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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  • Guys, i have been reading this thread for quite some time now. I agree to all the points raised by wiseman and realacres, but I fail to understand, when I go in the field to research the market... i see completely different picuture.. brokers agents, builders all seem to be in demanding positions...
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  • Originally Posted by ams444
    Guys, i have been reading this thread for quite some time now. I agree to all the points raised by wiseman and realacres, but I fail to understand, when I go in the field to research the market... i see completely different picuture.. brokers agents, builders all seem to be in demanding positions...


    Well, thats the difference between theory and practical! No matter how the world economy collapses, dollar, gold fluctuate, builder lobby seem to be from a different world all together.
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  • RE is always always local.

    Why are flats in Thane selling for 5000 psf while in Delhi on an expressway 25 minutes from city, it sells for 2500 psf?

    Simply.

    Its all demand and supply and what people can afford. Today people can afford a crore for a flat, so crore priced flats are available. If people can afford 10 crore for a flat, they are made available.

    Temporarily, there was a mismatch. More flats than crorepatis were on the market.

    Once the glut gets absorbed, things will revert back to normal.
    Originally Posted by ams444
    Guys, i have been reading this thread for quite some time now. I agree to all the points raised by wiseman and realacres, but I fail to understand, when I go in the field to research the market... i see completely different picuture.. brokers agents, builders all seem to be in demanding positions...
    CommentQuote
  • Originally Posted by ams444
    but I fail to understand, when I go in the field to research the market... i see completely different picuture.. brokers agents, builders all seem to be in demanding positions...

    The simple reason being that builders in Pune consider buyers too as scorpio chaps:D. However, I have seen investors more wiser than buyers as they are selling off their inventory in saturated market at logical rates.

    As far as agents are concerned, man greater the deal value, more is their commission. Hence, they will only jack the rates.

    Once when I spoke with an agent, he thought that I was an NRI & still staying in Canada:D & quoted me plot at Wakad for INR 2500/sq ft:D. When I told him that I am now is Pune & can offer you plot in that location for INR 700/sq ft, that chap never called me back:D.

    So, if you go out in the market to get culled, you will be treated as bakra. It depends whether you want be a buyer or a bakra.
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  • FIRST I must thank you for sharing your genuine expertise with all of us here
    .may god bless you for your hard work .
    even i think on the same line of waiting rather than buying in peak .
    simple calculation i have done is
    house price - 70 lakh
    deposit around - 8 lakh
    emi - 55000 per month /for a year 660000rs,plus your monthly maintainance and other property taxes ...

    if i go for rent - i pay 18000 per month /for a year 216000
    annual saving by opting rent 444000rs

    so if i wait and buy after 2 years ,not only the property prices will stabilise ,but also i will be able to shell out extra 10 % deposit from my savings ,when i have to buy in the future so i will save more on EMI too ,by paying less intrest on the actual amount .
    and if i buy after 6 years( that maximum wait) i would be adding a whopping 40 %deposit ,
    if buying today i will not even pay 35% of the property price in 6 years
    if i buy now ,as the first 3 years of EMI will be purely based on intrest .
    and the other 3yrs on capital.
    so if we have to wait it is over all good as a calculation in long run ..
    plz correct me if i am wrong ..and i would highly apprciate your corrections .

    Originally Posted by realacres
    Saw an interview of Rakesh Jhunjhunwala, a biggie on BSE on CNBC TV-18 show:- Bull or Bear.

    He said the following about RE.

    1.) Fundamental are weak.
    2.) No positive outlook seen in medium term.
    3.) Balance sheets don't tell exact picture. (Which means they are manipulated).
    4.) Need to clear inventory (flats) at lower rates which the market demands. Simply selling land at reduced rates (down by 60%) won't help.
    5.) People don't spend in such economic scenario taking into consideration that loans are for 15-20 years for many.
    6.) He himself (Rakesh J) doesn't have a single share of RE company!!:)
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  • If renting does not give you tension, it will always be a better option than buying.

    Wait and buy when you can buy a flat the way you buy an airplane ticket - write a cheque for it without feeling any pinch.

    Only caveat - decide where you want to spend your retirement by around 50 and prepare for it by buying a flat/house.

    You dont want to be old and sick in a rented house.
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  • so if i wait and buy after 2 years ,not only the property prices will stabilise ,but also i will be able to shell out extra 10 % deposit from my savings ,when i have to buy in the future so i will save more on EMI too ,by paying less intrest on the actual amount .
    and if i buy after 6 years( that maximum wait) i would be adding a whopping 40 %deposit ,
    if buying today i will not even pay 35% of the property price in 6 years
    if i buy now ,as the first 3 years of EMI will be purely based on intrest .
    and the other 3yrs on capital.
    so if we have to wait it is over all good as a calculation in long run ..
    plz correct me if i am wrong ..and i would highly apprciate your corrections .


