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 wiseman
    The problem is, when a person is not forced to buy a home at prohibitive rates, he/she does not have the motivation to put the equivalent EMI money aside into saving. And this leads to comparing appl.es with golis.

    Yes, but this is not the case for all. I think this holds true mostly for ITGs who earned a lot more than their peers which made them spend more.

    If you take my case, I am very 'kanjoos' when it comes to self spending. I prefer to invest more in different ventures as of now, so that I can make more downpayment while buying a flat. My early days (just few yrs ago) were damn difficult, starting salary was 3k/month, so I know what value of 1 rupee is. Probably, ITGs got selected in campus interview (so they never know how market performs till they take their first switch) with fatter pay packages which made them splurge.

    I think that spending habits depend upon the childhood more. I have seen people of my age spending a lot more who were well off financially in their school/colleges (they say abhi to samay hai aish karne ka..budhape main kya karoge:D), but those who were middle class people earlier & then became rich, still have conservative spending habits, not that they will use inferior goods but just that they won't buy what is not required.
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  • Originally Posted by mymarji
    I think it makes sense to anticipate an EMI much before one's RE purchase and save that regularly. That will help in two ways:
    a) It will help you in deciding how much of EMI is affordable, without affecting your standard of living.
    b) It will build a corpus fund, which will help in down payment for your RE purchase.

    I have started recently to do the above. It helps in thinking even if I purchase a RE property, I will not get a pinch later on from EMI.

    +1. Infact, one more easy way is to calculate the EMI, open a new bank account & put this amount equivalent of EMI into it. Do this for atleast 3 months & then see if one can manage with the money which is left in regular savings account. This gives a short term picture about financial health.

    If one has marriage, kids, other investments in mind, then add atleast 25-30% to the EMI amount.
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  • Official News :- Stamp duty revenue dips in Pune

    Now, we have the official numbers from the office of the inspector general of stamp duty and registration, IGR.

    These show that the stamp duty revenues have fallen by a whopping 65% in one year. As the price of homes increased, this means that the actual sales have dipped by atleast 70+% in Pune in past 1 year.

    The revenues have fallen from about INR 214.66 Cr to INR 77.85 Cr in Pune.


    >> These figs. now should suffice to prove that builders now have no choice but to drastically reduce prices & the demand vs supply logic is flawed to justify hike in RE rates.

    Those who demand proof for these figs. can visit the link below:-

    http://epaper.dnaindia.com/epaperimages/08072011/d31757642-7Pune%20Main%20Edition-pg3-0.jpg
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  • Originally Posted by realacres
    Now, we have the official numbers from the office of the inspector general of stamp duty and registration, IGR.

    These show that the stamp duty revenues have fallen by a whopping 65% in one year. As the price of homes increased, this means that the actual sales have dipped by atleast 70+% in Pune in past 1 year.

    The revenues have fallen from about INR 214.66 Cr to INR 77.85 Cr in Pune.


    >> These figs. now should suffice to prove that builders now have no choice but to drastically reduce prices & the demand vs supply logic is flawed to justify hike in RE rates.

    Those who demand proof for these figs. can visit the link below:-

    http://epaper.dnaindia.com/epaperimages/08072011/d31757642-7Pune%20Main%20Edition-pg3-0.jpg


    something to think on:

    In April'11, revenues were 196.74 cr...and dipped to 77cr in next month...
    also if you see may'10 revenues are less compared to April10 and April'11 > May10 and < April10...so there is dip in revenue but I dont think its right to conclude from JUST May11 figures...looks like revenues are always less in May if we think it as a pattern considering previous(2010) years revenues...
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  • Originally Posted by realacres
    +1. Infact, one more easy way is to calculate the EMI, open a new bank account & put this amount equivalent of EMI into it. Do this for atleast 3 months & then see if one can manage with the money which is left in regular savings account. This gives a short term picture about financial health.

    If one has marriage, kids, other investments in mind, then add atleast 25-30% to the EMI amount.


    It is easy to say but difficult to practice.

    If I did not have the option to put money directly from salary into PF, I doubt if I could save same amount. Not everybody has PF and thrift funds directly linked to the salary.

    It is easy to lose one's way.

    I also grew up with fairly thrifty values and very little spending money till I got my job (which paid only 5000 Rs per month in those days). While I saved some 70% of earnings thanks to PPF, I used to blow up the rest until marriage on things like TV, and music system (I saved for 5 months to buy my own TV - for 20,000 Rs - now same thing costs 7000 Rs and is a fraction of one months salary

    Marriage brought me back to earth - because the savings were untouchable in PF but spendings sky-rocketed. I became ultra-conservative and did not make RE bookings in 2003 - which was a mistake in hindsight
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  • Originally Posted by Venkytalks
    It is easy to say but difficult to practice.

