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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  • Builder biting builder

    Nowadays I have been observing that 'A' builder says how the project of 'B' builder is bad & so on:D. Though this is good for buyers, what do you all make about this trend? Please comment.
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  • Originally Posted by realacres
    Nowadays I have been observing that 'A' builder says how the project of 'B' builder is bad & so on:D. Though this is good for buyers, what do you all make about this trend? Please comment.


    Desperation creeping in
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  • Originally Posted by realacres
    Nowadays I have been observing that 'A' builder says how the project of 'B' builder is bad & so on. Though this is good for buyers, what do you all make about this trend? Please comment.


    This is a clear sign of unity amoungs them broken. Soon united price rise will stop, PBAP will soon
    realise that price is no more in their control, its decided by market forces, once the investors start
    flooding the market with resales.
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  • Residents Take Builder To Court

    Following is the news of K Raheja project at Wanavdi where amenties have not been provided even after 15 years.

    ]http://epaper.dnaindia.com/newsview.aspx?eddate=11/11/2009&pageno=2&edition=40&prntid=104198&bxid=30688078&pgno=2
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  • Realacres, in Delhi every builder bad mouths his competitor, they have always done it.

    If you visit a builder and mention every other builder's name, soon you get to know the worst that can be said about each of them - a good due dilligence mechanism actually :-)
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  • I am not comparing cities, but why Pune can’t have affordable RE projects? Well affordability is relative. (For people who are investor in Smarjya/Pethkar/Sigma they have different definition of affordability). And to be precise 20 Lac-30 Lac is my definition of affordability for 2 BHK.
    In Bangalore still there are rates around 1600 to 2400 psf in relatively good localities. And these projects are not by andu pandu those are by big national RE players.

    It’s hard to square up 100% blame on builders, I guess investor also should also share that burden of blame. May be Mumbai investor factors into this delta of exorbitant rise.

    If we are looking from investment perspective:
    ‘Realacre’ is suggesting that we should shift focus to 2nd tier cities for looking out investment. But I think that’s not feasible as unless you know someone it’s really difficult to cut deals. Moreover out of sight out of mind.

    Per Ravi K, pune RE is started picking up
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  • Originally Posted by informsantosh
    I am not comparing cities, but why Pune can’t have affordable RE projects? Well affordability is relative. (For people who are investor in Smarjya/Pethkar/Sigma they have different definition of affordability). And to be precise 20 Lac-30 Lac is my definition of affordability for 2 BHK.
    In Bangalore still there are rates around 1600 to 2400 psf in relatively good localities. And these projects are not by andu pandu those are by big national RE players.

    It’s hard to square up 100% blame on builders, I guess investor also should also share that burden of blame. May be Mumbai investor factors into this delta of exorbitant rise.

    If we are looking from investment perspective:
    ‘Realacre’ is suggesting that we should shift focus to 2nd tier cities for looking out investment. But I think that’s not feasible as unless you know someone it’s really difficult to cut deals. Moreover out of sight out of mind.

    Per Ravi K, pune RE is started picking up


    Pune RE is started picking up indeed...
    So I think 50% correction theory is again going wrong:D:D:D

    I pity to those who wanted to buy 2-3 months back & not bought due to that 50% correction theory & now it gone up by 10-15% from price which we had 3 months back....

    50% correction will never happen in Pune ..so dont dream..so next time if anybody who is really looking for a house for self use & can afford it (thru loan offcourse) so if rate again go down by 15-20% from current rate should go for it....
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  • Those who buy now however can not expect the same RE price growth as witnessed in 2004-2007.
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  • Originally Posted by ttt43
    Those who buy now however can not expect the same RE price growth as witnessed in 2004-2007.

    I do agree, take the desicion wisely n don't spend too much on ur flat, remember Rich Dad Poor Dad.
    In Pune, we have wast pockets of land so there will not be gradual appreciation after certain time of period. Also consider that Tax benefits will be over for your second home so only one home if you r staying there.
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  • Originally Posted by ash7979
    Pune RE is started picking up indeed...
    So I think 50% correction theory is again going wrong:D:D:D

    I pity to those who wanted to buy 2-3 months back & not bought due to that 50% correction theory & now it gone up by 10-15% from price which we had 3 months back....

    50% correction will never happen in Pune ..so dont dream..so next time if anybody who is really looking for a house for self use & can afford it (thru loan offcourse) so if rate again go down by 15-20% from current rate should go for it....

    What I find really funny in this is that people are not buying or are buying due to this theory. The fact of the matter is that people have understood what it means overstretching themselves & working for 10 years+ for banks+builders & what they get in return is not worth it. If someone has loads of money & wants to buy, let them buy. What we say is simple:- RE purchase by overstretching is big no-no. Not to forget that we are not out of economic probs. The RBI governor has said last week alongwith Fin Min that the economic stimulii will have to be curtailed by year end as the fiscal deficit is increasing & govt running out of funds for their budgetary allocations. Add to it the rising inflation. The real fun will be seen from end of this year.

    As some members righly said, PBAP was the sole reason which helped prices not crash due to Pawar & Co. In Bangalore a better location than Baner is available for INR 1900-2200/sq ft that too for 17-20 floor buildings! The fact remains that current hikes anywhere are simply not sustainable as the economic fundamentals are still weak. Had this been the case, the investors would have been the first ones to jump in, which didn't happen.


    Before buying just ask a question:-

      Should I borrow money (loan) or
      Should I borrow house (rent).
      This should take care of your worries:).This should take care of your worries:).This should take care of your worries:).This should take care of your worries:).This should take care of your worries:).
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  • From my perspective, the rates are already depressed if they haven't moved up for over a year and a half. Rates may not go down significantly from here, but nor will they go up from here. Stagnation is not new to real estate, and there have been periods where the rates have simply stuck around the same range.

    I think it's ultimately a good time for buyers, that is if they choose to believe so. Because what you may find is that some new projects every six months, but the rates wouldn't have changed a lot.

    I reckon a year from now, December 2010, we'll see at best a 15-20% change from where we are, and that's in the best of locations. For the sub-par locations, you may not even see a change at all.
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  • Originally Posted by ash7979
    So I think 50% correction theory is again going wrong


    So, in other words you are saying that there is no bubble in Pune RE. There are no speculators, no investors and supply is matching demand.
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  • Originally Posted by Dhurandhar
    So, in other words you are saying that there is no bubble in Pune RE. There are no speculators, no investors and supply is matching demand.

    Add to it that Pune has largest unsold inventory in the country (investors not accounted for, if added, the no. would be mind-boggling) :D.
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  • Gove to pass RE bill in winter session

    http://www.indianrealtynews.com/real-estate-india/govt-to-pass-real-estate-regulatory-bill-in-winter-session.html

    This will be interesting to watch and one more reason to wait.
    RE bill is expected to bring in transparency and professionalism in RE business.
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  • Pune vs Bangalore

    Originally Posted by realacres
    In Bangalore a better location than Baner is available for INR 1900-2200/sq ft that too for 17-20 floor buildings!


    Forget apartments, land is available at 2200 per sq. ft. in areas somewhat similar to Baner (outskirts but close to IT city). And I'm talking about BDA approved land with clear papers, which means you get a well planned layout, decent roads, electricity, sewage, water piping etc. right up to your plot. Non-BDA land is even cheaper at about 1600.

    I find Pune apartment prices totally unjustified and overpriced by at least 60-70%. Ironically, I find the outlying areas overpriced much more than the more central areas.
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