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'm waiting for the day I get an offer saying ...

    " No EMI till your buyer takes possession!" :D

    cheers


    hahaha ... already some projects in Mumbai are already offering interest waivers on home loans ;)

    Received email for Lodha CasaRioGold Palava in Mumbai which has come up with interest waivers through weekly prizes & crap like that.

    I am unable to attach image here, it appears blank :(

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  • Originally Posted by herohiralal

    Chaddi salamat hai but chaddi shrink ho gai hai due to inflation :)


    But the man wearing it has also become thin due to these high rates. Smaller is still ok, but bigger is not :). So, it should still fit properly. ;)
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  • Originally Posted by mymarji
    But the man wearing it has also become thin due to these high rates. Smaller is still ok, but bigger is not :). So, it should still fit properly. ;)

    Mahangai aise hi rahi.. to khula ghumna padega..:) even thin would not work ;)
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  • Originally Posted by Saurabh01
    Mahangai aise hi rahi.. to khula ghumna padega.. even thin would not work

    Lol. This is getting indeed funny.
    I won't be surprised if builders makes offer -

    With every 2 BR, get 2 pants free,
    With every 3 BR, get 3 pants free.

    Offer valid till stock lasts ! :D

    Btw, the real situation is builders' pants are already gone. It is just that they are standing behind railing that many can't see it.
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  • ICICI Pru AMC exits Pune township project

    NEW DELHI, JUNE 11:
    ICICI Prudential Asset Management Company’s (AMC) real estate portfolio management service (PMS) said it has divested investment in Kumar Urban Development (KUL) Ecoloch, a township project in Pune.

    The PMS, a part of ICICI Prudential’s AMC, had invested Rs 47.5 crore in the 105-acre integrated township in Pune developed by realty firm KUL, a release said.

    The portfolio had generated a gross internal rate of return (IRR) of about 27 per cent.

    >> If ICICI got 27% IRR, why exit ? Or are they seeing something bad ahead, hence the exit ?

    Business Line : Markets News : ICICI Pru AMC exits Pune township project
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  • "A report in December by real estate brokerage firm Jones Lang LaSalle India said only $3 billion worth of exits have been recorded in the Indian real estate sector, as opposed to $13 billion of committed investments since 2005."

    Excerpt from :
    IDFC Real Estate Investments plans to raise $500 mn fund - The Economic Times

    That tells you a very powerful story. Only 20% of PE money has exited in 7 years. Hedge fund and PE money looks for high returns ~ 30-40% YOY. If the returns were there, they would have exited. Smart money does not languish in low yielding assets - because there is an opportunity cost for money too.

    The 200% price rise in certain pockets of Indian RE market where maybe one sucker bought an overpriced property does not tell you the entire story. Builder/investors can quote you obscene prices without losing anything. Whether those prices see any real volume transactions is something you and me will come to know only through News channels. And trust me, there is no good news out there. All builder stocks are getting hammered in the markets - most of them are close to their all time lows. Don't pooh pooh these indicators. If the outlook for RE was that rosy, DLF would be trading close to its all time highs.
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  • Originally Posted by realacres
    NEW DELHI, JUNE 11:
    ICICI Prudential Asset Management Company’s (AMC) real estate portfolio management service (PMS) said it has divested investment in Kumar Urban Development (KUL) Ecoloch, a township project in Pune.

    The PMS, a part of ICICI Prudential’s AMC, had invested Rs 47.5 crore in the 105-acre integrated township in Pune developed by realty firm KUL, a release said.

    The portfolio had generated a gross internal rate of return (IRR) of about 27 per cent.

    >> If ICICI got 27% IRR, why exit ? Or are they seeing something bad ahead, hence the exit ?

    Business Line : Markets News : ICICI Pru AMC exits Pune township project



    I earlier read that ICICI got good profits and hence they booked it. Not sure any other reasons.
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  • DLF seems like its going from bad to worse - beginning to shed non core assets. The distressed sales of core assets cant be far.

    DLF seeks shareholders' approval to sell wind power unit - The Economic Times
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  • I don't know, but if this is hint of slowdown's effect, this will affect the other industries as well. So though RE might be stable on prices or reduced a bit, people wil not be thinking to purchase before thinking of securing own savings.
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  • Originally Posted by JumboHulk
    I earlier read that ICICI got good profits and hence they booked it. Not sure any other reasons.


    Or is it like - they took all that builder could rob from buyers in terms of booking and initial progress cost. Obviously they would have bought at low rate, so booked profit. Now they would want to earn at buyer's risk by giving home loans.

    Now builder will have a new org to finance so he can keep constructing slabs They, too, would be looking for huge pie of the cake !!

    Builder will keep taking huge pie to keep running luxurious elephants consuming tons of diesel and kids guzzling tons of cola/pizza/what not.

    Politicians, govt employees, agents etc. already got their pie all along the way.

    What is left is used to construct poor quality, delayed flat dumped on buyer's head.

    So many mouth to be fed. And people still keep making funny arguments to justify that RE price are in line with input costs ;);)

    And builders say, they help giving thrust to the economy. So RBI should cut rates :bab (59):
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  • Originally Posted by akash481
    hahaha ... already some projects in Mumbai are already offering interest waivers on home loans ;)

    Received email for Lodha CasaRioGold Palava in Mumbai which has come up with interest waivers through weekly prizes & crap like that.

    I am unable to attach image here, it appears blank :(



    This project Lodha CasaRioGold Palava in Mumbai has been delayed already by a year. Interest waivers are just one of the ways to boost sales.
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  • Originally Posted by herohiralal
    In markets bulls make money and bears make money but people who sit on the sidelines end up on forums :)


    good one. :)
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  • Originally Posted by mangopeople
    This project Lodha CasaRioGold Palava in Mumbai has been delayed already by a year. Interest waivers are just one of the ways to boost sales.


    True. Palava is delayed.
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  • http://www.firstpost.com/economy/pms-punditry-at-g20-is-just-the-roar-of-an-economic-mouse-350096.html?utm_source=MC_TOP_WIDGE

    Sardar speech deriyasi.. on how to manage the economy..
    He does not open his mouth back home..
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  • Moody's cuts ratings of 15 banks

    Ratings agency Moody's downgraded 15 of the world's biggest banks on Thursday, lowering credit ratings by one to three notches to reflect the risk of losses they face from volatile capital markets activities

    Moody's cuts ratings of 15 banks, Morgan Stanley down 2 notches

    >> Does this remind of 2008 ?
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