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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  • Market could go either way from here ...

    Folks,

    My first post this year was to state that 2011 would be the year of Sovereign Debt Crisis coming to a head!!!


    The markets
    We are near the top of the Bollinger channel (4800-5200). Also market has met resistance at 5150 levels for the third time.

    Both these indicate weakness OR indecisiveness in the market. What could break it and provide direction?

    There are 2 events that are gamechangers in this case ...

    1. The EU Bailout event.
    It is a foregone conclusion that, eventually, this whole EU Sovereign Debt will collapse and countries will start their economic collapse like dominoes starting with Greece but possibly going through Italy, Portugal, Spain and even France and Germany.

    The issue is, will they stave off and postpone this eventuality ONE MORE TIME with a Greek bailout. Even if they do, banks will take on 50% OR MORE haircut on their greek debt (and eventually on all EU debt as other countries will also demand it) and trying to re-capitalize them will ensure their countries debt will get downgraded from AAA (which means they cannot participate themselves in bailouts anymore).

    Note one very funny situation. The contributors to the EFSF include Italy and Spain (30% of the fund) who are themselves in dire need of bailout!!! :)) Can't get more messy than this.


    So, if they do bailout greece, markets may NOT collapse outright and crash. May stage a brief rally and stay in a range waiting for the next big event. Which brings us to ...

    2. The US Govt running out of money on 23 Nov. Remember the debt raising tamasha a few weeks ago? Well, its coming back again in Nov. And this time around there might be no more postponement OR interim measure.

    There could be a political deadlock and the US might get downgraded from AAA, this time by Moody's - thus proving S&P as the early bird in proactive rating (for a change).

    Important!
    The point to note is this ...

    In both cases the too-big-to-fail banks will find that even-bigger-to-fail sovereign states will throw them under the bus.

    - EU banks will get to the point of collapse.

    - Since US banks are heavily exposed to EU banks (as well as US debt) they too will get to the point of collapse

    The FED will come to an extremely stressful point of decision (their own making)

    - Bailout ALL global banks AGAIN! And risk the wrath of their politicians, govt as well as citizenry

    - cut banks loose. And risk total collapse of the financial system.

    The monkey in the works is the people with deposits in banks who could start their own run on banks and also trigger a potential collapse of the financial system.

    I think the near future augurs well for Gold and Silver!:D

    In a short while from today, market should also get their direction. I'm positioned both ways but am bearish for the moment.

    cheers
    CommentQuote
  • the RBI babus and Subbus have earned their monthly paycheck by dutifully increasing the interest rates by 25 BPS. so what if the last 12 hikes did not help? 13th might just be their lucky number.
    CommentQuote
  • Originally Posted by Vinod Gupte
    the RBI babus and Subbus have earned their monthly paycheck by dutifully increasing the interest rates by 25 BPS. so what if the last 12 hikes did not help? 13th might just be their lucky number.



    They are searching for the last straw on the camel's back!!!
    Even though this may not be the last straw.
    CommentQuote
  • Think about it this way instead of wrongly beating up RBI

    Originally Posted by Vinod Gupte
    the RBI babus and Subbus have earned their monthly paycheck by dutifully increasing the interest rates by 25 BPS. so what if the last 12 hikes did not help? 13th might just be their lucky number.



    Folks,

    Get this straight once and for all ..

    The people creating the inflation is the Govt and you and me!

    The RBI is a quasi-independent setup trying to save you and me from ourselves!!!

    If they did not hike rates, GDP growth might have become 9% (only benefits Maunmohan Singh), but inflation would probably be above 20%!!!!

    Can you imagine what your EMIs would have become at interest rates above 20%???:o

    One should always be careful not to confuse the issues and make the robber the hero!

    Apart from the Lokayukta, RBI seems to be one of the very few institutions with their head screwed on correct, their integrity largely intact, having a spine to stand up to the politicians all the way to the PM and having common janta's interest on their minds (not the ones who wil pay any price to get that home and fancy car - and morgaging their own future to enrich Mercedes Benz and RP Singh)!!!!

    I continue to support rate hikes - so that your salaries and savings will not become worthless and inconsequential. In fact BI should have taken this opportunity to hike 0.75% this time and KILL this fake, debt-fueled growth once and for all. RBI is the only one keeping India from suffering the fate of the western world - which all of you can see. Of course we also have sensible guys like Pranab-da, who sometimes is forced to produce nonsense for politican reasons! :)

    Don't fall for media's nonsense about hikes which is nothing but paid propaganda by business interests who are being taken to the cleaners because of their own greed and lack of control.

    Remember that, its these very same "businessmen" (VM comes to mind) who borrow and amass wealth through questionable means when easy money is flowing and run crying "mummy" to the press and politicians when the whiplash occurs!

    These are truly "Kings of good times" and "Crybabies of bad times" indeed!

    cheers
    CommentQuote
  • Originally Posted by wiseman
    Folks,

    My first post this year was to state that 2011 would be the year of Sovereign Debt Crisis coming to a head!!!


