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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  • NRI investments have also added rise in RE prices. Even residents of India are made to pay such huge sums because NRI can afford them and can compete amogn rest of the buyers
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  • Just to keep them attracted

    For NRI investors, in current scenario, abroad RE market is much more attractive than to invest in India.

    One of my friend sold his property in India, and bought in New Jersey.

    I guess that is why government (with consent from builders lobby) is arranging such meetings to keep NRIs attracted.
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  • PMC DP Plans

    Friends,

    Many may have gone through this but here is the link giving the details about all the DP plans of PMC. If you see, Wakad is missing. Make sure you cross verify these plans with what the builder committs.

    ]http://www.punecorporation.org/pmcwebn/dp23vill.aspx

    Btw, guys I really felt nice & shy when I read you comments here:-
    ]http://www.indianrealestateforum.com/pune/t-is-pune-the-most-favoured-destination-for-nris-8357.html

    Thanks but please don't make me feel shy;).

    Thanks but please don't make me feel shy;).

    Thanks but please don't make me feel shy;).
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  • Wakad ...

    Isn't Wakad part of Pimpri Chinchwad Muni Corp ? Why will PMC bother about putting its plan on its website ?
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  • Originally Posted by compuwalah
    Isn't Wakad part of Pimpri Chinchwad Muni Corp ? Why will PMC bother about putting its plan on its website ?

    True, but when it came up for discussion at the State Cabinet, it was kept out. Only PS was included from this nearby area in PCMC. Wakad DP has been partly sanctioned & excludes DP roads in the plan. However, entire DP has yet to recieve sanction from State Govt.
    Some info is also given here:-

    ]http://www.slideshare.net/rgadgi/09-development-plan-for-pcmc
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  • Wakad ...

    Hmmm. So guess in abscence of clarity, Wakad will take a backseat in planning by both municipal corporations.
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  • 2750/- at MAGARPATTA CITY in Paper today

    After waiting so long .... Now seeing 2750/- at MAGARPATTA CITY in Paper today. feeling better that the knee-jerk is finally appearing to be over and again a new down trend starting.
    Looks like another bus coming soon that will be better and faster. :D
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  • Its good news. However check that is builder having that 30% load factor etc and what are the extra charges. Coz many builders now a day advertise low rates but in practice it turns out to higher due to load factor and extra charges.
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  • Whether Buy or rent, everything is ridiculously inflated in India. I am currently negotiating 2000 sq. ft. of office space on 9th floor of a landmark downtown building, in a reasonable size town in Tx USA, for yearly rent of $ 14.50 per sq. ft. This includes HVAC, Electricity and 5 days of office cleaning. This would come out less than Rs 36-40 per month per sq. ft. appx. Compare this with Rs 100 or so for property being developed or already developed on NOIDA Expressway. On Expressway, there is mostly vacant land with small cluster of residential or businesses property.
    In India, there is excess supply everywhere. Prices are artificially inflated. I expect a crash, so bad, which we have never seen before in Indian realty sector.
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  • Our current situation was well described 120 years ago and came true in 1906, 1916, 1929 all of which were just repetitions of what happened 200 years ago when the first federal bank was formed in USA.
    ]http://www.oftwominds.com/blog.html
    "The Work of Orestes A. Brownson (1893)
    The Credit System
    The fact is, the mercantile system, introduced by England, or the credit system, that is, the system of making debt pass for capital, is itself failing, in consequence of its own expansion. The principle of the system, as we understand it, is to do business on credit and to rely on the profits of the business done to pay the interest on the borrowed capital and to discharge in time the loan itself. This would, perhaps, be well enough if the capital borrowed were real capital, for the volume of business would then not exceed the ability of the country to sustain and no general depression of business could occur. But it is credit, not capital, that is borrowed. The banks do not lend money, they simply lend their credit, and consequently depend on their debtors for the means to sustain their own credit or to redeem their bills; and these depend on the amount and profits of the business they do on their borrowed credit. If they fail the bank fails, or suspends, as it is politely called. The greater the facility of borrowing credit, the greater the extension of business.

    The multiplication of banks of discount facilitates the borrowing of credit, tempts an undue proportion of the young men of the country into business, and those already engaged to extend their business operations, till business is expanded far beyond the wants of the community or the ability of the industry and productions of the soil to support; and a collapse and business depression, as well as widespread financial ruin, inevitably follow. No wisdom, foresight, or prudence, no business tact or capacity, can save a house that has borrowed or given credit from failing, for it will be carried down by the collapse of credit or the demand for payment of the debt hitherto used as capital; and the means to pay it will not be forthcoming when business has been overdone.

