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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  • good

    Good article but looks too optimistic.If we see real estate prices in second tier cities, situation is not so good. Take the example of Kolhapur which is ofcourse city but not as big as Pune.Descent 2 BHK there won't cost less than 25L for sure. In Southern India too, situation is same.Visakhapattanam, city on east coast of AP, 2 BHK is around 30L.Both these cities are neither business districts nor known for heavy investments.
    State and Central Govts have always focused on cities for ages mainly for tax,revenue. New Bombay was formed in mid 70s to reduce cogestion of Mumbai.People thought prices might go down in Mumbai but that never happened.Instead now, prices in Navi Mumbai are almostsame level as Mumbai subarbs.
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  • Originally Posted by PuneJoker
    Good article but looks too optimistic.If we see real estate prices in second tier cities, situation is not so good. Take the example of Kolhapur which is ofcourse city but not as big as Pune.Descent 2 BHK there won't cost less than 25L for sure. In Southern India too, situation is same.Visakhapattanam, city on east coast of AP, 2 BHK is around 30L.Both these cities are neither business districts nor known for heavy investments.
    State and Central Govts have always focused on cities for ages mainly for tax,revenue. New Bombay was formed in mid 70s to reduce cogestion of Mumbai.People thought prices might go down in Mumbai but that never happened.Instead now, prices in Navi Mumbai are almostsame level as Mumbai subarbs.


    Fully agree with you chap. Same is the story for NCR. Satellite towns like Gurgaon, Noida, Ghaziabad, Sahibabad, and, Faridabad along with sub-urbs like Dwarka, Raj Nagar Extn etc. were given huge impetus for residential & commercial activities during last decade to reduce congestion in Delhi. Result, today out of entire NCR's population (approx 22 million as per 2011 census), almost 16 million reside in Delhi itself. You can think of what would've happened to property prices.

    Such neighbouring towns do help in reducing burden on main cities like Delhi or Mumbai, but by the time they get developed, huge immigration from small towns & villages make up for the loss. :bab (35):
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  • But how can these town and village ppl afford in cities when they come to earn better wages.


    Originally Posted by bhuvang

    Such neighbouring towns do help in reducing burden on main cities like Delhi or Mumbai, but by the time they get developed, huge immigration from small towns & villages make up for the loss. :bab (35):
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  • Originally Posted by Manoos
    But how can these town and village ppl afford in cities when they come to earn better wages.


    Dude, not all these people from towns/villages are labourers. There are people who come to study in colleges/universities, then land on a good job in city (which they can't get in there native place), and, gradually settles down with there family. You must be knowing so many in your circle itself - there are whole lot of doctors, engineers, professionals, small businessmen, traders who initially come to establish their career and then settle down in cities.

    Besides, there are rickshaw walas, sabji walas etc. who are daily wage earners, don't think they earn any less. Thousands of them even earn more than a 1000 per day, that too in hard cash. Just talk to some rickshawala in person in Delhi, and you will find many of them even holding multiple janta flats and even single BHK flats.

    These people come in different income brackets, some earn upto 5-10K pm, some upto 20-25K, and, some even 50K & beyond. That's why cities have houses with various price ranges, to cater their demand. :bab (35):
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  • Originally Posted by rahumish45
    Hello Readers,
    That is a superb post up there. Researched and executed. One big reason for ever increasing real estate prices is rural- urban migration. But as holistic growth touches India, we reckon that this slow down is inevitable. Do read this article.
    Is the real estate slowdown in India inevitable?
    Click the link above.
    It will give you a slightly different angle to things...


    This article is totally wrong thinking.

    Every country has to urbanise to develop. Thinking villages will develop and reduce pressure on cities is tiotally wrong.

    Things dont happen that way. Urbanisation is the only known way to increase productivity
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  • Sales of Mumbai homes dropping rapidly

    Please check with this URL

    Sales of Mumbai homes dropping rapidly | Magicbricks.com Property Pulse
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  • Google Insight

    Hi guys,
    heres some interesting info from google insight...please see the attached image..
    as per google insight there is decrease in search for real estate in recent times, actually these numbers doesnt reflect absolute # of search volumn...I wonder if this means ppl are less interested in RE now...
    Attachments:
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  • Originally Posted by gandalf
    Hi guys,
    heres some interesting info from google insight...please see the attached image..
    as per google insight there is decrease in search for real estate in recent times, actually these numbers doesnt reflect absolute # of search volumn...I wonder if this means ppl are less interested in RE now...



    hahha ...amazing!! Iref ki junta me kaafi enthu hai...kahan kahan se logic aate hai.. :)

    BTW..we all are interested in RE ..it's the sole reason we all are here.:bab (6):
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  • Originally Posted by fundoo158
    hahha ...amazing!! Iref ki junta me kaafi enthu hai...kahan kahan se logic aate hai.. :)

    BTW..we all are interested in RE ..it's the sole reason we all are here.:bab (6):


    :)
    I was using google insight for something else..and searched for RE...

    We all at IREF are not the only ppl in world who are interested in RE.:bab (59):
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  • Originally Posted by gandalf
    :)
    We all at IREF are not the only ppl in world who are interested in RE.:bab (59):


    When did I made tht statement? :bab (35):
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  • Originally Posted by Venkytalks
    This article is totally wrong thinking.

    Every country has to urbanise to develop. Thinking villages will develop and reduce pressure on cities is tiotally wrong.

    Things dont happen that way. Urbanisation is the only known way to increase productivity


    Fully agree with you Venky.
    However, for those who prefer to believe on articles more that common sense, here's one shot from me as well :D

    http://www.corporationofcochin.net/urban_kb/urban.html
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  • Originally Posted by fundoo158
    hahha ...amazing!! Iref ki junta me kaafi enthu hai...kahan kahan se logic aate hai.. :)

    BTW..we all are interested in RE ..it's the sole reason we all are here.:bab (6):

    fundoo point nikalaa fundoo. right to the point :D
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  • SBI Q1 net down 46% at Rs 1,583 cr on rise in provisions

    The net profit of the country’s largest lender State Bank of India (SBI) dipped by 45.66 per cent in the first quarter (Q1) of the current fiscal at Rs 1,584 crore compared to Rs 2,914 crore in the same period last fiscal on the back of higher investment depreciation and provisioning for bad loans.

    The results seem to add the governments concerns over rising NPAs in the Indian banking system and raises questions on asset quality.

    SBI profit down 45.6% to R1,584 cr - Indian Express
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  • 'More dangerous' times ahead: World Bank chief

    World Bank chief Robert Zoellick warned of a "new and more dangerous" time in the global economy today, with little breathing space in most developed countries as a debt crisis hits Europe.

    Zoellick said the Eurozone's sovereign debt issues were more troubling than the "medium and long-term" problems which saw the United States downgraded by Standard and Poor's last week, sending global markets into panic.

    People were in less debt than during the credit crunch and current events did not have the same "sudden shock" factor, but Zoellick said there was less room to manoeuvre this time around.

    'More dangerous' times ahead: World Bank chief
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  • Why does NCP keep winning

    Real,

    We all know NCP has some corrupt politicians but why do they keep winning? The firing on farmers recently highlights and its aftermath made me realise that they do not have really too much of support their either..

    Why do they keep winning? who votes for them? is it because the opposition is equally worse and I choose a lesser evil...

    Property prices will not significantly dip as there are always a few people who need houses and will buy even if the prices are high..
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