    The markets
    We are near the top of the Bollinger channel (4800-5200). Also market has met resistance at 5150 levels for the third time.

    Both these indicate weakness OR indecisiveness in the market. What could break it and provide direction?

    There are 2 events that are gamechangers in this case ...

    1. The EU Bailout event.
    It is a foregone conclusion that, eventually, this whole EU Sovereign Debt will collapse and countries will start their economic collapse like dominoes starting with Greece but possibly going through Italy, Portugal, Spain and even France and Germany.

    The issue is, will they stave off and postpone this eventuality ONE MORE TIME with a Greek bailout. Even if they do, banks will take on 50% OR MORE haircut on their greek debt (and eventually on all EU debt as other countries will also demand it) and trying to re-capitalize them will ensure their countries debt will get downgraded from AAA (which means they cannot participate themselves in bailouts anymore).

    Note one very funny situation. The contributors to the EFSF include Italy and Spain (30% of the fund) who are themselves in dire need of bailout!!! :)) Can't get more messy than this.


    So, if they do bailout greece, markets may NOT collapse outright and crash. May stage a brief rally and stay in a range waiting for the next big event. Which brings us to ...

    2. The US Govt running out of money on 23 Nov. Remember the debt raising tamasha a few weeks ago? Well, its coming back again in Nov. And this time around there might be no more postponement OR interim measure.

    There could be a political deadlock and the US might get downgraded from AAA, this time by Moody's - thus proving S&P as the early bird in proactive rating (for a change).

    Important!
    The point to note is this ...

    In both cases the too-big-to-fail banks will find that even-bigger-to-fail sovereign states will throw them under the bus.

    - EU banks will get to the point of collapse.

    - Since US banks are heavily exposed to EU banks (as well as US debt) they too will get to the point of collapse

    The FED will come to an extremely stressful point of decision (their own making)

    - Bailout ALL global banks AGAIN! And risk the wrath of their politicians, govt as well as citizenry

    - cut banks loose. And risk total collapse of the financial system.

    The monkey in the works is the people with deposits in banks who could start their own run on banks and also trigger a potential collapse of the financial system.

    I think the near future augurs well for Gold and Silver!:D

    In a short while from today, market should also get their direction. I'm positioned both ways but am bearish for the moment.

    cheers



    Wiseman,

    Be assured,crash will not come due to factors listed above by you,but something we have still not comprehended.
    By the way,china markets have not at all participated in global rally .:bab (38)::bab (38)::bab (38):
    CommentQuote
  • Originally Posted by wiseman
    Folks,

    Get this straight once and for all ..

    The people creating the inflation is the Govt and you and me!

    The RBI is a quasi-independent setup trying to save you and me from ourselves!!!

    If they did not hike rates, GDP growth might have become 9% (only benefits Maunmohan Singh), but inflation would probably be above 20%!!!!

    Can you imagine what your EMIs would have become at interest rates above 20%???:o

    One should always be careful not to confuse the issues and make the robber the hero!

    Apart from the Lokayukta, RBI seems to be one of the very few institutions with their head screwed on correct, their integrity largely intact, having a spine to stand up to the politicians all the way to the PM and having common janta's interest on their minds (not the ones who wil pay any price to get that home and fancy car - and morgaging their own future to enrich Mercedes Benz and RP Singh)!!!!

    I continue to support rate hikes - so that your salaries and savings will not become worthless and inconsequential. In fact BI should have taken this opportunity to hike 0.75% this time and KILL this fake, debt-fueled growth once and for all. RBI is the only one keeping India from suffering the fate of the western world - which all of you can see. Of course we also have sensible guys like Pranab-da, who sometimes is forced to produce nonsense for politican reasons! :)

    Don't fall for media's nonsense about hikes which is nothing but paid propaganda by business interests who are being taken to the cleaners because of their own greed and lack of control.

    Remember that, its these very same "businessmen" (VM comes to mind) who borrow and amass wealth through questionable means when easy money is flowing and run crying "mummy" to the press and politicians when the whiplash occurs!

    These are truly "Kings of good times" and "Crybabies of bad times" indeed!

    cheers


    Rightly said ..

    Its Ant and Grasshopper story again
    http://www.livemint.com/2011/05/31215415/The-ant-and-the-grasshopper-an.html

    RBI is supporting the Ant while whole Media and Govt is wooing Grasshoppers

    So Spend ... don't save ... Go Spend ...
    bcoz Media gets their money by companies who always want more spending ... overspending .... who cares if there is wastage or not....

    Avg. Life of a mob.ile is 4-5 yrs ...
    Earlier TV sets used to last in a family for 20 yrs or so ...
    Cars used to last the same ....

    Now what consumerism is leading us .....
    Wastage .....


