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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  • This thread in its 3rd year, 474th page and 4732th comment. Builder theory proved right still going strong. It proves there is a big difference in theory and real life.

    Buyers - Purchase a property if you can afford it(take into account high interest rate).
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  • Originally Posted by realbee
    This thread in its 3rd year, 474th page and 4732th comment. Builder theory proved right still going strong. It proves there is a big difference in theory and real life.

    Yep, the hike in NPAs by 20.5% YoY shows the real pic man & so does distress asset sale by builders across the country.

    Buyers - Purchase a property if you can afford it(take into account high interest rate).

    This is what even we say, but price should be in accordance with infra.
    Why do builders want only buyers to keep their promise of making timely payments, but deliver junk product with basic infra with most promises not fulfilled ?? Please explain.

    Man, what is pay is the PRICE,
    What you get in VALUE.

    More than price, problem is with value .
    CommentQuote
  • India inches closer to crisis as rupee retreats

    (Reuters) - India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the Reserve Bank of India (RBI) with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.

    Read complete story here:-

    India inches closer to crisis as rupee retreats | Reuters
    CommentQuote
  • Originally Posted by realbee
    This thread in its 3rd year, 474th page and 4732th comment. Builder theory proved right still going strong. It proves there is a big difference in theory and real life.

    Buyers - Purchase a property if you can afford it(take into account high interest rate).


    Unfortunately , few buyers will take your advice...simply because they cannot buy at these prices !
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  • Credit Suisse sees Sen at 13,200; Re at 55 by June

    Originally Posted by suryawork
    Unfortunately , few buyers will take your advice...simply because they cannot buy at these prices !


    Credit Suisse sees Sensex at 13,200; Re at 55 by June - PTI -
    CommentQuote
  • Exposed: The dark underbelly of Indian Real Estate

    Good expose by Bloomberg-UTV.
    Now Mah govt has said it will come up with new MOFA law which will be more stringent !!

    Exposed: The dark underbelly of Indian Real Estate - YouTube
    CommentQuote
  • It takes time to build sustainable wealth

    Originally Posted by Mikhail
    What i am saying might not be a proper s to s comparison but here goes..
    Noida expressway :: Just a 6 lane road with vast tracts of land on either side but not a soul in sight. A few companies have set up shop but nothing major. All you see are some constructions going on - scattered across a few sectors. Note that this area will take atleast 2 or 3 years to be livable- bare minimum (Livable as in - people living, not quality of living)
    Rates: 4200 on an average nowadays (Its higher for projects where construction has already started)
    Noida RE experts are expecting that rates will go much higher.

    Dwarka Expressway in Gurgaon: Most of the things are on paper, even the road to some extent!! This will take atleast 5 years for the first settlers to move in.
    Rates: 4.5k approx
    The rates just keep on increasing.

    Now, take Wakad in Pune
    Livable (maybe not quality living but still, manageable)
    Next to scores of companies in Hinjewadi.
    Has an active network of roads.
    Rates: 3.7k approx

    My question is, when i compare Noida expressway and something like Wakad, Wakad is infinitely better. Job opportunities are better, people are living, basic shops are there, hospitals etc are not too far off. Why do you think it is overpriced ?

    Just playing the devils advocate :)



    Mikhail,

    Its simple really.

    If you look at heart of town, most Metros today have developed over several decades. MG Road in Bangalore, Connaught Place in Delhi, Mount Road in Chennai, Marine Drive in Mumbai (I somehow still like Madras and Bombay), etc.

    So, property values that grow gradually over time (like they used to back in the good old days when property was largely bought by your and my father for living and not for speculation or parking excess money) have a tendency to be resilient to economic weakness as they are as bought by people with financial strength with own money and are considered as good as gold since they provide access to the most lucrative income generating parts of town (the CBD).

    But people think that, just because there is a 4-lane highway leading to nowhere, and some swanky and unsustainable developments coming up, somehow that will make these outlying locations catch up in price with City Centers hyper-quick.

    While for a while during boomtimes they might seem to catch up, when weakness comes, also comes the weakness in prices of these places. The money that goes into these development is largely bank money at stretched leverage and not substantially owned money (like the rich dudes who buy posh localities all in own cash).

