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 wiseman
    I have already mentioned that the Indian Central Bank is perhaps one of the best in the world when it comes to managing the finances & financial policy of our country.

    Hey, I thought this was my opinion - didnt know you agreed - werent you rather anti RBI - or was that just anti fed feeling rubbing off on RBI?

    But they are not magicians.They cannot correct the structural issues with our country or the massive structural issues with the global financial system.

    So long as situation is getting worse, I should be crazy to say, up, up, up just to make it sound pleasing to other's ears.

    When the world bottoms out and start climbing - which may take many years - rest assured that I will be leading the crowd saying bullish things.

    For now and for some time to come, I see it as down only. You might also note that, when markets had declined significantly I had called for rally of some substance.

    But let us not confuse RELIEF RALLY as a sign of a new bull market. Overall market is still in a down phase.

    cheers


    I think RBI screwed up when it last raised rates - it was not necessary and I had said so many times. In that case, the last 50 bps rate cut would have been unnecessary and we would have been able to defend Rupee better 6 months ago (right now looks indefencible till 54 or worse, despite the rate cut)

    RBI listens to govt too much.
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  • Originally Posted by santo1234
    Maybe he too was one of the 350. .. Just kidding...no offence meant.. My condolences towards the people who were forced to exit..

    BTW it is anyways a fact that people from higher management (who by the way are least productive except for few geniuses) working in Investment Banks are always aware that their days are numbered. And trust me maximum people from this clan are somewhat responsible RE hyper boom. They have multiple properties, are the first ones to crowd in Pre-launch schemes. IT people may now be realising that its no more a behti Ganga like it was in 90's or early 2000's. Gone are the days when any dummy programmer walked out from college piling bonuses and salary hikes by jumping jobs. Most companies are not even entertaining thoughts of recruiting 6-8 yrs exp guys who demand 10+ Lac salaries. Same job can be done by a guy with 3-5 yr exp guy and trust me I have seen it myself.

    Its time the whole young IT generation start realizing this fact that they have missed the BOOM bus. Hard times are ahead. Same happened to Mechanical industry/Civil Engg before IT. Compare the salaries of simillar exp mech engg and IT engg. Trust me, former works harder than latter and yet is receiving pennies.



    1. Times have always been tough. When I started going to engg college(1993 ) i had heard plenty stories of engg graduates working for Rs 1800 per month. Back then Gold was approx 4000 per 10 gm.. So starting salary was like 7/8 k pm and people survived somehow.

    2. In 98/99 when I was working in a IT company, people used to talk about saturation. Many people would say after y2k, the IT industry would go bust. That did not happen, people again figured out a way out of it. after a few years of struggle, industry boomed.

    3. The high salaries of IT was a trailing sign of the off shoring trend. That trend would eventually wear off. the high salaries would stop growing at the pace they grew in the past. But they would still continue to be one of the highest. The manufacturing salaries in the experience of 15+ years would pick up as IT sucked a lot of manpower from non-IT fields and there would be manpower crunch in the experienced categories in manufacturing.

    4. IT industry is a meat grinder. It needs fresh meat. It is a fact that they prefer people who would stay nights and weekends. Only fresh meat can do it for a few years before wife and kids make it necessary to cut down. So replacement of experienced people with fresh meat would be ongoing process.
    For that matter, all industries have realized this pattern.

    5. I read either too optimistic or too pessimistic stories on the forum. The reality would probably fall somewhere in between..
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  • Originally Posted by naganyal
    I dont know how these fired or downgraded peopels are paying their EMI's i pity on them. I am earning 15lakh pa dont know till when?


    Don't worry about their nearby future. As far as I know from a friend to friend of mine (who luckily is still employed) that even some of good guys got fired but company gave 2Salaries + 1Sal for each years served there. So most people should have got at least 3 salaries. I'm sure all these will get into another job within next 3 months.

    Originally Posted by wiseman

    Only thing, these guys are paid obscene amounts of money as salary by overcharging us (the customer) and they act as though we are obliged to them!

    Considering these obscene salary, I'm wondering whether those people would be happy or sad after receiving (minimum) 3 salaries?
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  • Don't worry about their nearby future. As far as I know from a friend to friend of mine (who luckily is still employed) that even some of good guys got fired but company gave 2Salaries + 1Sal for each years served there. So most people should have got at least 3 salaries. I'm sure all these will get into another job within next 3 months.



