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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  • Land Rates in Pune is Cheap

    From the following news, it is evident that land prices in Pune are low compared to flat costs. I have always been saying that the builders' logic of high land cost, high cost of labor etc. is just a hogwash. They make no less than 100-120% profit. And yes, the rate quoted to individual buyer is far more than quoted to the builder in reality. See the news below to get all details.

    Realty hit by lack of amenities in Pune

    Real estate watchers operating in the fringe villages believe that bringing these under PMC limits would not have an immediate spiralling effect on the land prices, due to lack of infrastructure here. Besides, with the properties changing hands several times over, demand would be slow to pick up.

    Sus, Mahalunge, Narhe, Kirkitawadi and other villages are being merged within PMC limits. Though local villagers have claimed it would mean a quick escalation of their land prices, experts feel otherwise.

    An established real estate developer of Pune said that the realty industry had already extended its limits long before the state government’s decision was made. “Around 50% of the land has changed hands from the original landholders to the builders, who would now be developing the land,” he said. On an average, the price of per sq ft of land around Pune hovers between Rs800 and Rs1,000.

    In the last decade, land prices have risen in line with the trends of the city at large. Dhiraj Oswal of Devachi Uruli, one of the villages that would come under the PMC, said, “In 1997, the land price for a guntha of land was Rs30,000, which has now gone up to Rs1.5 lakh.”

    Real estate expert Ravi Karandeekar said, “PMC has failed to provide proper infrastructure within its own limits. So, their chances of performing miracles in the merged villages are slim. That’s why, property prices would not rise immediately.”

    Real Estate Pune - Indian Real Estate Forum - www.indianrealestateforum.com
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  • PE funds unable to exit RE

    PE funds are unable to exit, realtors are not allowing them to.

    PE funds, realty firms in disputes over exits, corporate governance - Livemint
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  • Originally Posted by realpune
    PE funds are unable to exit, realtors are not allowing them to.

    PE funds, realty firms in disputes over exits, corporate governance - Livemint

    Thanks for the link. I also got info that many investors are trying to exit projects even in under-constro project, some have already done & builders are showing them fake picture by hiking the rates to create artificial feeling that their money is increasing. However, investors are not buying this any longer. Once they pull out, situation for builders is going to be miserable as their source of funding will completely dry up, especially when banks are not lending to RE; and in latest RBI policy, the interest rates remaining the same.

    RBI Guv has also said that inflation & interest rates will continue to remain high for alteast another 18 months. It is also good to see that RBI is working in interest of the country rather than selfish politicians :).
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  • Indian Sub-Prime Version

    The following news shows that we too may be headed towards US sub-prime crisis like scenario. Check this news :-

    Is SBI, BoB, Union Bank and HDFC Bank lending money to builders without any security?

    Lenders are indirectly financing builders under a tripartite agreement where the bank can create equitable mortgage only after completion of the project. Till such time, the advances or loan provided directly to the builder by the bank remain unsecured and risky

    Several lenders like State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India (UBI) and HDFC Bank are indirectly providing funding to builders without any tangible security under the guise of “tripartite agreements”.

    Specially in case of SBI, such unsecured home loans were worth about Rs60,000 crore or 60% of the lender’s housing portfolio of Rs1 lakh crore as on 31 March 2012. By not making adequate provisions for such unsecured housing loans, SBI was able to show inflated profit for FY12, Mr Natani said.

    2. What is the risk to the bank?

    The bank starts disbursing the loan amount to the builder on behalf of the borrower as soon as they all sign the “tripartite agreement”. In such a situation, the bank does not have the home loan secured by any tangible security till the EM of such flat is created by the borrower in favour of the bank. This usually happens only after 18-20 months, the time take by the builder to execute the sale deed of the flat or property in favour of the borrower. In case, the builder goes bust due to over exposure to real estate market or slowdown in the markets, the bank may be without any tangible security. This may be detriment to the interest of deposit-holders of the bank.

    Complete news & scan copies here :-

    Is SBI, BoB, Union Bank and HDFC Bank lending money to builders without any security? - Moneylife

    Fortunately, I don't have account in HDFC, and SBI I closed over 5 months back.
    CommentQuote
  • what is with this negativity all the time...

    Originally Posted by realacres
    The following news shows that we too may be headed towards US sub-prime crisis like scenario. Check this news :-

    Is SBI, BoB, Union Bank and HDFC Bank lending money to builders without any security?

