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 SanjanaSingh
    Me too :)
    .....so it took some tantrums combined with some good-old-fashioned dish-breaking ?


    Tantrums for the right reasons can be appreciated.

    Originally Posted by SanjanaSingh

    Indian women are smart money managers, no ?


    I wish.....all women were like minded !!! :)
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  • well more than yourself and your wife/husband; its extended family (uncle, aunt, cousins etc) are worried for your own house and keep badgering about buying flat everytime they see you. i have been dodging these efforts since 2008, that time i did not have enough cash in hand for downpayment and now interest rates as well as real estate prices are sky high. but yet i m happy because i am free of high emi.
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  • exactly....relatives pester like anything
    It has become a status symbol
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  • Originally Posted by braveman
    exactly....relatives pester like anything
    It has become a status symbol

    And to make matters worse, they will say that XYZ chaps earns less than you, still he has a flat, not you ?
    However, in all this, they forget what sort of enjoyment we have managing our portfolio & living free of high EMIs. I would prefer see the bank balance grow to accumulate more money for higher downpayment than pay EMIs for no reason, especially when rents are so cheap vis a vis EMIs :).

    Originally Posted by mymarji
    Same here..... :)

    The only problem is once in a while I have to listen to my wife's shouting...but that is OK, I can bear that as long as it is FREE. ;)

    Thank God I am single :). No khich-khich.....though I face rock concert from other family members for other reasons :D.

    Man, one of my important aspect is having a house which is Vastu postive. In flat, it is difficult to get 100% compliance, but I need to ensure that the Vastu fundamentals are respected & finding such flat is as difficult as finding a good wifey (hey not others wife :D ).
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  • EMIs chip away at monthly budgets

    Just see how people who took heavy home loans are now in a mess. The following article is from Pune itself:-

    PUNE: If owning a house is still a dream for many, then those who have availed of loans to live in their own homes are hassled by the equated monthly instalments (EMI) and rising interest rates.

    Young Alok Shirodkar and his wife bought a home last year when the equated monthly instalment (EMI) for their Rs 20 lakh housing loan was Rs 18,000. With rising interest rates, they now pay Rs 20,000. "With inflation eating into our monthly budget in many ways, this hike pinches us badly," Shirodkar said.

    Pankaj Mandhana has been looking for a house, but has not been able to buy one. Each time he gets ready to sign a deal with a developer, there is an upward revision in the realty rates. "I have had to postpone the decision thrice in the last year as all calculations go haywire with a change in the rate of interest and the prices quoted by builders," he said.

    Sanjay Bajaj, managing director, Pune of realty research firm Jones Lang LaSalle India said the trend will most certainly make customers postpone their decision to buy.

    "The real estate sector in Pune is beginning to show serious signs of strain under the combined weight of increasing cost of construction, astronomical mortgage rates and a generally uncertain economic climate. Inflation has also contributed to a decrease in affordability of residential properties," Bajaj said.

    EMIs chip away at monthly budgets - Times Of India
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  • eSakal

    few days of rain and city faces problems again!
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  • Parties object to imposing election code of conduct in other parts of city

    Seems the DP of Pune is going to be postponed even further & all development works will now come to a halt till Mar 2012 in PMC if EC has its way.

    Khadakwasla bypoll: Parties object to imposing election code of conduct in other parts of city - Express India

    >> It is therefore we say, don't fall trap to builders' DP road, PROPOSED STUFF etc. as you don't know what may happen over-night !! ;)
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  • Originally Posted by realacres
    I would prefer see the bank balance grow to accumulate more money for higher downpayment than pay EMIs for no reason, especially when rents are so cheap vis a vis EMIs :).


    .


    But the question is how long can you keep delaying your decision if you have to buy for self use one day???

    1.Inflation will be eating away your savings....

    2. The flat which is costing you 40 lakh now will cost you 55 lakh within few years
    :( :(
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  • Originally Posted by kingmanish
    But the question is how long can you keep delaying your decision if you have to buy for self use one day???

    1.Inflation will be eating away your savings....

    2. The flat which is costing you 40 lakh now will cost you 55 lakh within few years
    :( :(


    But the same thing happens for EMI also, considering the increase in interest rates along with the inflation. Atleast I don't have to worry about what meal will be having next. The maximum worse thing that can happen to me for postphoning my decision to buy is: the rates will be higher, but remember that these developers will be coming out with affordable housing somewhere else. And as far as I can tell, the new outskirt areas will be well developed with lot of better infrastructure than the old high-priced in-city congested areas.

