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 kedarp
    I am not a fan of UPA govt, but there is no point in blaming UPA government. Our government has no control over petroleum prices as we are dependent on other countries for import. There is no point is subsidising the petrol as the subsidy will have to come from taxes we pay. So whatever they do, we will have to pay what OPEC wants us to pay.

    Our only option is to pray that Mr Ambani and ONGC to become successful in finding some good oil well.


    you are forgetting that 50% of the petrol price is tax which govt controls. :bab (34):

    This is where they can surely curb the prices. As govt is not taking ownership for good public transport, petrol should be an essential commodity now and should not be seen as a means to earn more taxes...
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  • Originally Posted by kedarp
    I am not a fan of UPA govt, but there is no point in blaming UPA government. Our government has no control over petroleum prices as we are dependent on other countries for import. There is no point is subsidising the petrol as the subsidy will have to come from taxes we pay. So whatever they do, we will have to pay what OPEC wants us to pay.

    Our only option is to pray that Mr Ambani and ONGC to become successful in finding some good oil well.


    UPA is aggressive while taking decision like hike petrol and diesel prices,
    but there aggressiveness stops when matter comes to black money/2G Verification.
    If government is able to recover the black money i think they can distribute petrol and diesel free of cost.
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  • Originally Posted by punerebuyer
    you are forgetting that 50% of the petrol price is tax which govt controls. :bab (34):

    This is where they can surely curb the prices. As govt is not taking ownership for good public transport, petrol should be an essential commodity now and should not be seen as a means to earn more taxes...


    we are not paying only 30% income tax rate but with that, there are so many indirect taxes such as service tax is 12.5% vat , Octrai.
    maharashtra is only state where octroi is collected.
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  • Originally Posted by shahkushan
    It is not just about petroleum prices, the general inflation has gone through the roof. Nothing this govt. has done so far looks like a step in right direction. Ditto with the RBI governor. It is all too easy to say that it is due to global situation and all, however, the people in charge are supposed to have a plan for these situations.

    This morning they were showing previous clips of MMS where not once but twice he claimed (in 2010) that inflation will be down to 5/6% in 3 months. If they knew the situation too well, they wouldn't be making these tall claims.

    Guys, no govt can be worst than this. Main reason for inflation, if this govt agree or not is NREGA.

    It's a bit influenced by world economic situation, but how can someone explain the way basic daily items like milk & vegetables has tripled/quadrupled.

    Since the day, this govt started giving tax payers money free to ppl(you guys remember 60k cr loan waiver), from that day the inflation increased many folds.No one to blame but the UPA govt.
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  • I had recently made a trip to Delhi and UP and did an instant opinion poll on which party would make it in 2014.. It will be hung.. but congress will not be wiped out..

    BJP might rant and rave.. but it does not seem to get its act together..

    I don't know if we will survive another 5 years of UPA.. UPA 3 under Rahulji
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  • this sh*t govt must go . inflation is beyond imagination now and add to it there is no relief for home buyers even if interest rates are hiked prices in pune remain at unbelievable levels where 2 bhk cost generally 50 lakh anywhere in pmc / pcmc limits
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  • I doubt whether UPA will survive till 2014. One more case of bribery or one more round of civil protests will be enough to shake its grip at the centre.

    But I agree that BJP doesnt have a PM candidate. Advani, Modi both have a strong fundamentalist reputation

    The country is deprived of a leader.

    I do wish this Govt rule ends soon...its simply indecisive, inactive at a time when the country needs major policy reforms. The West is grappling with its own issues and China is too rigid. If India becomes a little courageous it can attract a lot a good investors
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  • Visit gurgaon and u will start liking Pune in terms of price and basic facilities like power supply
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  • 2014

    2014..