    This will hold true only if that flat remains at 70 lacs
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  • Mayur - Your calculation will be correct only if the price of the flat in that area remains constant for the next 1-2 years
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  • Going through the posts some flying thought landed on the airport of my mind. :)

    Where would I like to retire?
    when I retire, I do not want to be in a huge Metro inhaling fumes, paying high prices for everything from Transportation to Food to general living. Besides at that time I would not really be interested in Pubs/Discs/Malls/Expensive Restaurants/Concerts/Entertainment events etc as well. I would be more interested in watching all these from the comfort of a TV set.

    Thinking a little more…

    I would like to retire in a quite place where I can take a nice quite walk in the morning. Have like minded friends (hopefully someone like Realacres, Wisemen and various others on these forum (PN: I mentioned “someone like” because it is not sure if most of you want to retire the same way as well)). To keep me occupied have some hobby. (could be anything)

    Some more thinking

    For all this do I need to be in a metro? I don’t think so….

    Besides as the bulls and media often claim…”INDIA SHINING”
    So it would be safe to assume that by the time I retire i.e. hopefully after 20 years there should be reasonable medical facilities in all major towns in India and the rates of housing on outlines of these ever growing cities (as outlines areas now become part of the city and new areas outside start to become the new outlines) will still be reasonable less.

    If this does not happen i.e. “INDIA DOES NOT SHINE” then there is no reason for the rates to keep on increasing like crazy.. so even then I should be able to afford something on the outlines a city.

    So at that time (i.e. when I am retired and I do not have to travel to work everyday) I can buy a flat in some township on the outskirts of Town/Smaller City which is eco-friendly and surrounded with greenery without concern for travelling huge distances for office work. Staying a content life.

    My only hope is… “I HOPE I AM RIGHT IN THE ABOVE.” But I feel in my optimism of leading a content life I might have missed out some crucial points. The reason I post it on this forum is because some of the intelligent and smart guys on this forum can find out the loopholes in the above and get me back to reality.

    VK
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  • Originally Posted by veeemkay
    Going through the posts some flying thought landed on the airport of my mind. :)

    Where would I like to retire?
    when I retire, I do not want to be in a huge Metro inhaling fumes, paying high prices for everything from Transportation to Food to general living. Besides at that time I would not really be interested in Pubs/Discs/Malls/Expensive Restaurants/Concerts/Entertainment events etc as well. I would be more interested in watching all these from the comfort of a TV set.

    Thinking a little more…

    I would like to retire in a quite place where I can take a nice quite walk in the morning. Have like minded friends (hopefully someone like Realacres, Wisemen and various others on these forum (PN: I mentioned “someone like” because it is not sure if most of you want to retire the same way as well)). To keep me occupied have some hobby. (could be anything)


    VK


    I also am thinking on similar lines. Why pay such hefty price for flats is Pune?

    Moreover, even if I decide to buy, I cannot, since 30L, 40L, etc. is just toooo much for me to pay for a 2-BHk flat and that too in not so OK locations.

    But I don't know whether I am (or would be) right in my thinking process, that is, of settling down in small town or non-IT town after retirement.

    Only time shall speaketh/telleth ...
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  • Originally Posted by enduser
    I also am thinking on similar lines. Why pay such hefty price for flats is Pune?

    Moreover, even if I decide to buy, I cannot, since 30L, 40L, etc. is just toooo much for me to pay for a 2-BHk flat and that too in not so OK locations.

    But I don't know whether I am (or would be) right in my thinking process, that is, of settling down in small town or non-IT town after retirement.

    Only time shall speaketh/telleth ...


    Enduser, you spoke mind of hundreds of flat buyers. There is no point in paying 30-40 lakhs for 2 BHK flat anywhere in Pune. These prices are inflated beyond reasonable limits and will lead RE sector to self-destruction mode soon.

    When most of Pune end users have budget limited to 20-30 lakhs range for 2-3 BHK, what will happen to all flats (note, Pune inventory is biggest in India, if we were to extrapolate a recent report, it comes 70000 flats unsold) if not priced right. Someday this year, its all gonna blow in everone's face as all are tryng to sell but no one is able to buy.

    There is no point in falling for peer pressure. As someone said, prices struggled to cross their peaks even in boom time till 2008. There is no way they can go now as current rates are even more in peak rates during boom time. Whats logic in this man ? Are ppl going nuts ? Why no one thinks of this on this forum ? Some say IT cos are hiring , but at what salary ? Most of then interns/short term contracts/freshers now. Are they the buyers fr 40 lakhs flats all over in Pune ?

    Add to it, investors are realizing two things now. One, there is no point in investing at current prices. Returns will be negative. And for existing assets, no point in waiting anymore. They will observe for some more time and then start getting out of it as waiting more can prove disastruous.
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  • Having Beautiful Life

    Originally Posted by veeemkay
    Going through the posts some flying thought landed on the airport of my mind.

    Hahaha. Man, many times, your thought crash lands:D coz you come up with out of box ideas.

    Thanks for including me in your list of friends.

    Here is what I think:-

    First of all, I am not going to retire as long as I am fit irrespective of the age. You can keep contributing a lot later too or you can become an MLA/MP as that's the right age in politics:D & have fun.