    Lenders are indirectly financing builders under a tripartite agreement where the bank can create equitable mortgage only after completion of the project. Till such time, the advances or loan provided directly to the builder by the bank remain unsecured and risky

    Several lenders like State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India (UBI) and HDFC Bank are indirectly providing funding to builders without any tangible security under the guise of “tripartite agreements”.

    Specially in case of SBI, such unsecured home loans were worth about Rs60,000 crore or 60% of the lender’s housing portfolio of Rs1 lakh crore as on 31 March 2012. By not making adequate provisions for such unsecured housing loans, SBI was able to show inflated profit for FY12, Mr Natani said.

    2. What is the risk to the bank?

    The bank starts disbursing the loan amount to the builder on behalf of the borrower as soon as they all sign the “tripartite agreement”. In such a situation, the bank does not have the home loan secured by any tangible security till the EM of such flat is created by the borrower in favour of the bank. This usually happens only after 18-20 months, the time take by the builder to execute the sale deed of the flat or property in favour of the borrower. In case, the builder goes bust due to over exposure to real estate market or slowdown in the markets, the bank may be without any tangible security. This may be detriment to the interest of deposit-holders of the bank.

    Complete news & scan copies here :-

    Is SBI, BoB, Union Bank and HDFC Bank lending money to builders without any security? - Moneylife

    Fortunately, I don't have account in HDFC, and SBI I closed over 5 months back.


    9 out of 10 posts from you are about negativity and sky falling down... it must be a difficult life....but please also post some positive and good news on the forum.... these negative posts are not helping the hit count of the website...

    and just curious to know which bank do you use then...... if HDFC and SBI are not safe... then is Icici, Axis safe??? Are you into Home Banking :bab (59):
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  • Chidu is desperate to avoid Junk status!

    That's the reason he was extremely unhappy when RBI denied to lower rates!

    Act now to stave off 'junk grade' tag, Chidambaram warns Cabinet - The Economic Times
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  • No i have never heard about Sandy being a hurricane

    Originally Posted by rembrants
    No..I havent heard any such rumours. No layoffs are coming


    cause i dont have a TV ;)
    CommentQuote
  • No buying this Diwali!

    No one is buying this Diwali!
    The realtors greed is still on and prices are being raised in spite of no buying.

    One thing is very clear - interest rate cuts are not attracting buyers anymore, only price cuts will.

    Home buyers on strike this Diwali: It’s the prices, stupid | Firstpost
    CommentQuote
  • Reality check for realty prices?- The News!

    Reality check for realty prices? - Hindustan Times




    Cautious private equity (PE) investors, who burnt their fingers in real estate investments made at 2007-08 peak prices, are now investing on the assumption that prices are not going to increase from current levels for the next three years.
    In what could be an indication of price





    trends in the real estate sector as perceived by many PE players, the expected returns, or IRR, are calculated at current prices.
    "Earlier it was a common thing that a PE player would enter at a price and would calculate the returns on the expected price the project would fetch at the time of exit. The way things are going, we are not taking any risks and are taking a hypothesis that prices are going to remain the same for the next three years," said Amit Bhagat, CEO, ASK property investment, a PE firm.


    Industry experts say many PE players who had invested in projects calculating returns on future prices promised by developers are in a fix.
    Most of the exits that have happened in the real estate sector in the last two years were secondary exits.
    "PE players have become more cautious with real estate investments, and the number of deals has also declined. PE players are investing only in projects with all approvals in place and with shorter cycles. They expect stable and assured returns," said Avinash Gupta, head, financial services, Deloitte India.
    According to a recent report by Cushman and Wakefield India, there is a year-on-year drop of 15% from January to September 2012 in PE deals in the real estate sector.
    Research also shows more residential sector deals vis-à-vis the commercial sector, and that PE players prefer metros to other cities.
    Analysts say PE players have also started dictating prices for projects. So, while developers may be unable to raise price due to market conditions there is no room to slash prices.
    "PE players currently have a more active say in deciding prices. But if prices do not increase for, say two years, it is an automatic price correction," said Bhagat.
    CommentQuote
  • Does it make any sense to buy in Pune ?

    Few days back i read an article staying it doesn't make any sense staying in Mumbai sighting high RE prices.