    If I did not have the option to put money directly from salary into PF, I doubt if I could save same amount. Not everybody has PF and thrift funds directly linked to the salary.

    It is easy to lose one's way.

    I also grew up with fairly thrifty values and very little spending money till I got my job (which paid only 5000 Rs per month in those days). While I saved some 70% of earnings thanks to PPF, I used to blow up the rest until marriage on things like TV, and music system (I saved for 5 months to buy my own TV - for 20,000 Rs - now same thing costs 7000 Rs and is a fraction of one months salary

    Marriage brought me back to earth - because the savings were untouchable in PF but spendings sky-rocketed. I became ultra-conservative and did not make RE bookings in 2003 - which was a mistake in hindsight


    Venky, this happed with most of us :D so we are here...like minded people :)
    Anyways, now you need to wait till 2014 to buy a RE...good luck...
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  • Originally Posted by gandalf
    something to think on:

    In April'11, revenues were 196.74 cr...and dipped to 77cr in next month...
    also if you see may'10 revenues are less compared to April10 and April'11 > May10 and < April10...so there is dip in revenue but I dont think its right to conclude from JUST May11 figures...looks like revenues are always less in May if we think it as a pattern considering previous(2010) years revenues...

    Even if you compare May 10 to May 11 figs, still there is a drop of almost 55%.

    The drastic drop in revenues is not only due to high prices of RE but also hike in interest rates, which actually started increasing from early 2011 at rapid pace than 2010. The more the hike in interest rates, harder will be the RE sector hit.

    To counter off these hikes in interest rates, the builders will have to cut prices even more so as to make EMIs less for buyers, else they will keep sitting on large scale inventory.

    The multiple exhibis showcasing the same old projects time & again shows how sales are not happening in good pace. The builders are soon going to have an exhibi even in Australia:D which clearly shows the desperation of the builders.

    Btw, Andhra Bank too has hiked the interest rates by 0.25%.
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  • bubble-destroyed-middle-class-marketwatch: Personal Finance News from Yahoo! Finance



    A nice article from yahoo fin - please read the comments as well


    rohit
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  • Originally Posted by rohit_warren
    bubble-destroyed-middle-class-marketwatch: Personal Finance News from Yahoo! Finance

    A nice article from yahoo fin - please read the comments as well
    rohit


    Great link Rohit. Seems like flashback of Indian RE in 2012 or 2014 :D
    Stocks and RE price gives a false impression of wealth/richness (specially RE where its easy to get leverage upto 80% of the total cost).

    If one had bought at 3000psf and an year later if his builder starts quoting 4000psf, he immediately thinks of 35% appreciation (greed creeps in).
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  • Growth story and hot money factor

    Hi

    Just thought about comparing China and India real estate prices. Someone might have done that before.

    China FX reserve 3.1 trillion India FX reserve USD 300 billion. This may capture some impact of hot money flowing and revenues earned by exports.

    http://economictimes.indiatimes.com/news/international-business/chinas-forex-reserves-hit-new-record-high-at-31975-trillion/articleshow/9198970.cms

    http://en.wikipedia.org/wiki/Foreign_exchange_reserves

    China Beijing property prices for 1800 Sq ft (180 Sq meter *10) area apartment 2.5 Crore with all facilities. 3.4 million Yuan/6 = USD 560000 at 45 approximately Rs. 2.5 crore.

    http://www.beijingrealestates.com/PropertiesForSale.htm

    India Mumbai (suburb) 1800 SQFT apartment in good project 2.5 crore.

    China experienced peak growth which India may or may not experience ever. Still India and China property prices are similar.

    What do you say?
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  • Originally Posted by amitshah
    Hi

    Just thought about comparing China and India real estate prices. Someone might have done that before.

    China FX reserve 3.1 trillion India FX reserve USD 300 billion. This may capture some impact of hot money flowing and revenues earned by exports.

    China's forex reserves hit new record high at $3.1975 trillion - The Economic Times

    Foreign exchange reserves - Wikipedia, the free encyclopedia

    China Beijing property prices for 1800 Sq ft (180 Sq meter *10) area apartment 2.5 Crore with all facilities. 3.4 million Yuan/6 = USD 560000 at 45 approximately Rs. 2.5 crore.