    Coming to serious part:-

      The faster you buy & utilise, the better as you sqeeze each & every rupee put in; be it car or house or GF:D,
      Say, one can buy a Merc SLK today, one should go for it & enjoy long drives either alone or with whoever with opened roof. No point in driving SLK at the age of 100 when your wig may fly off:p,
      The more you use, better becomes the deal as the ratio of Price:Use becomes indeed good,
      Less the age, more is the risk taking capacity (& higher chances of going bankrupt too:D) & when age is on our side, we can do multiple things together. When you grow old, you may achieve so many other things in life that despite having crores or billions, you may not think of buying RE. Ofcourse, when one has that money, one is definately not on rent as other needs are already full-filled,
      Frankly, I don't know how long will I be alive. Maybe till 30 or 35 or more, can't say. Hence, I always make a point that what can be done should be done today itself. When I die the tomb should read:- NO REGRETS,
      If one can buy today COMFORTABLY yeah COMFORTABLY, then one should go ahead & purchase without thinking that what if prices crash. Your condition is such that if you don't care whether the prices fall 1000% or appreciates 10000%, one can buy.
      If one is not sure about his financial issue till the end of the loan tenure, it's better to avoid RE at inflated prices,
      If the issue would been about purchase of bike or car, one can go ahead & buy irrespective of the price as the loan is only for 1-5 years, but RE is long term. Hence, you need to get the calculations right on long term basis. No use of buying RE at prices exceeding your limit & ending up spending 70%+ income in EMIs,
      Last but not the least, RE is part of life & not your entire life. House ownership is great but there are other better things to do too than just purchase a property,
      What is important is a having a balanced & peaceful life. I have seen people having multiple properties & yet are not happy.
      Correct me if I am wrong or add points if any. Like to hear all of your thoughts.

      Have a beautiful life:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.:).

      * Beautiful life according to you & not according to the norms set by the society.
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  • Originally Posted by realacres


    Last but not the least, RE is part of life & not your entire life. House ownership is great but there are other better things to do too than just purchase a property.




    True, should buy RE only if you can afford at that moment, else one should wait till one can afford (although it's easier said than done).

    Although buying RE is not be all and end all of life, Builders try to ensure that it becomes so.

    Especially this Goel-Ganga chap, who does not quote the actual price of flat but instead EMIs lasting for 20 years. Does he expect us to become EMI slaves for the rest of our professional life?
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  • Amazing realacres, my thinking exactly, very well articulated. Could not agree more.

    Point to note: Dont buy the SLK now if you cant afford it! :-)

    Dont underbuy from your salary and also dont overbuy from your salary is my motto.

    Originally Posted by realacres
    Hahaha. Man, many times, your thought crash lands:D coz you come up with out of box ideas.

    Thanks for including me in your list of friends.

    Here is what I think:-

    First of all, I am not going to retire as long as I am fit irrespective of the age. You can keep contributing a lot later too or you can become an MLA/MP as that's the right age in politics:D & have fun.




    Coming to serious part:-

      The faster you buy & utilise, the better as you sqeeze each & every rupee put in; be it car or house or GF:D,
      Say, one can buy a Merc SLK today, one should go for it & enjoy long drives either alone or with whoever with opened roof. No point in driving SLK at the age of 100 when your wig may fly off:p,
      The more you use, better becomes the deal as the ratio of Price:Use becomes indeed good,
      Less the age, more is the risk taking capacity (& higher chances of going bankrupt too:D) & when age is on our side, we can do multiple things together. When you grow old, you may achieve so many other things in life that despite having crores or billions, you may not think of buying RE. Ofcourse, when one has that money, one is definately not on rent as other needs are already full-filled,
      Frankly, I don't know how long will I be alive. Maybe till 30 or 35 or more, can't say. Hence, I always make a point that what can be done should be done today itself. When I die the tomb should read:- NO REGRETS,
      If one can buy today COMFORTABLY yeah COMFORTABLY, then one should go ahead & purchase without thinking that what if prices crash. Your condition is such that if you don't care whether the prices fall 1000% or appreciates 10000%, one can buy.
      If one is not sure about his financial issue till the end of the loan tenure, it's better to avoid RE at inflated prices,
      If the issue would been about purchase of bike or car, one can go ahead & buy irrespective of the price as the loan is only for 1-5 years, but RE is long term. Hence, you need to get the calculations right on long term basis. No use of buying RE at prices exceeding your limit & ending up spending 70%+ income in EMIs,
      Last but not the least, RE is part of life & not your entire life. House ownership is great but there are other better things to do too than just purchase a property,
      What is important is a having a balanced & peaceful life. I have seen people having multiple properties & yet are not happy.
      Correct me if I am wrong or add points if any. Like to hear all of your thoughts.

      Have a beautiful life:).

      * Beautiful life according to you & not according to the norms set by the society.
    CommentQuote
  • Originally Posted by enduser

    Especially this Goel-Ganga chap, who does not quote the actual price of flat but instead EMIs lasting for 20 years.


    Does he pay for the down payment!!:D
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