    Let's take 2014..
    TN it will be Amma
    AP (was congress) but the Telengana problem and jagan has thrown it open.. in all probabilities it will be undecided though congress is set to be the leading party.. (Hopefully TDP comes back to NDA fold)
    Kerala.. Congress is hanging by whiskers
    Karnataka Unless there is a tie up with Dewa Gowda for congress, it will be BJP . tie up is unlikely as Dewa Gowda is more corrupt than DMK
    Maharashtra.. BJP/ Sena is terrible and also MNS is eating into their votes so it will be congress NCP..
    Orrisa is JD (U)
    Gujrath and MP will be BJP
    Rajasthan will also be BJP
    Goa will be congress
    Uttaranchal and Himachal will be BJP
    UP will be congress in Lok Sabha polls (Mayawati might win assembly).. unless BJP gets its act together
    Delhi will be congress
    Bihar will be JD (U) NDA
    WB is Mamta
    Jharkhand will be BJP
    NE states and Assam will be Congress
    J&K will be NC
    Punjab will be NDA
    Haryana will be congress

    It looks pretty even..

    Congress has some setbacks in AP, TN, and Rajasthan.. but it will be not be wiped out..
    It would be interesting to see what they do.. How they manage UP and Bihar..
    But you cannot underestimate them..
    I think it will be those lame duck government (like Chandrashekar's) propped up by congress.. which is more dangerous..

    BJP has nobody credible and Advani/Modi means no NDA..

    So maybe we will be stuck with these morons.. but if they are weakened they will not be so arrogant
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  • Hi Sharpj,

    These two i seriously doubt -

    a. UP will be congress in Lok Sabha polls (Mayawati might win assembly).. unless BJP gets its act together (i guess it'll be hung, with Mayawati having upper hand, Mulayam second upper, Congress IIIrd, and, BJP 4th. Nexus between Mayawati + congress, remote but possible since congress has already created hell lot of problems for Mayawati during past 1 year in NE/GN and BMW must be hell bent for revenge).

    b. Delhi will be congress (people are cursing a lot Shiela Dixit due to her arrogance and not being able to address major issues in Delhi).
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  • 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


    Agree 100%
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  • 2014

    2 years is a long time in politics.. and congress has so much money it is unimaginable. Please check my replies in blue below

    Originally Posted by bhuvang
    Hi Sharpj,

    These two i seriously doubt -

    a. UP will be congress in Lok Sabha polls (Mayawati might win assembly).. unless BJP gets its act together (i guess it'll be hung, with Mayawati having upper hand, Mulayam second upper, Congress IIIrd, and, BJP 4th. Nexus between Mayawati + congress, remote but possible since congress has already created hell lot of problems for Mayawati during past 1 year in NE/GN and BMW must be hell bent for revenge).

    Yes it is difficult to call UP assembly, but Congress if it maintains it relation with Ajit Singh.. can be a serious contender in Lok Sabha


    b. Delhi will be congress (people are cursing a lot Shiela Dixit due to her arrogance and not being able to address major issues in Delhi).


    Even I was under that impression, but a week in Delhi made me change it. Yes there is general discontent with Sheila.. but she still can deliver. The juggi jopdis will vote for Congress even if Montek says they can manage with Rs 36 for a family of 5
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  • Thanks for the link. I also visited the other link mentioned in the article "Is your child going to inherit your home loan?" Link: Is your child going to inherit your home loan? - Indian Express

    That is scary part. Looks like we will be like the typical filmy mazdoor/farmer who keeps repaying his grandfathers loan to Zamindars.
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  • Originally Posted by Sharpj
    2 years is a long time in politics.. and congress has so much money it is unimaginable. Please check my replies in blue below
    Even I was under that impression, but a week in Delhi made me change it. Yes there is general discontent with Sheila.. but she still can deliver. The juggi jopdis will vote for Congress even if Montek says they can manage with Rs 36 for a family of 5


    Agree with that. 2 years is a pretty long time and unfortunately, our aam aadmi suffers with short-term memory loss. So, all the scams & corruption cases, inflation etc. will be forgotten if things start getting into place even 6 months before elections. And Sonia madam will be back... :bab (6):

    Besides, if we look at the best administered states of India, i would rank - Gujarat, Uttarakhand, Himachal, Rajasthan, and, now Bihar as well. And all are governed by BJP. So personally, i would like to see BJP with absolute power at center.
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