    I think this is somewhat true for Pune too with even outskirts quoting 4.5k psft. The IT salaries offered in Pune are at least 10-20% lower than cities like Hyderabad, Bangalore.

    If you are an IT guy, it makes absolute sense to relocate to Hyderabad where RE pricing is highly attractive, rental yield is much higher, much better infrastructure and cheaper cost of living. Even areas like Begumpet which is city center are quoting 5k!!! Just imagine the prices in the areas within 10-15 kms from city centre :).

    Areas nearby Gacibowli, HiTec city are quoting 3k psft on average (starting 2.3k for stand alone buildings and 3.5k for townships). Independent houses are available cheaper than 3 BHK in wakad!

    Makes perfect sense to relocate and buy there, regardless of the Telengana outcome.
    CommentQuote
  • Originally Posted by manojsti
    Reality check for realty prices? - Hindustan Times




    Cautious private equity (PE) investors, who burnt their fingers in real estate investments made at 2007-08 peak prices, are now investing on the assumption that prices are not going to increase from current levels for the next three years.
    In what could be an indication of price





    trends in the real estate sector as perceived by many PE players, the expected returns, or IRR, are calculated at current prices.
    "Earlier it was a common thing that a PE player would enter at a price and would calculate the returns on the expected price the project would fetch at the time of exit. The way things are going, we are not taking any risks and are taking a hypothesis that prices are going to remain the same for the next three years," said Amit Bhagat, CEO, ASK property investment, a PE firm.


    Industry experts say many PE players who had invested in projects calculating returns on future prices promised by developers are in a fix.
    Most of the exits that have happened in the real estate sector in the last two years were secondary exits.
    "PE players have become more cautious with real estate investments, and the number of deals has also declined. PE players are investing only in projects with all approvals in place and with shorter cycles. They expect stable and assured returns," said Avinash Gupta, head, financial services, Deloitte India.
    According to a recent report by Cushman and Wakefield India, there is a year-on-year drop of 15% from January to September 2012 in PE deals in the real estate sector.
    Research also shows more residential sector deals vis-à-vis the commercial sector, and that PE players prefer metros to other cities.
    Analysts say PE players have also started dictating prices for projects. So, while developers may be unable to raise price due to market conditions there is no room to slash prices.
    "PE players currently have a more active say in deciding prices. But if prices do not increase for, say two years, it is an automatic price correction," said Bhagat.


    Funding from banks squeezed, funding from PE falling, funding from genuine buyers dropping, funding from equity market dried. Guess the din is getting louder by the day unless one chooses to close his ears.
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  • Sales in projects in NCR too has seen a definitive dip in this festive season. Price cuts are not happening though, reason is evident.
    CommentQuote
  • Originally Posted by realpune
    Few days back i read an article staying it doesn't make any sense staying in Mumbai sighting high RE prices.

    I think this is somewhat true for Pune too with even outskirts quoting 4.5k psft. The IT salaries offered in Pune are at least 10-20% lower than cities like Hyderabad, Bangalore.

    If you are an IT guy, it makes absolute sense to relocate to Hyderabad where RE pricing is highly attractive, rental yield is much higher, much better infrastructure and cheaper cost of living. Even areas like Begumpet which is city center are quoting 5k!!! Just imagine the prices in the areas within 10-15 kms from city centre :).

    Areas nearby Gacibowli, HiTec city are quoting 3k psft on average (starting 2.3k for stand alone buildings and 3.5k for townships). Independent houses are available cheaper than 3 BHK in wakad!

    Makes perfect sense to relocate and buy there, regardless of the Telengana outcome.


    it makes sense for those who want to settle in pune (generally Marathi speaking Maharashtrians and those who find Hindi-friendly behavior of Maharashtra welcoming). for job hoppers it doesn't. for who already own homes back in their native cities (like bhuwaneshwar, trivendrum, lucknow etc) it makes no sense.

    hyd prices are low because of telangana conflict
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  • Originally Posted by realpune
    No one is buying this Diwali!
    The realtors greed is still on and prices are being raised in spite of no buying.

    One thing is very clear - interest rate cuts are not attracting buyers anymore, only price cuts will.

    Home buyers on strike this Diwali: It’s the prices, stupid | Firstpost


    thats exaggeration. i know a friend who is buying 70+ lakh apartment.
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