    For senior employees (10+ years), believe me it is not so easy to be placed once you are not on job. I know one of the victims of HSBC lay-offs, he got 6 months salary (3 months notice + 3 months for his 3 years in company), but he was very distressed and concerned. You also lose negotiability for the coming jobs if you are unemployed.
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  • Originally Posted by itsvin
    For senior employees (10+ years), believe me it is not so easy to be placed once you are not on job. I know one of the victims of HSBC lay-offs, he got 6 months salary (3 months notice + 3 months for his 3 years in company), but he was very distressed and concerned. You also lose negotiability for the coming jobs if you are unemployed.


    +1

    There is very less openings/vacancy for senior professional in the market. You will find many job openings for the software developers but there are very few openings for the managers.
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  • Originally Posted by RealHunter1
    +1

    There is very less openings/vacancy for senior professional in the market. You will find many job openings for the software developers but there are very few openings for the managers.


    True indeed... There are 100s of junior jobs when 1 high rank job comes in job market...
    Again jobs can never be taken for granted. Nobody is disaster prone. Expenses and Savings should be managed effectively. Otherwise nobody knows what future has in store.

    Everybody thinks that he will never be jobless. But you can't deny the chances. Better everybody be prepared for the worst. That is only possible when somebody plans effectively with what he has.
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  • Originally Posted by RealHunter1
    +1

    There is very less openings/vacancy for senior professional in the market. You will find many job openings for the software developers but there are very few openings for the managers.


    This is true to a great extent, the senior people must ensure,
    1) That they justify their experience (grey hair) by demonstrating special skills
    2) They must ask for a reasonable and affordable salary

    But, once this is done... there should be plenty for everyone to take... IT / outsourcing / offshoring has not yet fully matured.. in fact several world locations are just starting... so creating a panic and saying that golden days of Indian IT are over would be incorrect...

    By the way.... several thousands of IT professionals(including the senior professionals referred here) would have minted money in past decade and would have achieved more than they ever imagined... so the truth is that these senior people just need enough money to maintain their life style... for them basics of life (roti , kapda and makan) have already been taken care of ........
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  • Originally Posted by RealHunter1
    +1

    There is very less openings/vacancy for senior professional in the market. You will find many job openings for the software developers but there are very few openings for the managers.


    Fundamental problem in India is, 2 years experienced people like to manage the project and all bullshit and unskilled people follow the managerial path to hide his/her skill ;) . I have seen 55 year old developers in US but can’t find 15 years experienced developer in India.
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  • Originally Posted by Saurabh01
    Fundamental problem in India is, 2 years experienced people like to manage the project and all bullshit and unskilled people follow the managerial path to hide his/her skill ;) . I have seen 55 year old developers in US but can’t find 15 years experienced developer in India.


    You may find 15+years of experienced developer but in product companies at positions of Staff Engineer, Principal Engineers, Fellow, Architect. These companies are the likes of Intel, TI, Marvell, AMD, Broadcom, Nvidia, LSI, etc. IT industry is a different story.
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  • Originally Posted by Saurabh01
    Fundamental problem in India is, 2 years experienced people like to manage the project and all bullshit and unskilled people follow the managerial path to hide his/her skill ;) . I have seen 55 year old developers in US but can’t find 15 years experienced developer in India.


    That’s completely rubbish… May be you ‘er referring xxx-2006….Post 2008 all Indian IT companies have gone for some sort of restricting.. Pre 2008, ppl used to get fancy designations like project manager with 5/6 yrs of experience but not now. No company ‘ll consider you for a lead role w/o 8-10 yrs of exp…forget abt project manager… many clients/organizations even stopped billing for less than 2 year exp folks..most for first 2-3 years they are working as a shadow resource.
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  • its actually a myth that companies are replacing experienced people with inexperienced ones.
    From my own experience I can tell that its actually hard to find good experienced people of 6-7 years experience.
    I work for project where employees on contract are hired to do most of development work. But they are closely supervised by permanent employees who perform more complex task like preparing detailed technical design. .
    Person doing coding work rarely use their brains and blindly follow what's written in technical design even if its wrong.
    A developer hardly have the idea of the solution which they are developing, due to a piece of work getting divided among multiple resources.