    So this makes RBI villain and Govt hero ...
    Instead of regulating the RE prices its taking more subsidy burden...
    so thats simple ... Ants too have to pay the price in term of higher taxes..
    CommentQuote
  • psft rates are not coming down. interest rates are going up. inflation is going up. tax is gonna increase with subsidy burden for homes upto 20 lakhs. stock market is directionless. situation is hopeless. people r still buying houses. colleague of mine bought 2 bhk for 56 lakhs in tathawade
    CommentQuote
  • Originally Posted by puser
    psft rates are not coming down. interest rates are going up. inflation is going up. tax is gonna increase with subsidy burden for homes upto 20 lakhs. stock market is directionless. situation is hopeless. people r still buying houses. colleague of mine bought 2 bhk for 56 lakhs in tathawade


    check y'days article on ravi k's blog of setting price expectations .


    CommentQuote
  • Absolutely correct ...

    Originally Posted by vatsalbajpai
    Wiseman,

    Be assured,crash will not come due to factors listed above by you,but something we have still not comprehended.
    By the way,china markets have not at all participated in global rally .:bab (38)::bab (38)::bab (38):



    Vatsalbhai,

    As Taleb would say, the tsunami will come from an as yet completely unknown direction while everyone is looking at all other directions.

    But I believe that circumstances are ripe for another large decline in markets in the near future because of the events shaping up.

    Nevertheless I'm positioned both ways because, between now and then markets can rally up and we need to try make money every swing in the market! :D While keeping an eye out for the big one!

    cheers
    CommentQuote
  • RBI's New Policies

    Originally Posted by suryawork
    check y'days article on ravi k's blog of setting price expectations .



    Some RBI updates here:-

    Home loans interest rates set to go up:-

    RBI raises repo rate by 0.25%; loans to become dearer - NDTV Profit

    Home, auto loans to become costlier: Bankers - NDTV Profit

    The good news for those who are saving:-

    RBI frees savings deposit rate - NDTV Profit
    CommentQuote
  • Originally Posted by wiseman
    Vatsalbhai,

    As Taleb would say, the tsunami will come from an as yet completely unknown direction while everyone is looking at all other directions.

    But I believe that circumstances are ripe for another large decline in markets in the near future because of the events shaping up.

    Nevertheless I'm positioned both ways because, between now and then markets can rally up and we need to try make money every swing in the market! :D While keeping an eye out for the big one!

    cheers



    Wiseman,

    Best of luck!!!
    How i wish to get some free time to think and act like you, rather than working and working.
    I do fear for a huge decline in markets,but only for the index ,i see prices of mid-cap and small caps already reaching 2008 lows,looks to me that just index is being maintained to avoid a all around panic,which would be difficult to avoid sooner than later.
    Also a big worry is GOI bond yields creeping up slowly,and a Government going on a slippery slope of subsidies despite well knowing that the Path is suicidal.
    Sometimes i fear for the future of 98% indians (till now i am in 2% :))
    Have a Great Deepawali.

    Vatsal
    CommentQuote
  • Indian realty in deep trouble as profits down and costs, debt rise

    25 Oct, 2011, 11.05AM IST, Reuters Indian realty in deep trouble as profits down and costs, debt rise; firms forced to sell assets When even the man who is building the world's tallest residential tower speaks of an Indian real-estate slowdown that could last for years, it is clear the foundations of a once-soaring industry are starting to shake Soaring realty ambitions belie rocky foundations | Reuters
    CommentQuote
  • Originally Posted by realpune
    25 Oct, 2011, 11.05AM IST, Reuters Indian realty in deep trouble as profits down and costs, debt rise; firms forced to sell assets When even the man who is building the world's tallest residential tower speaks of an Indian real-estate slowdown that could last for years, it is clear the foundations of a once-soaring industry are starting to shake Soaring realty ambitions belie rocky foundations | Reuters


    what is our (or end user's) benefit in it? in short we will have to face a trend of low quality construction, small size apartments, real estate frauds and that too not necessarily at lower prices
    CommentQuote
  • 1 BHK for 2.3 crores (Kharadi) - 1-BHK Multistorey Apartment For Sale in Kharadi, Pune, Maharashtra - 575 Sq-ft - Magicbricks.com - 9609650

    Search for 1 BHK and sort from highest to lowest. 1 BHK are also available at "attractive prices" for 70 lakhs to 50 lakhs in areas like Fatima Nagar, Narayan Peth etc.
    CommentQuote
  • Originally Posted by realpune
    25 Oct, 2011, 11.05AM IST, Reuters Indian realty in deep trouble as profits down and costs, debt rise; firms forced to sell assets When even the man who is building the world's tallest residential tower speaks of an Indian real-estate slowdown that could last for years, it is clear the foundations of a once-soaring industry are starting to shake Soaring realty ambitions belie rocky foundations | Reuters



    An agent suggested me to wait for 2/3 months, if the negative sentiments continue in domestic and global markets, prices may correct by 10%-15% in 3/4 months...Banks are still not actively asking builders to repay huge loans but may start doing it post diwali/xmas period.
    CommentQuote