    And the best part is that I have flexibility in shifting to a better place, in case I don't like the rental house. This is something which will take away 50% of my headache. No wonder, I have still not acquired any chronic illness (..touchwood!!) . Some of my friends who have properties have already acquired High-cholesterol/BP and Diabetes and spending money on monthly checkups and doctor bills. This will certainly make the doctors rich to invest in Samrajya-like properties. ;)

    There is a saying: During younger years you sacrifice the health to get wealth. But during older years, you spend that wealth to get some health. :)
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  • Originally Posted by mymarji
    There is a saying: During younger years you sacrifice the health to get wealth. But during older years, you spend that wealth to get some health. :)



    rightly said mymarji
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  • Originally Posted by realacres
    In flat, it is difficult to get 100% compliance, but I need to ensure that the Vastu fundamentals are respected & finding such flat is as difficult as finding a good wife (hey not others wife :D ).



    good one :D:D
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  • eSakal

    नवी दिल्ली - अर्थव्यवस्था सध्या कठीण काळातून जात असल्याचे केंद्रीय अर्थमंत्री प्रणव मुखर्जी यांनी आज येथे स्पष्ट केले. बॅंकांनी त्यांच्या कर्जांबाबत खबरदारी घ्यावी, असे आवाहन केंद्रीय अर्थमंत्री प्रणव मुखर्जी यांनी केले.

    बॅंक ऑफ इंडियाच्या 106व्या स्थापनादिनानिमित्त आयोजित समारंभात ते बोलत होते. ""चलनवाढीचा दर आटोक्‍यात आणण्यास कटिबद्ध असल्याने व्याजदर वाढले आहेत. अशा काळात बॅंकांनी त्यांच्या भांडवलाबाबत खबरदारी घ्यायला हवी. आपण सध्या कठीण काळातून जात असल्याने प्रत्येक पाऊल विचारपूर्वक टाकायला हवे,'' असे ते म्हणाले.

    "आर्थिक पेचातून अजून जागतिक अर्थव्यवस्था सावरलेली नाही; मात्र, त्यामुळे ठोस आणि नावीन्यपूर्ण पावले उचलण्यापासून आपल्याला कोणी रोखू शकत नाही,'' असे सांगून ते म्हणाले, ""सार्वजनिक क्षेत्रांतील बॅंकामध्ये कुशल मनुष्यबळाची चणचण आहे. सध्याचे अनुभवी मनुष्यबळ बदलण्याचे आव्हान नक्कीच आहे. गुणवान व्यक्ती मिळणे, ही एक मुख्य समस्या आहे. नवीन लोकांमध्ये संस्थात्मक संस्कृती रुजवणे, हा दुसरा भाग आहे.'' सर्वसमावेशक आर्थिक विकासावर सरकारचा भर असल्याचे त्यांनी नमूद केले
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  • Originally Posted by SanjanaSingh
    Me too :)

    I sold off all my RE holdings in stages from 2008 to 2009 and accumulated gold -- the strategy has worked beautifully.

    Also pressurized my husband to reduce our stock portfolio to < 5%. He tends to fall in love with his stock investments, so it took some tantrums combined with some good-old-fashioned dish-breaking -- until he surrendered and told me to do ' whatever I pleased ' with our personal finances :D
    Now he's quite appreciative of the way I planned it.

    Indian women are smart money managers, no ?


    LOL

    Good for you
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  • Originally Posted by kingmanish
    But the question is how long can you keep delaying your decision if you have to buy for self use one day???

    1.Inflation will be eating away your savings....

    2. The flat which is costing you 40 lakh now will cost you 55 lakh within few years
    :( :(

    I agree to what mymarji has said. In addition to that, please note that the times of RE boom are gone. Add to it the hike in interest rates, the savings will be far more than RE price increase, infact when they dip, you will double benefit from it. And yes, the FDs have touched 10%, hence it is a good place to park surplus funds in :).

    In short-medium term, the interest will go up (another hike is expected on 16th Sep 2011), FD rates will go up & RE prices will only come down as they have already begun to show the strains. Same is the case with auto sector as of now.

    Man, when people are not buying cars, imagine that about house !!
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  • Commercial realty rentals plunge in Mumbai & NCR

    Commercial market behaves, residential follows. See what's in store now :-

    Mumbai: Rentals in commercial real estate still remain sluggish in Mumbai and Delhi with huge unutilised office space in these markets and companies scouting for better deals on rentals offered by developers.

    The rentals in the National Capital Region (NCR) and Mumbai in the second quarter of the calendar year are back to mid-2006 levels, according to data compiled by CB Richard Ellis. “The fall in rental in Delhi from 2007 to Q2 of 2011 has been approximately 3-20%, depending upon the location. In Gurgaon, it has been between 10% and 25%, while in Noida, it it 6-7%. In Mumbai, on an average, the rentals fell by around 40% to 45% since 2008,” says CB Richard Ellis CMD Anshuman Magazine.

    For example, the Bandra Kurla Complex (BKC), the upcoming business district in Mumbai, where the rentals in buildings like Wadhwa and Platina are believed to be hovering between R220 and R240 per sq ft per month, which market sources say, have come off 30-40% from about R320 to R400 per sq ft seen in 2008.

    Read complete news here :-

    Commercial realty rentals plunge in Mumbai & NCR
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