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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  • M Kumar-

    Sanjana/(King?)manish/ Real

    I am just amazed at the coincidence. What i mean is the fact that over last 2 weeks , atleast 6 of my friends (in medicine / software IT)who have been well settled in Uk (over last 12 years) are actively planning to return to india discussing about -managing pensions, placing their houses on sale, relocation to corporate private hospitals / institutuions in India.

    I wonder if the economic downturn / spending cuts and gloomy prediction for next 10years in the developed world (us/ uk/ europe ) , with ongoing indian growth story is playing part in this.

    Views and experiences welcome
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  • Very interesting!

    Originally Posted by amitgupta00




    RBI is pumping money very fast into indian economy and this thing is holding up RE and stock prices.
    India is preparing itself for a Greece style debacle if we do not return soon to high growth mode.



    Amit ji,

    This is very interesting and should throw some cold water on the "India Shining and Bullish" crowd!

    Past couple of years its clear that almost ALL of our "growth" is based on Govt spending. Govt spending is mostly consumptive (and not capital additive) and does not contribute to future growth. Also in most cases it is populist and therefore wrongly spent. I'm not even bringing in corruption which has a massive impact due to final spend become a trickle of the initial amount.

    Expect to see anemic growth in the medium term. Markets have already gone far ahead of fundamentals at this point.

    cheers
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  • A year of bad loans for SBI

    Look at the bad loans SBI has had during the year, there is a clear indication that lot of people are going over the credit they can afford (this includes the housing loans, the beast of 'em all).

    SBI: A year of bad loans - Corporate News - livemint.com

    The key factor in State Bank of India’s financial results was the extent of the increase in bad loans. The table shows that gross non-performing assets have increased 18% during the December 2011 quarter. Year-on-year, the percentage increase has been a stunning 71%
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  • Originally Posted by shahkushan
    Look at the bad loans SBI has had during the year, there is a clear indication that lot of people are going over the credit they can afford (this includes the housing loans, the beast of 'em all).

    SBI: A year of bad loans - Corporate News - livemint.com


    Not surprising. considering what OP's agenda was when RBI was ramping up the interest rates and warning all to cool down teaser rates, the most vocal against this was our good OLD sbi!

    Well guess slowly but surely chickens are beginning to hatch!

    but who cares after all, yeh sab tho apne baap ka paisa hai ;)
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  • More NPAs in RE sector

    Originally Posted by shahkushan
    Look at the bad loans SBI has had during the year, there is a clear indication that lot of people are going over the credit they can afford (this includes the housing loans, the beast of 'em all).

    SBI: A year of bad loans - Corporate News - livemint.com

    Teaser loans was introduced not for benefit of buyer but to help builder. The buyers who have taken teaser loans in 2008-09 are now finding it very difficult to repay at current interest rates, thanks to their own short term vision.

    Besides SBI, the other bank in mess is HDFC. Recently HDFC has hiked deposit rates upto 100 bps or 1% !! This clearly shows how bad liquidity condition of HDFC is in reality, not to forget that HDFC is one of the largest lender to realty sector, be it builders or buyers; not to forget that RE constitutes largest hike in NPAs in various banks, including ICICI.

    Builders are asking for roll-over of loans but seeing the recent directive from RBI to keep taxes etc. out from loan amount, this seems remote possibility. It is no surpriise then that builders like DLF, Omaxe, Indiabulls, Oberoi etc. are selling land & non-core assets to repay loan. Even Pune based Kumar Builders is trying to sell 30% stake in each project to repay some debt...they have over INR 430 Cr loan on paper. The real amount will be far more if black money lenders' amount is taken into consideration.

    Btw, look where Kolte-patil share is trading on stock market :D.

    All these things will be crystal clear in last week of March 2012.
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  • Hi Bhuvan..

    Do you still question my prediction.. I think however we hate the congress.. I do not think the opposition is a viable united option..
    ----------------


    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).

    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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  • Investor visa in USA

    Sometimes I wonder why people spend so much money for buying at crap locations?