    Financial Remedies

    The various remedies suggested, whether by the president or by prominent merchants, traders, and bankers, are puerile, and not even palliatives. There is no remedy for a gangrenous limb or safety for the patient but in amputation, and not always even in that. The essence of the present system is in using debt as capital. Under it no debts are ever really paid; there is only a transfer of the debt, and all debts are mortgages on the future. A debt discharged in bank-notes becomes a debt against the bank; in greenbacks, it becomes a debt against the government, but in neither case is there any liquidation of the indebtedness.

    If the government credit fail – and a revolution or gross mismanagement may cause it to fail – somebody must lose; if the bank fail – and fail it must if it overdoes its business, if its debtors fail, if it lock up its means in unavailable or worthless assets, if there is a considerable shrinkage in their market value, or it its officers are speculators, stock-gamblers, swindlers, or defaulters – its creditors necessarily lose.

    The bank depends on its debtors for its ability to pay its own debts, and the government would bankrupt the whole people were it to attempt to liquidate at once its entire indebtedness. It is more than it is now able to do to meet its ordinary expenses and pay the interest on the public debt.

    CHS note: doesn't this precisely describe the current financial meltdown? "

    I can hardly distinguish this 120 year old writing from something current
    "The Work of Orestes A. Brownson (1893)
    The Credit System
    The fact is, the mercantile system, introduced by England, or the credit system, that is, the system of making debt pass for capital, is itself failing, in consequence of its own expansion. The principle of the system, as we understand it, is to do business on credit and to rely on the profits of the business done to pay the interest on the borrowed capital and to discharge in time the loan itself. This would, perhaps, be well enough if the capital borrowed were real capital, for the volume of business would then not exceed the ability of the country to sustain and no general depression of business could occur. But it is credit, not capital, that is borrowed. The banks do not lend money, they simply lend their credit, and consequently depend on their debtors for the means to sustain their own credit or to redeem their bills; and these depend on the amount and profits of the business they do on their borrowed credit. If they fail the bank fails, or suspends, as it is politely called. The greater the facility of borrowing credit, the greater the extension of business.

    The multiplication of banks of discount facilitates the borrowing of credit, tempts an undue proportion of the young men of the country into business, and those already engaged to extend their business operations, till business is expanded far beyond the wants of the community or the ability of the industry and productions of the soil to support; and a collapse and business depression, as well as widespread financial ruin, inevitably follow. No wisdom, foresight, or prudence, no business tact or capacity, can save a house that has borrowed or given credit from failing, for it will be carried down by the collapse of credit or the demand for payment of the debt hitherto used as capital; and the means to pay it will not be forthcoming when business has been overdone.

    Financial Remedies

    The various remedies suggested, whether by the president or by prominent merchants, traders, and bankers, are puerile, and not even palliatives. There is no remedy for a gangrenous limb or safety for the patient but in amputation, and not always even in that. The essence of the present system is in using debt as capital. Under it no debts are ever really paid; there is only a transfer of the debt, and all debts are mortgages on the future. A debt discharged in bank-notes becomes a debt against the bank; in greenbacks, it becomes a debt against the government, but in neither case is there any liquidation of the indebtedness.

    If the government credit fail – and a revolution or gross mismanagement may cause it to fail – somebody must lose; if the bank fail – and fail it must if it overdoes its business, if its debtors fail, if it lock up its means in unavailable or worthless assets, if there is a considerable shrinkage in their market value, or it its officers are speculators, stock-gamblers, swindlers, or defaulters – its creditors necessarily lose.

    The bank depends on its debtors for its ability to pay its own debts, and the government would bankrupt the whole people were it to attempt to liquidate at once its entire indebtedness. It is more than it is now able to do to meet its ordinary expenses and pay the interest on the public debt.

    CHS note: doesn't this precisely describe the current financial meltdown? "

    I can hardly distinguish this 120 year old writing from something current
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  • I have seen rates of as low as 2800 at Magarpatta before(6-9 months ago). So this is probably not that great. But yes, from the excesses of past, this is a welcome relief. I have seen that the Magarpatta resale market fluctuating a lot. Anyone know why? Why are Magarpatta sellers scared more than say Baner/Balewadi etc?
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  • Originally Posted by compuwalah
    Its good news. However check that is builder having that 30% load factor etc and what are the extra charges. Coz many builders now a day advertise low rates but in practice it turns out to higher due to load factor and extra charges.


    that's by the broker..... so its a resale flat .... so you can count 30 to 50 rs more negotiations
    and by the way looking at today's paper its 3 pages of RE ads
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  • Originally Posted by frugality
    that's by the broker..... so its a resale flat .... so you can count 30 to 50 rs more negotiations
    and by the way looking at today's paper its 3 pages of RE ads


    Which paper you are talking about...coz not everybody is reading what you read:p
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  • Yesterday's TOI .....
    And didn't look at today's one ...... thats awful 3 full pages of RE adds :)
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  • Times of India always had RE ads more than 3 pages :p

    Sometimes ads are repeated
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