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 fundoo158
    Yuppss...and IT companies were shivering at tht point of time...Given IT has huge influence and acts as lubricant to the indian economy (folks full of "extra" money)...impact will be severe..

    ..


    Don't know why this is the image of an average IT guy. Even many other professionals earn somewhat similar to that of an average IT guy.
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  • Originally Posted by fundoo158
    Venky..

    If Hyperinflation ...then only real assets will be good..cash will become useless..

    Secondly..I would like to understand your views on Rs-$ equation. Few times you have mentioned that Rs will depriciate vs $ in long term. If US goes down...ideally Rs should appreciate vs $..but ur view is on contrary side..

    can u plz post ur argument over this?

    PS: Pardon my ignorance as I am just newbie in Economics


    It is very difficult to justify my long term view when Rupee hardens from 45 to 44 and USA keeps printing money in QE3.

    Sen refuses to fall. Rs refuses to depreciate. Both my feelings are belied by the actuality.

    All I can do is keep buying gold and FDs and stay away from stocks for now, at least for 3 months. Current earnings season also very bizarre and unexpected, especially in the way the markets are reacting to the earnings news - similar results and opposite movements in some stocks.

    When you dont know, better to say I dont know.

    I really dont know.

    Look at our rates - short term rates 8%, long term rates 8.5%, inflation 9%.

    How can such an economy sustain? The normal thing would be a quick shocker of a recession, followed by a stock market collapse, followed by flight of capital and dry FDI/FII followed by Rupee depreciation to 55 or so - followed by plateau of inflation at 6% or so, RBI lowering short term rates to a more sensible 6% or so - then we will have a meaningful kind of rate structure.

    If short term rates go higher than long term rates, then a brutal recession is inevitable
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  • keeping writing someday

    keeping writing someday you will actually make some sense , until then IREF has to bear the brunt lekin chalega ..":) ki farka penda"

    Originally Posted by stoxxx
    well there is nothing beyond demand and supply to determine prices....so if there is no demand let the prices crash.....why are you getting so obsessed about RE prices.....

    seems tracking my posts across forums (not sure which other forum you are referring as I post in no other forum) is your full time hobby....

    also I am not surprised that you have an issue with my post count which is around 200 but would not have an issue with a veteran bears who spout numerous convenient links from google, timesofindia etc and have post count of 1000s.....

    anyway I should thank you for reminding me as I've been wasting my time responding to those who are not interested in others views anyway and have a preset agenda to invoke recession and destroy lives and see India getting downgraded.....then they will be happy.....

    let every one who has bought so far get in to negative equity, become homeless , let their lives be miserable so we can go and buy those houses with our cash that seems to be the agenda here....because frankly with recession most people wont be actually be able to get in to housing ladder anyway....

    one should look at the US and the UK.....far fewer people are able to get on housing ladder and most think they will never be able to get on there as the jobs are lost and lending has dried .....who benefits? cash rich buyers who are lapping up everything at low prices and I am sure when this bear cycle ends they will sell it at a handsome profilt....so poor man becomes poorer in a recession and is out of housing forever....a generation has lost the dream to own a house and the cash rich guys are laughing to the banks.....

    It is sickening that a few want deliberately that miilions should lose their jobs and livelihood and families get destressed and destroyed (because thats what will happen in a recession / depression) so they can lap up these houses at cheap prices....

    but at the end markets will decide .....bear or bull one should be careful and act within means....
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  • Originally Posted by akool11
    Don't know why this is the image of an average IT guy. Even many other professionals earn somewhat similar to that of an average IT guy.


    yaar...accept it...It's a fact. Even I am it guy..
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  • Originally Posted by Venkytalks
    It is very difficult to justify my long term view when Rupee hardens from 45 to 44 and USA keeps printing money in QE3.

    Sen refuses to fall. Rs refuses to depreciate. Both my feelings are belied by the actuality.

    All I can do is keep buying gold and FDs and stay away from stocks for now, at least for 3 months. Current earnings season also very bizarre and unexpected, especially in the way the markets are reacting to the earnings news - similar results and opposite movements in some stocks.

    When you dont know, better to say I dont know.

    I really dont know.

    Look at our rates - short term rates 8%, long term rates 8.5%, inflation 9%.

    How can such an economy sustain? The normal thing would be a quick shocker of a recession, followed by a stock market collapse, followed by flight of capital and dry FDI/FII followed by Rupee depreciation to 55 or so - followed by plateau of inflation at 6% or so, RBI lowering short term rates to a more sensible 6% or so - then we will have a meaningful kind of rate structure.

    If short term rates go higher than long term rates, then a brutal recession is inevitable



    Hmm...at times I feel life is way too much unpredictable ...espcially for IT folks like me...entire career is at stake - $-Rs noone know where it will go.
    US don't know where it will go..but the real issue is since all US debt is $ denominated...US will keep printing and eventually $ will become meaningless..Yuan will have to appreciate.....but then in due course even China's industry will come to standstill...and severe recession will come..