    Instead, USA offers an investor visa and GC if one 'invests' (not pay) $500K in USA. That's around 2.5 CR and best of all is, you are investing it so you get the benefits...

    i have seen many Indians opening restaurants or small businesses around and also getting green card.. and from your investment, you can easily earn enough to pay an EMI and buy a night big house with excellent infrastructure ..

    just thought i would share this... ;)
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  • Life gets most expensive at age 50

    Nice article by Indian Express,though story is from UK,its pretty much valid in India also.

    Life gets 'most expensive' at 50 - Indian Express
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  • guys, was looking for basic building material cost - cement,steel,bricks,sand,aluminium,wood etc. - appreciate if someone can guide me as never thought it would be that difficult to get such basic information in this web-age!!
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  • Originally Posted by realacres
    Teaser loans was introduced not for benefit of buyer but to help builder. The buyers who have taken teaser loans in 2008-09 are now finding it very difficult to repay at current interest rates, thanks to their own short term vision.

    Besides SBI, the other bank in mess is HDFC. Recently HDFC has hiked deposit rates upto 100 bps or 1% !! This clearly shows how bad liquidity condition of HDFC is in reality, not to forget that HDFC is one of the largest lender to realty sector, be it builders or buyers; not to forget that RE constitutes largest hike in NPAs in various banks, including ICICI.

    Builders are asking for roll-over of loans but seeing the recent directive from RBI to keep taxes etc. out from loan amount, this seems remote possibility. It is no surpriise then that builders like DLF, Omaxe, Indiabulls, Oberoi etc. are selling land & non-core assets to repay loan. Even Pune based Kumar Builders is trying to sell 30% stake in each project to repay some debt...they have over INR 430 Cr loan on paper. The real amount will be far more if black money lenders' amount is taken into consideration.

    Btw, look where Kolte-patil share is trading on stock market :D.

    All these things will be crystal clear in last week of March 2012.

    Very well said. The effect of teaser loanss have just started showing - because for the first two years teaser loans are like soft loans. Now many buyers of property who took teaser loans are paying from their nose. Many want to sell property but what they get (even after some appreciation) is still less than outstanding loan. Many have sold at loss - please check the listing of foreclose property in india to understand it.

    Many banks actually collaborated with builders and took stake and on the advise (great idea) of builders launched teaser loans. Ironically builders still could not sell their inventory and are holding on in the vague hope of further appreciation. Greed begets greed. Many genuine buyers have postponed their decision to buy, but still there are a few who think that property price can only go up. May god help and save them.
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  • Hi ashishi,

    > please check the listing of foreclose property in india to understand it.

    where is this listing available?
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  • Originally Posted by ashishi
    Very well said. The effect of teaser loanss have just started showing - because for the first two years teaser loans are like soft loans. /QUOTE]

    You are under-estimating the intelligence of the average Indian home loan buyer. Most home buyers understand that interest rates follow a cyclical path. If they're "paying through their nose" now on the teaser loans, they are aware that things will return to normal once the cycle is over. Only the mentally challenged will sell because their EMI went up by a few thousand rupees. Meanwhile, these same buyers have experienced capital appreciation of 50% in the last 4 years. Besides, other options exist - you can renegotiate with the bank for an increase in tenure. You can also pre-pay the principal amounts and keep your EMI's steady. Don't superimpose what you might do in a specific situation, onto others.Very well said. The effect of teaser loanss have just started showing - because for the first two years teaser loans are like soft loans. /QUOTE]

    You are under-estimating the intelligence of the average Indian home loan buyer. Most home buyers understand that interest rates follow a cyclical path. If they're "paying through their nose" now on the teaser loans, they are aware that things will return to normal once the cycle is over. Only the mentally challenged will sell because their EMI went up by a few thousand rupees. Meanwhile, these same buyers have experienced capital appreciation of 50% in the last 4 years. Besides, other options exist - you can renegotiate with the bank for an increase in tenure. You can also pre-pay the principal amounts and keep your EMI's steady. Don't superimpose what you might do in a specific situation, onto others.
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  • Originally Posted by punerebuyer
    Sometimes I wonder why people spend so much money for buying at crap locations?