    So, it is prudent to buy outlying areas at reasonable prices and not jump in at any price as you may have to wait a much longer period for prices to eventually make your purchase a worthwhile one.

    Also, as you go radially out of city, risk increases as you are depending on "development" coming your way to justify ever-increasing prices. I have known many people lose out when this development went some other way.

    cheers
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  • It's time to start calling the current situation what it is: a depression: Paul Krugman

    It's time to start calling the current situation what it is: a depression, says Paul Krugman - The Economic Times

    We are already in depression as per Paul Krugman, the man who predicted 2008 recession well in advance.

    Very bad domestic IIP figures today(worst in 28 months), domestic + global problems.

    How can people be still bullish about RE ?
    CommentQuote
  • I personally believe that these rates are high. But if you can afford and are buying for personal use and not investment than you should go ahead at anytime.
    Because you never know when the situation changes rapidly and suddenly all the things will be bullish, prices will rise and fall, it doesn't matter for end user. Only investors should watch out.
    CommentQuote
  • Originally Posted by gery128
    I personally believe that these rates are high. But if you can afford and are buying for personal use and not investment than you should go ahead at anytime.
    Because you never know when the situation changes rapidly and suddenly all the things will be bullish, prices will rise and fall, it doesn't matter for end user. Only investors should watch out.

    What I don't understand is how is it that something which is bad for investors is not bad for end users ?? Do end users get money free or subsidized ?? When rents are so low compared to EMIs, even for end users, it makes sense to save rather than buy at inflated prices & the good time for end users to enter market is when investors start exiting.
    CommentQuote
  • Surana Developers is offering free stamp duty + registration (officially) & some cash discounts in addition to this (unofficially),

    Pride-Purple also is offering discounts on its price/sq ft.

    Btw, IIP nos are out & are -5.1% . Man, this is -5.1% from +11.4% YoY.
    CommentQuote
  • So in 2-3 years 2bhk in pune for 1 crore ? in 7 years 1.5-1.75 crores ? is that what your bullish trend is saying.


    Originally Posted by gery128
    I personally believe that these rates are high. But if you can afford and are buying for personal use and not investment than you should go ahead at anytime.
    Because you never know when the situation changes rapidly and suddenly all the things will be bullish, prices will rise and fall, it doesn't matter for end user. Only investors should watch out.
    CommentQuote
  • Originally Posted by realacres
    Surana Developers is offering free stamp duty + registration (officially) & some cash discounts in addition to this (unofficially),

    Pride-Purple also is offering discounts on its price/sq ft.

    Btw, IIP nos are out & are -5.1% . Man, this is -5.1% from +11.4% YoY.



    Man!!! How this will reverse the prices?

    Man, so many bad news came and went nothing happened....in so much time.....everything just going up n up.......

    Man what r u still betting on man!!!!!:D
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  • Finally! Vindicated!

    Originally Posted by realpune
    It's time to start calling the current situation what it is: a depression, says Paul Krugman - The Economic Times

    We are already in depression as per Paul Krugman, the man who predicted 2008 recession well in advance.

    Very bad domestic IIP figures today(worst in 28 months), domestic + global problems.

    How can people be still bullish about RE ?


    Dudes,

    I have been alone in yet another thing on this forum ... calling this an oncoming Depression all along!

    Finally (despite in disagreement with many of Krugman's views - though I suppose he wouldn't even know who I was!:D), he has been the first of the pro-establishment people to call a spade a spade!

    So, now that its nearly official, be extra careful!

    cheers
    CommentQuote
  • Originally Posted by realacres
    What I don't understand is how is it that something which is bad for investors is not bad for end users ?? Do end users get money free or subsidized ?? When rents are so low compared to EMIs, even for end users, it makes sense to save rather than buy at inflated prices & the good time for end users to enter market is when investors start exiting.



    Nope,

    What he means is, unlike Investors who are willing to book losses and run while there is still time, he means that end users (after getting into a bad marriage) have a lot more appetite for pain and averse to a quick divorce! :)

    cheers
    CommentQuote