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 puser
    real,

    investor selling property at a loss may be a particular one-off case. the attitude of builders, the current atrocious cost of 3 bhk touching a crore in some projects, the psft rate at locations like "kaspatey wasti" casts serious doubts on many investors exiting their investment with losses selling at lower cost.


    Well the investor I mentioned was unable to find the buyers since long time. And he sold his flat to another investor (his friend). When I asked him about what about builder NOC he said he did not make registration with the builder hence that was not needed.
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  • Goint to basics of this thread, the overall study in last 10 year shows something opp what we have been discussing so far on this thread...

    India witnessed biggest rise in house prices in world since 2001


    London, Mar 21 (ANI): Housing prices in India have witnessed the biggest increase in the world over the last ten years, according to a new research.
    According to the Lloyds TSB International Global Housing Market Review, house prices in India increased by a staggering 284 per cent since 2001, after inflation.
    This is equivalent to an average annual rise of 14 per cent.
    The report showed that emerging markets saw the biggest increases in house prices over the past decade, but the UK was still among the 15 top performing housing markets.
    Just behind India in the table is Russia and South Africa, which saw house values rise by 209 percent and 161 per cent respectively, The Daily Mail reports.
    Japan recorded the biggest fall in house prices, 30 per cent, while house prices in Germany are down 17 per cent and United States two per cent.
    According to the report, Britain fared well in comparison, with house prices rising by 50 per cent over the past decade, putting it 13th out of 32 countries covered in the list.
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  • Originally Posted by aedhole
    Japan recorded the biggest fall in house prices, 30 per cent, while house prices in Germany are down 17 per cent and United States two per cent.
    According to the report, Britain fared well in comparison, with house prices rising by 50 per cent over the past decade, putting it 13th out of 32 countries covered in the list.


    I would agree with the statement on US. One of my friend bought house last year in US and while talking to him around that time I commented that he must be spoilt for choices and price given the news we are hearing about US housing market , bank trying to get rid of inventory etc.
    To my amazement he told me that price fall and market flooded with cheap houses is just not true. The prices in decent localities are still holding same prices as before the meltdown and noone is negotiating on those. He finally paid more or less same amount (pre metldown) for a newly built house. The fall in price are in areas which no desi person would like to stay (basically unsafe areas) and were purely driven by invetors.

    Even price drop in India would also start in the locations which never should have commanded high price. I would think of places like Ravet etc in the category. Price near to city (Baner/Balewadi etc) will see minor correction if at all.
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  • even baner/balewadi/wakad/hinjewadi/bavdhan dont command prices that are quoted. Unfortunately there are way too many buyers in hurry to buy (now or never mentality) so things will persist. because people go with expectation of 70 lakh worth of flat 3 BHK, why would builder sell for 40 lakh same flat if he senses buyers are there with paying capacity of 70lakh?
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  • Realacres....your analysis seems to be nice...However, did you calculate the appreciation while analyzing the difference between rent and own house...Appreciation matters alot and that too in terms of cash for which you don't have to pay tax and you can do anything with cash, its the most pwerful.
    Owning house even on loan is better option. You may keep staying on rent in a nice location and keep that your own place for investment. No to forget after retirement you need to have your own place, else life will be hard then..........
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  • Originally Posted by compuwalah

    The fall in price are in areas which no desi person would like to stay (basically unsafe areas) and were purely driven by invetors.


    Not true. I have visited my cousin's place in suburb of PA. His property value is still 30% less than the price he bought it for and the place in atleast 10x safer than the sagest place in Pune.

    I have first hand experience on how alert police is there. We were driving late in the night, as per rule one has to stop at every crossing and then move if no one is coming from the other road, he slowed down the car but didn't stopped it. Within a minute we found cops chasing our car and finally cops gave him warning for not to do it again.

    In short RE there was overall impacted, some downtown areas may be exception.
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  • Originally Posted by Masque
    No to forget after retirement you need to have your own place, else life will be hard then..........


    I agree with this but have you thought about whether the house will remain at one's retirement. With the current cheap quality construction, some building will collapse before they complete even 10 years. Recently some new building slanted sideways in Bangalore. Now what will happen to those people who booked in it ? Will they ever get their flats, forget about retirement.

    Instead invest that money in proper and safe investments, During retirement you will have enough funds to buy during those days. In between IF market goes down, buy something worth.
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  • Originally Posted by mymarji
    I agree with this but have you thought about whether the house will remain at one's retirement. With the current cheap quality construction, some building will collapse before they complete even 10 years. Recently some new building slanted sideways in Bangalore. Now what will happen to those people who booked in it ? Will they ever get their flats, forget about retirement.

    Instead invest that money in proper and safe investments, During retirement you will have enough funds to buy during those days. In between IF market goes down, buy something worth.


    Oh Please... Please stop posting such ridiculous logic for NOT buying property...
    Some gullible people might actually believe you and make up their minds to not buy a flat as the building might fall tomorrow...

    Please stop damaging the society by such weapons of mass destruction !
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  • Any data on this? I'm amazed too!

    Originally Posted by compuwalah
    I would agree with the statement on US. One of my friend bought house last year in US and while talking to him around that time I commented that he must be spoilt for choices and price given the news we are hearing about US housing market , bank trying to get rid of inventory etc.
    To my amazement he told me that price fall and market flooded with cheap houses is just not true. The prices in decent localities are still holding same prices as before the meltdown and noone is negotiating on those. He finally paid more or less same amount (pre metldown) for a newly built house. The fall in price are in areas which no desi person would like to stay (basically unsafe areas) and were purely driven by invetors.

    Even price drop in India would also start in the locations which never should have commanded high price. I would think of places like Ravet etc in the category. Price near to city (Baner/Balewadi etc) will see minor correction if at all.



