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
    does it impact cost sheet of 1,2 or 3 BHK in pune projects? i think not....


    May not be… But value has definitely went down.:D
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  • Originally Posted by amit3011
    Shows the desperation of RE investor to people that don't buy the over inflated priced flats that you may have invested in:bab (34):


    Over inflated??? All I am asking for his income for next 30 years, his part time services to water my plants and clean my cars and just one leg....in addition to whatever excess money he was paid by his employers until now that he has no use of.

    IMO, its most reasonable price for a luxurious, palatial 2 BHK flat (860 sqft salable) on 3rd floor (Lift with backup and 24 hours water in monsoon). I am also throwing in two ceiling fans to make the bedrooms air-cooled.
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  • Infy contesting the 10-14% publicly

    Originally Posted by khbarilal
    The trend is likely to continue for the next few quarters, with absorption of office space expected to drop by 10-15 % for 2012 due to lower demand from the information technology sector.

    Demand from IT/ITES sector has dropped from the peak of 68% in 2005 to 35% at present due to increasing cost pressures faced by these firms. Growth expectations of India's IT sector has been lukewarm so far, with software services exporters complaining of clients' delay in deciding on the technology spend. Compared to around 16% growth in year to March 2012, trade body Nasscom has forecast an 11-14 % growth rate for the year to March 2013. "Things are not as rosy as they were in 2010

    Realty sector hit as IT industry demand goes down - The Times of India



    I think Infy mgmt is contesting the Nasscom projection of 10-14% in public. Nasscom is perhaps wearing rose-tinted glasses (that is given with the welcome kit when one becomes a Nasscom office-bearer! :D).

    I think with even Cognizant talking only high single-digit or low-double-digit growth, our IT sector may even stagnate ot contract in the coming storm.

    cheers
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  • Hike in fuel price

    By now you all must be knowing that petrol prices have gone up by INR 7.50/L. In Pune, new price is INR 79.50/L. And in next 2-3 days, expect rickshawalas demanding fare hike !! Now there are talks of increasing prices on diesel & LPG in coming days. Though it will not be completely deregulated, partial hike can't be ruled out. And if this happens, I am sure RBI will then come in & hike interest rates trying to reduce inflation .

    Man, situation is not looking up especially for RE as people are already being squeezed with high inflation & adding to the woes is this price hike in petrol. Now rather than investing in RE, best to invest in petrol :D.

    Btw, INR has hit 56+ to a $ . This will further strain the already high fiscal deficit. :(

    But despite all this, people will vote for Congress. Why ? Because Congress ka haath, **** ke saath.
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  • Declinig realty demand hits banks by Rs 7 lakh cr

    The banking sector is additionally facing concerns regarding deteriorating asset quality, rising provisioning costs, increased loan restructuring and also the unease that gross non- performing assets might rise. The sector is also foreseeing a disturbing trend given the outstanding loan figures. Moreover, out of the total loans recoverable from the banking sector, real estate sector accounts for the largest portion. As per the figures presented in the Lok Sabha, banks have to recover a whopping Rs 6,83,597 crore from the real estate sector alone and the gross NPA figures as on March 2011 stood at Rs 11,553 crore.

    In terms of the exposure, ICICI Bank has to recover Rs 79,956 crore, which is almost 43% of its outstanding loan book. Axis Bank has to recover realty loans worth Rs 45,932 crore, nearly 36% of its outstanding loan book. Similarly, HDFC bank has to recover Rs 23,618 crore.

    http://www.yourmoneysite.com/news/2012/may/declinig-realty-demand-hits-banks-by-rs-7-lakh-cr.html

    It's not only deficit, it's a Banking crisis as well.:bab (59):

    Short the Bank & make fortune. People who missed Aug 2008 opportunity can plan now.:bab (4):
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  • What about the court order about Powai

    Originally Posted by dougnet
    LiveNRI

    exhibitions happening in NJ , CA , Texas

    infact hiranandani have a office in Dallas texas ?? go figure ... prices " non-negotiable" 8500 some hira project in thane

    Wasn't there some court order recently asking for confiscation of the flats in Powai and selling them at discounted rate to lower income group people?
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  • For those with the question ... "Who are the people buying 1+C homes?

