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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  • Wise, interesting chart on DI.

    If dollar collapses in 2010-11 and goes below 70, does it mean Sen s e x goes above 20,000?
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  • Wiseman. Thanks for posting such useful info . If u don't mind , can you share as where you collect these charts/data from .. any websites ?
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  • Not so simple!

    Originally Posted by Venkytalks
    Wise, interesting chart on DI.

    If dollar collapses in 2010-11 and goes below 70, does it mean Sen s e x goes above 20,000?



    Venky,

    Where the Sensx goes is primarily based on the current fundamentals as well as sentiment going forward. I just unearthed an interesting "coincidence" between the 2 indices which may have an underlying reason behind it.

    Currently people can link up the divergent movement by assuming that when Dollar weakens, money flows into stronger economies chasing returns and vice versa. This pattern may not have existed a few years back for various reasons.

    Second, about Sensx 20000, thats just a fixation. When the Dollar sinks from a peak, how far the Sensx may go in the up direction depends in fundamentals as well as where it started, when it hit bottom. So, the peak may be 17000, 20000 or 25000. The only thing if value is for me to identify the birth of a bull move, get in and hang on till I identify the birth of a bear move, however far the moves may go!:D

    Compuwalah, it took me a long time to get these links. But let me make it easier for you guys. Both these are Java-based charting tools and are fabulous in terms of what you can do with them ...

    Various Indices (Stocks, Commodities, Currencies, etc), the Wall St Journal site. You can visit it at:
    - http://india.wsj.com/home-page

    and click on the tiny charts on the right side to get the bigger version. You must have the Java runtime installed which you can get done by visiting the Sun site.

    There is another spet site on Fx called FxStreet. Another great charting tool.

    http://www.fxstreet.com/rates-charts/usdollar-index/

    The best part of this is that back in the 90s one had to pay a bomb just to access such sites and the tools were so unwieldy even then.

    Today, have an unlimited connection for 750 bucks a month and the world of opportunity opens up for you right from your hall! :)

    cheers
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  • Hi,

    your views are thought-provoking and nice. Thank you very much.

    Thanks to RealAcres - wiseman.

    With Regards,
    A. Jesudoss
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  • Originally Posted by wiseman
    Venky,

    Where the Sensx goes is primarily based on the current fundamentals as well as sentiment going forward. I just unearthed an interesting "coincidence" between the 2 indices which may have an underlying reason behind it.


    Wiseman, I think you touched on it in your previous post. The "coincidence" makes sense.

    If I am a US fund and changing USD to INR to invest in Indian Market, If I see the USD rising Vs INR in the future to say a tune of 15% in the next 9-12 months. I would atleast need my investment in INR to jump by 15% just in order to break even (taking the converting back to USD into account).

    So if as a US Fund/Investor I anlyse this to happen. I would care very little for what happens to anyone anywhere around the world. I would sell and take my money back in my pocket in USD and enjoy the US lifestyle. :D

    I hope i m right in my understanding here.

    VK
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  • What if Euro replaces US$?

    Many countries are mooting for non-US$ as reserve currency + global trade currency. Dominant amongst these are China, Russia & EU (where does spineless Indian Govt stand?) & all major OPEC countries.

    The moment a new currency is introduced or Euro replaces US$, all such calculations (INR Vs US$ & US$ relationship with gold & oil) will go for a toss:D. The only reason countries like China are keeping silent for now is that they have billions of US$ parked in US treasury bond:p. Once they exit it, see the real fun:D.

    Btw, ROIs are going to be hiked for sure in first quarter of 2010.
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  • Friends,
    Just wanted to know one thing :-

    Does anyone knows the status of Kumar's 45 Nirvana Hills? I am hardly seeing any movement here & seems the builder is yet to get the sanction to construct upto 30 floors. Any mods due to change of ownership of Kumar Builders?
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  • Originally Posted by realacres
    Friends,
    Just wanted to know one thing :-

    Does anyone knows the status of Kumar's 45 Nirvana Hills? I am hardly seeing any movement here & seems the builder is yet to get the sanction to construct upto 30 floors. Any mods due to change of ownership of Kumar Builders?


    seems kumar's poclain going 30 floor below ground first and then kicking off the construction...:D. there is not much development seen. may be he had made a trick to raise funds.

    sam...
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  • This is the current trend ...

    Originally Posted by realacres
    Many countries are mooting for non-US$ as reserve currency + global trade currency. Dominant amongst these are China, Russia & EU (where does spineless Indian Govt stand?) & all major OPEC countries.

    The moment a new currency is introduced or Euro replaces US$, all such calculations (INR Vs US$ & US$ relationship with gold & oil) will go for a toss:D. The only reason countries like China are keeping silent for now is that they have billions of US$ parked in US treasury bond:p. Once they exit it, see the real fun:D.

    Btw, ROIs are going to be hiked for sure in first quarter of 2010.



    Sorry folks! The $$$ is not about to be replaced by any other currency as the World's reserve currency. Reasons?

    The only other strong currency, the Euro is itself possibly in a deathly grip of pessimism today. Besides the fact that European Banks are in even more trouble than American ones (having a greater leverage of 40 times capital as well as investing even more in not only toxic American debt but also making the mistake of providing very large and doubtful loans to the Eastern EU and former Soviet Bloc countries which, to make it worse, is denominated in strong currency and thus is more likely to default as the Eastern nations are starting to go belly up.