    Regarding America, the statement that prices in select areas have not fallen from peak levels at all is extremely hard to believe.

    Besides the substantial data on National price declines (CASE-SCHILLER, etc), I personally know people owning homes in some of the most resilient locations out there and no one has reported such a thing. While declines may be lesser in some areas, I do not know of even one areas where prices have not fallen fron August 2005 (the peak month in US RE).

    The key is that paticular month-year as the base for peak rates. Can your friend furnish prices from that period to current period for his location? I'm certainly interested in this since I do not have such a feedback from anyone I know so far!

    cheers
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  • Originally Posted by compuwalah
    To my amazement he told me that price fall and market flooded with cheap houses is just not true. The prices in decent localities are still holding same prices as before the meltdown and noone is negotiating on those. He finally paid more or less same amount (pre metldown) for a newly built house. The fall in price are in areas which no desi person would like to stay (basically unsafe areas) and were purely driven by invetors..



    Not true check zillow.com and compare prices,
    Search for houses near Edison, NJ which had best schooling district, lots of desi people and near to New York still prices are falling.

    Prices have reduces even after 2010.

    By the way where have you friend brought the house in US?
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  • Originally Posted by mymarji
    With the current cheap quality construction, some building will collapse before they complete even 10 years. Recently some new building slanted sideways in Bangalore.
    .


    With this logic humanity would have started inhabiting in caves after have experience with Leaning Tower of Pisa :) . Typical bear pattern. Take one bad example and then generalize it to all cases . By the way I hope the building you are sitting now and reading this post is hopefully not slanted :)

    Originally Posted by mymarji

    Instead invest that money in proper and safe investments, During retirement you will have enough funds to buy during those days. In between IF market goes down, buy something worth.


    If you are not able to buy property in your youth, how you can do so when you are old and even if you could, what enjoyment would you derive from your house then :( .
    Wonder you apply same logic to marraige and then maybe you can see fallacy of the concept .

    Twenty year down the line , as someone was saying, 1 Cr will have worth value of 17 Lakhs. Houses which are costing 50L now will be in range of 8 crores then (even in most severe downturn, they would not fall below valuations of 3 to 4 crore). The kids of now will be youth during that time drawing salary in crores and woude be pay such amount (albeit with some pain or some top salary drawers woudl pay that easily).

    Just think of if someone such elderly person who would have thought 20 years back that the house which is 3 Lakh that time may worst may go 12 lakh when he retires (20 years doen the line which is now). Where you think he stands in today's market
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  • Originally Posted by compuwalah


    Twenty year down the line , as someone was saying, 1 Cr will have worth value of 17 Lakhs. Houses which are costing 50L now will be in range of 8 crores then (even in most severe downturn, they would not fall below valuations of 3 to 4 crore).


    8 crore flats would mean Indian RE would be costlier than RE in almost all western countries, and most Indian kids would earn more than their western counterparts. ... India Shining? India Superpower ??
    Just because RE rose 400% to 600% in the last decade does not mean that it will necessarily grow with that rate, on and on ...
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  • Originally Posted by compuwalah

    Twenty year down the line , as someone was saying, 1 Cr will have worth value of 17 Lakhs. Houses which are costing 50L now will be in range of 8 crores


    The argument that defeats itself ! :D
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  • Originally Posted by compuwalah
    With this logic humanity would have started inhabiting in caves after have experience with Leaning Tower of Pisa :) . Typical bear pattern. Take one bad example and then generalize it to all cases . By the way I hope the building you are sitting now and reading this post is hopefully not slanted :)

    If you are not able to buy property in your youth, how you can do so when you are old and even if you could, what enjoyment would you derive from your house then :( .
    Wonder you apply same logic to marraige and then maybe you can see fallacy of the concept .


    Good sense of humor @compuwalah. But there are many apartments in Mumbai which are on the verge of collapsing. Go to the central parts of Mumbai and you will see the dilapitated building where the structures are being supported by stilts and bamboos. I had gone to visit a friend in Girgaum Chowpatti long back and my friends apartment was only 1 room, his building had lots of stilts/bamboos supporting the roof. They are just being maintained so that it collapses slowly. Also in TV, sometime back nearly 9 months ago, they had shown some apartments which are very close to collapsing and the BMC told on this newschannel that people have been given notice to vacate such apartments. Those people are not ready to move out as they have no place to go and also don't have any money to buy in currently overinflated market. So, you can close your eyes to reality.
    Also since I am staying on rent, even if the building collapses, I don't lose much .:bab (59):
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  • Originally Posted by mymarji
    I agree with this but have you thought about whether the house will remain at one's retirement. With the current cheap quality construction, some building will collapse before they complete even 10 years. Recently some new building slanted sideways in Bangalore. Now what will happen to those people who booked in it ? Will they ever get their flats, forget about retirement.

    Instead invest that money in proper and safe investments, During retirement you will have enough funds to buy during those days. In between IF market goes down, buy something worth.


    You are right that house might not remain by that age. However, the person's share in that land will still be there and all he needs is to reconstruct.

    If you are talking to invest in safe investments then you are actually losing your money if you calculate in terms of inflation. You will never have enough funds to buy property at that pace. We can always keep saying to ourselves about "Some" Investments but what are they.

    Atleast I have not been able to find out a "Safe " investment which can beat inflation and grow your money to a level that you should be able to buy real estate in future.

    Let's take an example, If I have 50 lakhs today. I do not buy flat, I'll keep that money invested. Will I be able to buy a flat in NCR after 25 years with this money? If Yes, what is that investment tool or technique, plz tell me. Today I can still buy a decent flat with this amount in NOIDA.
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