    Beijing Apartment Villa Office for Sale and for Investment

    India Mumbai (suburb) 1800 SQFT apartment in good project 2.5 crore.

    China experienced peak growth which India may or may not experience ever. Still India and China property prices are similar.

    What do you say?


    are these revised rates? thought china real estate had crashed :o
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  • Originally Posted by amitshah
    Hi

    Just thought about comparing China and India real estate prices. Someone might have done that before.

    China FX reserve 3.1 trillion India FX reserve USD 300 billion. This may capture some impact of hot money flowing and revenues earned by exports.

    China's forex reserves hit new record high at $3.1975 trillion - The Economic Times

    Foreign exchange reserves - Wikipedia, the free encyclopedia

    China Beijing property prices for 1800 Sq ft (180 Sq meter *10) area apartment 2.5 Crore with all facilities. 3.4 million Yuan/6 = USD 560000 at 45 approximately Rs. 2.5 crore.

    Beijing Apartment Villa Office for Sale and for Investment

    India Mumbai (suburb) 1800 SQFT apartment in good project 2.5 crore.

    China experienced peak growth which India may or may not experience ever. Still India and China property prices are similar.

    What do you say?



    Good analysis.

    Currently, prices in USA, China and Mumbai are same !!!!! :bab (45):

    USA has good income and good amenities.

    China has good amenities but not the income to sustain these prices.

    India has neither the amenities nor the income.

    Something has to give way - this crazy imbalance is not sustainable. I wonder what will give way - house price? currency? interest rate? Inflation? Recession?

    One or all of the above is inevitable with this much imbalance. Like a juggler keeping more and more balls in the air - for how long?
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  • Originally Posted by Venkytalks
    Good analysis.

    Currently, prices in USA, China and Mumbai are same !!!!! :bab (45):

    USA has good income and good amenities.

    China has good amenities but not the income to sustain these prices.

    India has neither the amenities nor the income.

    Something has to give way - this crazy imbalance is not sustainable. I wonder what will give way - house price? currency? interest rate? Inflation? Recession?

    One or all of the above is inevitable with this much imbalance. Like a juggler keeping more and more balls in the air - for how long?


    Hi Venky,

    One thing that we are missing here - BLACK MONEY.

    China and India has whole lot of it, and a good percentage of that is stashed in RE as well. That's not the case with US/EU. Check this -

    China 1st in Black Money, India 4th in Asia

    That's what provide the cushion during 2008-09 crash as well. And i think it would continue.

    RE prices may become stagnant or may decline 10-15% (wild guess). But i big drop like what we saw in WEST, i really don't buy that. :bab (38):
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  • Originally Posted by amitshah
    Hi

    Just thought about comparing China and India real estate prices. Someone might have done that before.

    China FX reserve 3.1 trillion India FX reserve USD 300 billion. This may capture some impact of hot money flowing and revenues earned by exports.

    China's forex reserves hit new record high at $3.1975 trillion - The Economic Times

    Foreign exchange reserves - Wikipedia, the free encyclopedia

    China Beijing property prices for 1800 Sq ft (180 Sq meter *10) area apartment 2.5 Crore with all facilities. 3.4 million Yuan/6 = USD 560000 at 45 approximately Rs. 2.5 crore.

    Beijing Apartment Villa Office for Sale and for Investment

    India Mumbai (suburb) 1800 SQFT apartment in good project 2.5 crore.

    China experienced peak growth which India may or may not experience ever. Still India and China property prices are similar.

    What do you say?

    A fellow member has already posted a link which shows that RE prices in Beijing dipped by 27% in just one month.

    Btw, AFAIK, the loading factor in China is less than India. So, probably what China sells as 1800 sq ft, in India maybe just over 1500 sq ft !!
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  • Iconic Palm Jumeirah in Dubai sees property prices at four year low

    Originally Posted by Venkytalks
    One or all of the above is inevitable with this much imbalance. Like a juggler keeping more and more balls in the air - for how long?

    Here is RE news from middle-east/west-asia, whatever you call it as.

    Prices of property on the Palm Jumeirah development, one of Dubai’s most iconic landmarks, have fallen to a four year low, with apartments being offered for as little as AED650 ($176) per square foot. (This is just over INR 7,900/sq ft !!)

    Research by Arabian Business shows that a number of apartments on the Palm Shoreline have been put on sale in the past month with asking prices nearly 70% down from the height of the boom in 2008.

    Read the complete story here:-

    Iconic Palm Jumeirah in Dubai sees property prices at four year low - International Business Times
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