    Originally Posted by khbarilal
    The banking sector is additionally facing concerns regarding deteriorating asset quality, rising provisioning costs, increased loan restructuring and also the unease that gross non- performing assets might rise. The sector is also foreseeing a disturbing trend given the outstanding loan figures. Moreover, out of the total loans recoverable from the banking sector, real estate sector accounts for the largest portion. As per the figures presented in the Lok Sabha, banks have to recover a whopping Rs 6,83,597 crore from the real estate sector alone and the gross NPA figures as on March 2011 stood at Rs 11,553 crore.

    In terms of the exposure, ICICI Bank has to recover Rs 79,956 crore, which is almost 43% of its outstanding loan book. Axis Bank has to recover realty loans worth Rs 45,932 crore, nearly 36% of its outstanding loan book. Similarly, HDFC bank has to recover Rs 23,618 crore.

    http://www.yourmoneysite.com/news/2012/may/declinig-realty-demand-hits-banks-by-rs-7-lakh-cr.html

    It's not only deficit, it's a Banking crisis as well.:bab (59):

    Short the Bank & make fortune. People who missed Aug 2008 opportunity can plan now.:bab (4):



    For people wondering who are the people buying those houses from 1C onwards, here's the list ...

    ICICI Bank
    AXIS Bank
    SBI


    These "people" are the ones who "buy" those houses and have between 60% - 85% of the principal amount still on their books.

    Of course the noose is supposedly around the necks of the likes of you and me (whoever has taken a high% home loan, but when we people throw up our hands, then the people mentioned above will face the music via NPAs turning Bad Debts.

    cheers
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  • Originally Posted by khbarilal
    Even after high remittance, RE inventory is not going down. Ohhh…. that’s make builder frustrating….?????:D:D:D


    And unfortunately high inventory doesn't exactly bring prices down!
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  • Cash is king

    When this bubble crashes in Pune, i.e. soon, cash is going to be king. Banks will drastically increase the downpayment requirement, and middle class, reacting out of fear will stop taking home loans.

    At such a time, if you have 50% downpayment or more ready, you can come to the negotiating table with ready cash.

    Believe me, for a distress seller, the sight of ready cash combined with a clean and honest buyer, is a great motivator.

    Whenever I buy second hand white goods, and vehicles, the power of ready cash and promise of a clean and friendly transaction always puts me on top of the seller's list.
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  • Buy petrol. It is in bull market

    Petrol has gone up 7 fold since 1990. Buy petrol it is going to go up. :)


    Image from blog capitalmind.in
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  • Originally Posted by abeerbagul
    When this bubble crashes in Pune, i.e. soon, cash is going to be king. Banks will drastically increase the downpayment requirement, and middle class, reacting out of fear will stop taking home loans.

    At such a time, if you have 50% downpayment or more ready, you can come to the negotiating table with ready cash.

    Believe me, for a distress seller, the sight of ready cash combined with a clean and honest buyer, is a great motivator.

    Whenever I buy second hand white goods, and vehicles, the power of ready cash and promise of a clean and friendly transaction always puts me on top of the seller's list.


    Possibility of crash is remote but stagnation will increase. Sow economy, unstable rupee , increased inflation due to rate hikes in petrol (and possibly in diesel) and probable increase in interest rates will hamper the finances of common man.

    People are forced to restrict expenditures. Interesting thing to see is what happens if situation of bad loans (default loans) occurs.
    But I think, this hike will hit people until people start to adjust accordingly :bab (3):
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  • Increasing desperation?

    2 days back I read that Goldman was booking 1.2 million SFt in Bangalore and that brought about some cheer in the RE business.

    Why do they hire complete idiots to post such nonsense? This idiot does not even have the smarts to hide the real reason why Goldman is doing this.

    In the following para there is mention that they want to consolidate their 6 spread-out offices into one location.

    But the hidden kicker is this ...

    1. In all probability they will use the weak market to drive much lower lease rates and much better financial terms.

    2. They may also use this opportunity to become more ergonomic and save space.

    For RE, this means perhaps more than 1.2 million SFt coming back to market from higher rates into lower rates! Double kicker.

    And if THIS is news for cheer, they better start praying!!!

    cheers
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  • Originally Posted by wiseman

    In the following para there is mention that they want to consolidate their 6 spread-out offices into one location.


    And the old 6-spread out location will lose the rent!! So sad for those owners. Its like taking from 1 pocket and putting in another, but at a cheaper rent.
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  • this drop is just peanuts before what property builders have already earned.
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