    Just check on Greece, Lithuania, Latvia and probably the UK. Spain and Portugal are not far behind and in the North there are always countries like Iceland which started the whole default thingy!!!

    The latest notion is that the situation of EU is so bad (the economic tensions between good economies like Germany on one end and the comatose ones on the other) that many analysts believe that the EU itself may disintegrate. Greece, under its current problems, is looking for a different set of economic policies from Germany, which is doing quite well. So, as things get worse, social (and thus local political) pressures may end up with countries starting to leave the EU simply to survive!!!

    So, the Euro is out. Then there are ideas like the SDR and the latest Gulf common currency. These are just on the drawing board (so to speak) and may simply remain there for a long time to come.

    In fact, the $$$ is rising simply because people are slowly realising that, notwithstanding the US being a basket-case, there is simply no other stronger alternative. This is posibly a strong reason why the short-sellers of the $$$ are covering so energetically and bulls are climbing onto the $$$ bandwagon. These factors may enable the $$$ to breakthru the previous top of 92 and rise further.

    Ultimately though, over the next few years, the $$$ is expectted to lose half or more of its current value.

    cheers
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  • Originally Posted by realacres
    Many countries are mooting for non-US$ as reserve currency + global trade currency. Dominant amongst these are China, Russia & EU (where does spineless Indian Govt stand?) & all major OPEC countries.
    .

    There was a news quite few days before that Govt. of India has purchased some tons of Gold from World Bank!
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  • Yes, around 203 tons around $1045 per ounce

    Originally Posted by home123
    .

    There was a news quite few days before that Govt. of India has purchased some tons of Gold from World Bank!



    In the last 20 years India had added a net additional position of gold of a mere 7 tons!!! In one shot, they added 203 tons at the given price above.

    The mini blow-off of Gold was so powerful that, even after losing $135 from its peak of $1227, gold price still gives the recent purchase a handsome profit (6527331 ounces with a profit of approx $50 per ounce giving $325 million; at the peak of $1227, paper profit was $1175 million or $1.175 Billion) !

    The IMF was being used to keep Gold prices down the whole of last decade by the threat of selling 400 tons in one go! With this one very surprising move the Indian Govt completely demolished the threat as only a paper threat, provided a sort of bottom for gold around $1000 and also started a competition between the other BRIC countries as to who would buy the rest - latest news is that India is also a sttrong contender to buy out the remaining gold as well.

    No wonder then, that the world over there is a rumor spreading that the Indian Central Bank and Finance Ministry is among the smartest ones in the world, if not the smartest!:D

    Among the Gold bulls, the ultimate price for Gold in this bull market for gold is between $2000 - $3000. Some extreme projections go upto $5000 and beyond! And these are serious people who are predicting these things, not crackpots.

    cheers
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  • Work will be over soon, builder assures flat-owners in Kothrud

    Builders looting the buyers & buyers becoming bakras due to non-cross verification of builders' promises.

    ]http://epaper.indianexpress.com/IE/IEH/2009/12/20/ArticleHtmls/20_12_2009_583_009.shtml?Mode=1
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  • Ho Wise, I have also been reading these predictions for gold for a while now.

    Unfortunately I cannot buy dollar gold.

    Rupee gold is a double play - dollar gold plus rupee dollar. No way I can predict that.
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  • Dollar carry trade....

    Copied from today's DNA Money...Might be useful on the discussion about when and why dollar quits our stock exchanges.

    "In the last two years, money supply in the US has gone up from $827 billion to a mind-boggling $1.93 trillion. Of course this money has not permeated into the broader economy. But as and when that happens, you know that high inflation will be the order of the day. In fact, former Fed chairman Paul Volker said recently: 'It is difficult, but necessary, for the Fed to start draining the billions of dollars in liquidity even while unemployment remains high as the US battles out of recession... If you wait, it's too late.'"


    "And how can all the printed money be drained out and inflation be prevented?"


    "By raising interest rates. When you raise interest rates, people are more likely to deposit money with banks than go out there and send it. Also, the chances that they will borrow money to spend come down. So that prevents a price rise. Also, as Gary Dorsch, who writes an investment newsletter said: "Behind the scenes, America's two largest creditors might be demanding a credible defense of the US-dollar... which can only be engineered with higher interest rates." In fact, the US economy has rebounded faster rate than expected. In fact, for October to December, some economists expect it to grow at 4-5%, even though the consensus estimate is around 3%. With things looking better, people are likely to borrow more, which might mean higher inflation. This means that the chances of higher interest rates are much higher in 2010 than people currently expect them to be. And rising interest rates will kill the dollar carry trade, which has currently been driving the stock and commodity markets all over the world into higher zones. Investors have been borrowing in dollars at close to zero percent and investing that money worldwide. But with interest rates likely to go up, dollar carry trade investors might be in trouble."
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  • Although I do not understand most of the talk on the global market situations described here, this has been a very interesting post. Thanks to wiseman,venky,real for the informative messages.

    And wiseman, your digressions on assorted topics are most welcome. It does bring out very interesting and informative discussions.
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