    Company values senior employees more because whether a project is success or failure mostly depends on the combined team work of such employees.
    These experienced guys have to face all difficult questions from Architects, customers and PM's and also have to guide people working under them.
    Not an easy job IMO and not by any means easily replaceable one.
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  • Unitech promoter pledges 2.15 cr shares

    Realty major Unitech's promoter Prakausali Investment has pledged 2.15 crore shares of the company.

    As on March 31, 2012, Prakausali held 51,43,32,062 shares in Unitech amounting to 21.54 per cent stake in the company. Out of its total holding, Prakausali had pledged 91.25 per cent shares.

    Excluding the encumbered shares, Prakausali stake in Unitech stands at 1.52 per cent.
    All the Unitech promoters together had 48.35 per cent stake in the company as on March 31, out of which 68.21 per cent were pledged.

    Unitech promoter pledges 2.15 cr shares - The Economic Times


    Are these owners crazy? Why can’t they read the bull story on IREF forum.
    These fools are selling(sold) such a great appreciating Real estate owner ship. :D
    If I am not wrong Unitech was 2nd largest RE company in India in 2008 with land portfolio & luxury projects across the India. May be they should come to Pune & see the b(d)ooming RE.:bab (59):
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  • Originally Posted by khbarilal
    Realty major Unitech's promoter Prakausali Investment has pledged 2.15 crore shares of the company.

    As on March 31, 2012, Prakausali held 51,43,32,062 shares in Unitech amounting to 21.54 per cent stake in the company. Out of its total holding, Prakausali had pledged 91.25 per cent shares.

    Excluding the encumbered shares, Prakausali stake in Unitech stands at 1.52 per cent.
    All the Unitech promoters together had 48.35 per cent stake in the company as on March 31, out of which 68.21 per cent were pledged.

    Unitech promoter pledges 2.15 cr shares - The Economic Times


    Are these owners crazy? Why can’t they read the bull story on IREF forum.
    These fools are selling(sold) such a great appreciating Real estate owner ship. :D
    If I am not wrong Unitech was 2nd largest RE company in India in 2008 with land portfolio & luxury projects across the India. May be they should come to Pune & see the b(d)ooming RE.:bab (59):

    I guess after Wiseman shorted unitech , all promoters are following the path.
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  • Originally Posted by khbarilal
    Realty major Unitech's promoter Prakausali Investment has pledged 2.15 crore shares of the company.

    As on March 31, 2012, Prakausali held 51,43,32,062 shares in Unitech amounting to 21.54 per cent stake in the company. Out of its total holding, Prakausali had pledged 91.25 per cent shares.


    Absolutely agree. The way Pune builders are raising prices, they are already india's richest builders. Only thing is that as they are not public company, profit and total earnings can't be evaluated.

    Day before yesterday, I was watching hiranandani builders saying that they are getting very less buyers for their project and are not looking forward to launch new projects.....

    So my concern is, if Hiranandani thinks that its not getting enough buyers, how come pune builders says that there is huge demand in Pune(on unrealistic high prices)...
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  • There is a difference between an engineer who came out of college 10 years back and now

    10 years back there were much less engineering colleges and much less people. ppl use to tinker with computers and knew things inside out. less people went for MS in US.

    Today by default a decent engineer goes to US. What is left in india are engineers who do not know what is a command line console, computer internals. they know browser, FB, google and thats it. Sorry state of affairs. they become productive only after 2-3 years so yeah its hard to find a solid developer today.

    Originally Posted by AJAY_GGN
    its actually a myth that companies are replacing experienced people with inexperienced ones.
    From my own experience I can tell that its actually hard to find good experienced people of 6-7 years experience.
    I work for project where employees on contract are hired to do most of development work. But they are closely supervised by permanent employees who perform more complex task like preparing detailed technical design. .
    Person doing coding work rarely use their brains and blindly follow what's written in technical design even if its wrong.
    A developer hardly have the idea of the solution which they are developing, due to a piece of work getting divided among multiple resources.

    Company values senior employees more because whether a project is success or failure mostly depends on the combined team work of such employees.
    These experienced guys have to face all difficult questions from Architects, customers and PM's and also have to guide people working under them.
    Not an easy job IMO and not by any means easily replaceable one.
    CommentQuote