    Instead, USA offers an investor visa and GC if one 'invests' (not pay) $500K in USA. That's around 2.5 CR and best of all is, you are investing it so you get the benefits...

    i have seen many Indians opening restaurants or small businesses around and also getting green card.. and from your investment, you can easily earn enough to pay an EMI and buy a night big house with excellent infrastructure ..

    just thought i would share this... ;)

    +1. But many people feel that by buying in projects with Western names like California, Miami, Gold Coast, Beverly Hills etc. they will get the PROPOSED INFRA of international standards :D.

    Major problem with buyers, especially Pune buyers is they are not exposed to outside world, let alone abroad but how many Pune buyers have even been to Bangalore, Ahmadabad, Chandigarh etc. to know what LIVABLE INFRA actually means ?? Some of good localities of Ahmadabad have rates less than Wakad !! Not to forget the infra like water & 24*7 electricity + low taxes etc.

    Even in Mumbai, the price:rental ratio is far, far better than Pune, not to forget that Mumbai has more superior projects than Pune which current Pune builders can't even dream of.
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  • Clarifications

    Originally Posted by stinaikar
    You are under-estimating the intelligence of the average Indian home loan buyer. Most home buyers understand that interest rates follow a cyclical path. If they're "paying through their nose" now on the teaser loans, they are aware that things will return to normal once the cycle is over. Only the mentally challenged will sell because their EMI went up by a few thousand rupees. Meanwhile, these same buyers have experienced capital appreciation of 50% in the last 4 years. Besides, other options exist - you can renegotiate with the bank for an increase in tenure. You can also pre-pay the principal amounts and keep your EMI's steady. Don't superimpose what you might do in a specific situation, onto others.

    We are not saying that all the buyers who bought under teaser rates will find it difficult to repay loans. Here is point to point clarifications for issues you have raised -

    > Issue is not few thousand rupees but 30%. If the net outgo in home loan EMIs was 60% or more, this 30% hike makes huge difference,

    > See the inflation rate of 2008-09 & now. What was the oil prices at that time ? See the cost of running your vehicle, from 2009-2012. What was rate of gold, silver etc. at that time ? What were the school fees at that time ?? Even public transport has got expensive.

    Fact is the cost of living has gone up in past 3 years.

    > Income levels- For most of the people, the income levels haven't gone up with inflation level. What's more, in case of home buyers on loan, inflation + more interest rates + less increment has led to triple whammy. Think about this aspect too.

    > Capital appreciation, whether it is 50% or 500% doesn't matter to end user coz s/he is not going to sell in any case. And this rise in prices is in no way going to make life easier for the buyer who bought purely on teaser rates or over-leverage. The bank doesn't reduce the EMIs if property prices go up.

    The only people who today are in real profit are those who bought in 2009 with 100% down-payment. But what is the %age of such buyers ?

    > Pre-payment option - This is indeed a good option but then the one who can keep making pre-payment on regular intervals, surely wasn't over-leveraged for the simple reason s/he can repay the loan at period lesser than what they took loan for. But ask bank how many people are pre-paying the charges ?? Infact, bankers are getting several requests for TOP-UP loans for existing home loan clients.

    > Increase in loan tenure - This is the most idiotic thing one can do. Be slave to the banks & builders for more few more years, right ?? And by the time you would have repaid the loan, seeing the crap quality of most of the builders, the building would have come for redevelopment :D.

    Man, late 20s to early 40s are golden years where you should explore the world in all senses, expand, increase your investment portfolio & enjoy time with friends & family. If one keeps repaying heavy EMIs, will s/he be able to enjoy rest of the good things in life ??

    There is lot of things to do in life than to own a house. Even birds build house, that too on their own without taking any loans & see how happy they live :)....one needs to learn something from birds.
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