    I am just small fish (rather amoeba) ...worried abt my survival...being MBA from one of the premier school...I feel switching industry - like banking etc will help...but then once IT industry in India goes down...it will be clossal collapse..Banking industry has huge loan portfolio & they will go belly up..
    All malls etc have 70% footfalls from folks belonging to IT junta...realty & allied industries will obviously be crushed..even thought IT form very less % of working class..they form a sizeable chunk of "Haves"....Thereby problem is if to switch where to? It will be kind of raining everywhere...:bab (38):
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  • For banks, asset quality fears rise with the rates

    With the Reserve Bank of India (RBI) wielding the sledgehammer on inflation, asset quality of banks faces a greater risk of deterioration because of lending to sectors that are vulnerable to rising interest rates and slower economic growth.

    State Bank of India chairman Pratip Chaudhuri said, “NPA accretion is accelerated in sectors where interest rates comprise a significant part of the total cost”. Such loans, he said, are given for real estate, education and autos.

    Banks with a higher exposure to housing loans in the retail segment are seen hurting.

    “If you are hiking the equated monthly instalments, or EMIs, every time, then how far will the customer be able to repay the loan? The other option is to extend the loan re-payment period. But there also you have restrictions on extending the period,” said PN Ramaswami, general manager, Bank of India.


    For banks, asset quality fears rise with the rates - Money - DNA

    Also, in addition to this, a person who was eligible for INR 62.5L of loan at 8.5% interest rates is now able to get loan of upto INR 50.8L, which means that rise in interest rates not only affects the EMIs but even eligibility goes down.
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  • Think this may be the reasons of reduction in number of new registration. So if interest rates go down in time tocome, we will be back in business.
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  • Originally Posted by compuwalah
    Think this may be the reasons of reduction in number of new registration. So if interest rates go down in time tocome, we will be back in business.

    Compu,

    In 2009, the RE rates fell & to save the builders from going bankrupt (As banks had given them loans), the banks introduced TEASER RATES which constituted for a whopping 34% of total home loan portfolio.

    Now, not only the interest rates have risen but even the rate/sq ft has gone up, terrace being charged 100%, loading factor & new taxes like Service tax + VAT has come into effect (from mid-2010) which has made the property more costly.

    Finance Minister & RBI Guv have already said that there will another hikes before this year end, which means further hikes in interest rates.

    There is no scope of interest rates going down in near future, nor are the taxes like ST & VAT will be removed, hence, it will be upto the builders to reduce the prices & clear inventory or keep paying heavy interest rates & see the debt piling.
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  • Hi Friends,
    I know this is off topic, but i want to share this info for many who would be interested.

    Conference Call with Dr KIRAN BEDI Sat 6th Aug 5.00 pm London time.

    and event in Edison NJ USA
    A solidarity march to support Indian "Jan Lok Pal Bill" in New Jersey
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  • Double Dip Recession

    People should be very very carefull now. Double dip recession is very close.

    The odds of double dip are 50%.
    Since last 3 days indices has lost 10% in US. All global indices are down.
    This time situation is very dire as G-20 can't apply stimulus this time.

    China

    :bab (60):
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  • Commodities Drop...

    Brazil’s benchmark stock index posted the biggest drop since November 2008, paced by declines in commodities producers, on disappointing earnings and growing concern the global economy is weakening.

    Bovespa Sinks Most Since 2008 on Disappointing Earnings, Commodities Drop - Bloomberg
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  • Inflation has now hit a whopping 11% (10.99% to be precise) . This is when that moron Montek Singh said that inflation would be under 6% by Sep 11 (earlier date was Mar 11).

    There is possibility of diesel prices being deregulated, which will only add fire to current inflation.

    The GDP growth this year may be less than 8% & with inflation of 11%, it actually means a negative growth of 3%.

    The milk prices have gone up by INR 2/ltr in Delhi, the first one to do so was Amul. The veggies too have gone up. I just bought Kashmiri s for INR 140/kg as against 115-120/kg before (in Food Bazaar s are for even 99/kg but are of poor quality).

    Man, the hike in inflation figs is eating up the savings :(. And if this situation continues, expect another hike in interest rates sooner than expected from RBI.
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  • PM’s economic council sends SOS: Govt has lost momentum, must act fast

    The Prime Minister’s Economic Advisory Council (PMEAC) today blamed the government for having “lost time” in getting its act together despite the combined momentum of stability after the May 2009 general election and the successful navigation through the global crisis.

    PM’s economic council sends SOS: Govt has lost momentum, must act fast - Indian Express
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  • Economy heading for worst growth in 3 years

    India is heading for its worst growth since the credit crisis of 2008-09, according to Chetan Ahya, managing director and Asia-Pacific economist of Morgan Stanley, the world’s No 2 investment bank.

    Reason? Over the last 3-4 months, there are clear signs of a slowdown in car sales, two-wheeler sales and modern format retail sales, while investment and construction spending appear to be moderating due to lack of demand visibility and policy paralysis.

    Economy heading for worst growth in 3 years - Money - DNA
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  • Wo wo wo real ... I see you charged up like 2009 recession period :)
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