, the world is getting leaner by the day & this is a longterm, all-Industry, 1-way trend!

    Assuming you can get a good mid/senior level IT manager in the US today at 120k (& 25L is 60k), you are talking of only a 1/2 advantage.

    Further, taking the fact that US based manpower is generally more productive (simply because their work-ethic forces them to be so), & you need far less manager to manage other (expensive) managers, & its a well-known secret that s/w out of India is generally ill-designed & buggier, you will quickly realise that we in India have built up precisely the kind of top-management-heavy structure that screwed the US in the first place.

    These 25L managers are seriously endangered species & will be extinct soon, replaced by people both from cheaper countries as well as the home country (US).

    We will revert to being the cheap, low-cost high-people volume, IT factories destination, just as China continues to be so in hardware & manufacturing.

    The trend is already on ... The number of tiers of very expensive pure managers managing other expensive managers is declining or moving to destinations where managers only manage revenue-generating workers & not other managers.


    cheers
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  • Well we are forgetting one more thing.. A lot of the IT managers were also given ESOP's.. till Chidambaram messed it up with the FBT business..

    They sold these shares as no one understood the equity market or any other investment instruments and invested in RE.. So not 100% of these apartments were bought purely on loans....

    I guess these people were not so market savvy and I am not sure if anyone liquidated their houses (investment) at the boom time.. If someone did cool.. otherwise .. what can you say.. missed a great chance..

    People who bought houses in the boom.. Last quarter 2007 to June 2008.. or from June 2010 to now are the worst off if they had taken huge loans.. because these were the peaks..

    People also never understand cycles of markets.. and never quite ready to accept it. What worked for the ITG's 5-6 years back will not work now.. Managers are now much more worse of.. one is really not enhancing one's value as you are neither a subject matter expert nor directly contributing and not really adding value to the organisation or to oneself. If things go south.. then the general management skill is not going to get you a job somewhere.. as you are just an overhead. Hope people realize it..
    We are good at labor arbitrage .. only and will never go to the next rung of value arbitrage.. we got 75K $ per annum 5 years back and still get the same sum now for an experienced guy.. meanwhile salaries back home is much much different now compared to what was 5 years back..

    People also look at others and say.. oh he bought 2 houses and now they are worth 2 crores.. and I must do the same.. and if I do the same my 2 crore investment is likely to fetch 4 crore similarly..

    well God was kind to fools earlier and we cannot expect him to continue.. World is a much different place..
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  • Vietnam has no volume advantage to India. Philipines has already taken away a huge chunk of voice business but based the dealings of my friend with Manila, that city is more screwed up then any city in India. However they are very cheap. One of my previous employes moved the helpdesk there from the US instead of India and they are doing good so it looks like will bleed India on the voice front.
    In terms of techsupport orgnanizations in India like Dell/Microsoft/Oracle/IBM/HP have matured processes over the past 4-5 years and they are now solidly entrenched to keep the cycle going for the next 3-5 years. After that who knows. In fact banks I see businesses like big banks moving to India for their next phase of development. They will want to cut their 150/200$ per hour contractors down to $50. That is a no brainer
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  • Offshore not cheap anymore

    Originally Posted by rameshyahoo
    Vietnam has no volume advantage to India. Philipines has already taken away a huge chunk of voice business but based the dealings of my friend with Manila, that city is more screwed up then any city in India. However they are very cheap. One of my previous employes moved the helpdesk there from the US instead of India and they are doing good so it looks like will bleed India on the voice front.
    In terms of techsupport orgnanizations in India like Dell/Microsoft/Oracle/IBM/HP have matured processes over the past 4-5 years and they are now solidly entrenched to keep the cycle going for the next 3-5 years. After that who knows. In fact banks I see businesses like big banks moving to India for their next phase of development. They will want to cut their 150/200$ per hour contractors down to $50. That is a no brainer


    I've seen that India's cost advantage has halved in the past 15 years. In the 1990's, one could replace 1 person in US/Europe with 5-6 in India. Now it's 1:2 or 1:2.5. It is not just the salaries, but real estate costs which are making clients think twice about outsourcing/offshoring on the basis of cost only.
    Costs per employee (salary+office lease) between tier 2 cities in UK (eg Bournemouth, Glasgow, Cambridge) are not much higher than Mumbai - say 20-25%.
    If we factor in cultural differences, time differences, rate of attrition, etc of offshore personnel, it is only a matter of time when only cost advantage will not move jobs to India.
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  • I agree. In Phoenix AZ one can easily hire a tech support engineer for 40-50k however if one needs volumes of tech support engineers you will be better off hiring managers/leads sfor 40/50k and the rest for 15k-25k
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  • Good news!!! Today's Bangalore TOI carries an article that correction in RE is inevitable. Though we at IREF already knew that. :bab (6):

    When the TOI-let newspaper that always reports about fake price rises, now starts reporting that there is possibility of correction, you can guess where the RE market is headed in next few months. All along they were hoping to cosy up the builder lobby, now when the builder lobby is castigating them for not doing enough, they start reporting such news articles.
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  • Originally Posted by amit001
    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


    Noida is 10 times better than ggn to stay
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  • Interesting discussions and points yo ponder.

    ki agree with amit 001 that GGN has a lot of well paid managers. Big reason for the RE upsurge. BPO operations will not generate good income and my impression is that 50% of GGN IT operations are BPO or internet companies like Yatra. Bangalore is a more solid IT city - GGN must be 5% of Bangalore, but is also 5% of Mumbai - management salaries seem to be the highest
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  • Originally Posted by mymarji
    When the TOI-let newspaper that always reports about fake price rises, now starts reporting that there is possibility of correction, you can guess where the RE market is headed in next few months. All along they were hoping to cosy up the builder lobby, now when the builder lobby is castigating them for not doing enough, they start reporting such news articles.


    + 1 :)

    When forbidden words like ' slowdown' , ' correction' begin to pop up in TOI or CNBC, surely the RE and stock markets are wobbling on the top of a slide ... u know those giant sildes in children's parks ? !!!!

    :bab (4):
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  • Missing link

    Hi guys,

    I'm new to this forum and liked the points raised by all you guys about B-School Grads and ITG salaries etc.

    However, in my knowledge, one point we all are missing here (only about Noida and Ggn since i'm not familiar with other locations).

    What about those crores of rupees that builders have paid to Haryana and UP Farmers. No-one is talking about where all that money is going.

    A part of this money gets invested by farmers on there agricultural stuff (like buying equipments etc.), another part goes to upgradation of there homes (if anyone of u wud've seen there homes 15 yrs back and now, u'll know wht i'm talking about), another part in fulfilling there kids luxuries (scorpios and all). And a major chunk goes back to RE.

    Farmers fortunes changed overnight when they encashed there barren (and even agricultural) lands in Gurgaon and Noida from builders/govt.. Since majority of them are not highly educated, the only investment avenues engraved in there minds are - Land and Gold. And BINGO, they bought whole lot of flats/floors/individual properties.

    If anyone of you come from that background, (s)he can verify me. This is something i've been told by my frnds who are living in Gurgaon and remain in touch with locals. And to me, it makes sense.
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