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 mangoman2012
    Not only the places you mentioned...All the tier 2 cities and tier 3 taluks where the RE was held sky high is fallen now...atleast no activity now...now it is like people are waiting for the first distress sale...that distress sale may happen anytime....

    No activity means..no sales happening..but there is no reduction of prices either..I should agree that......but no buyers either..apart from some mangoes ( not me :)

    But now Central government is talking about more taxes :) and increasing of diesel and kerosene prices again :), a disaster in the making....

    The liquidity will be sucked out of the system in a jiffy. Coupled with this look for the deleverage by politicians to be in liquid to spend money for the next election...


    You are right about most of these. But the sentiments are not going down in RE market. The artificial sustenance of prices is still creating an illusionary picture of RE market being firm at least in Pune.

    It's very important for sentiments to change. Although transactions are falling every passing day, people still don't perceive that prices can fall. The overall ponzy scheme formed by realtors, bankers and govt is still working.

    By the way, as i posted earlier prices in Marathwada region have crashed by 30-50% already! Lets see where do we go from here.
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  • Well I dont think that the current IT model based on labor arbitrage is going to change in the next 5-8 yrs. Every fall in rupee makes Indian IT even more attractive to global companies. India will remain the IT services powerhouse for sometime to come. New methodologies, tools and processes are happening on the fringes and aren't affecting the core IT practices. I would not give any attention to what Phaneesh and Vineet say cause they have been talking crap for many yrs while TCS and Cogni have eaten them and Infosys apart by sticking to the old IT business model.

    Salary growth above 15-18 lakhs is hard to achieve for normal people in big IT service firms but captive units of global multinational units can and do pay 20-30 lakhs for 13-15 yrs of experience.

    Cost cutting in Europe and US is affecting the dreams of indian IT companies to make inroads into the consulting space. We will see more IT work coming to India from global companies which will earn more and more of their revenue and profits from China and India. India is in the demographic sweet spot.

    Originally Posted by wiseman
    I agree with you. The 2 economies are at different stages of "development". While India is still having its growth pains :), the US is fast heading for the stone age!

    You would have noticed that I was not comparing the two. I was pointing out to the fact that, India started by competing on wage arbitrage in the global market (not only IT but also in areas like Engineering Exports).

    This wage arbitrage is being squeezed by 2 factors. Too many Indians (many of them not upto international quality) being paid too much for shoddy work. Increasing number of rather good quality people all over the world becoming cheaper (and sometimes better) than us and taking away work that used to come to us by default.

    The danger is not only in deals falling through to competition from cheaper and equally good countries (we are losing voice BPO to the Philippines) but its what we don't see (deals where India is simply not considered) which used to come to us by default in the old days).

    You might also note that while exports account for around 20% of out GDP roughly, they account for a lot more of our disposable surplus. Specifically, its the IT crowd (especially, as you note, the crowd onsite) that saves up like crazy and puts it into RE here.

    Point I was trying to make is, it is dangerous to assume the 18, 24 and 30L jobs are going to continue for long in increasing numbers out here. These salary levels grew upon the outsourcing model India became famous for. While it grew, our capability to deliver at those elevated levels of salaries has not grown proportionately.

    Our large factory with cheap labor approach is based on 20th Century, large, expensive project model which is rapidly changing with the introduction of new methodologies, tools and processes which is cutting down project durations as well as product lifespans. That old model is becoming history (you might have noticed even many of our IT CEOs also taking this language, Phaneesh, Vineet, etc) slowly but surely and so will the kind of salaries to managers of our factories / bodyshops we have built so successfully.

    In the new model, we do not have the natural wage advantage we used to have and we have to unlearn the old stuff and re-learn the new, while the others don't have that baggage to deal with. Besides, we have to breakdown the old organizational structures and re-build new structures that is more suited for work with small, high-quality teams rapidly developing and delivering massively scalable products.

    While large IT companies continue to flog the old model (keeping that structure intact for now) as a cash cow, they are also throwing large sums of money trying to learn the new model (sometimes buying out companies that seemed to have succeeded here). Right now this does not seem to be yielding much as we don't seem to have the mojo to re-invent Indian IT yet (throwing money is not enough).

    In short ... rethink the belief that we will keep seeing 20, 30 and 60L jobs for the long term in absolute safety. The new model might also have such salary levels, but serious, long term weakness in global economies will lead to increasing levels of competition, putting a dent on cushy 30L jobs while increasing the stress levels to keep changing faster and faster (otherwise one becomes history very quickly and earning capacity drops precipitously).


    On another note, our IT industry will boom once again when we have the same kind of risk taking ability by the Venture Financing crowd and the ascendance of hands-on builders of product companies (please note that most of the highly successful product companies in the US and elsewhere were started by people who built those products themselves ... Hewlett and Packard, Page and Brin, Bezos, Gates, Jobs and Wozniak, etc, etc. WE also need a risk-taking population to try out new products as quickly as people in the West buy new stuff.

    Going to be an interesting journey in the coming years.

    cheers
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  • Originally Posted by realpune
    RE can never crash in India :D. If INR crashes all the NRIs will start buying. If INR appreciates, it will signify improvement in economy leading to higher RE prices! Indian RE is the only thing which can never crash and in this high time of uncertainty where fund managers are worried about even capital protection, RE is the asset class to be in. Ideally, RE should attract more FII money, but don't why it is actually not :).

    And look at the commentary from all experts in RE area including bankers .They are all talking about revival in RE in 2013!!! Sometimes this makes me think if this is due to vested interests.


    No sir Indian RE can and will crash. NRIs might be pumping money in the Indian RE market but that will stop of prices dont rise for sometime or start falling.

    It does not mean the RE will crash in 2013 but it will crash before Abdul Kalam's India becomes a developed India in 2020 :)
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  • Originally Posted by abc111
    Kerala,Hyderabad and Ahmadabad markets are dead.
    All three have sizable NRI investments.

    The bubble has become so big that even NRIs find properties to be grossly overpriced.


    We all know why Hyderabad RE is dead. But why is Ahmedabad RE dead? Isnt everything in Gujarat turning gold or have the investors now realized that you need IT jobs in a city for the RE market to boom?
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  • Originally Posted by Blitz
    Exactly. Here is the reality. My team in India is pompous, lazy and without any knowledge. Further they do not want to work (as they think that they are too valuable resources) and if they work, they deliver half cooked material. The work quality is bad and dedication is unheard of by a majority of them. While the european counterparts work 12 hours a day (seriously), the team stays in office for 6-8 hours and works for 2 hours a day (the rest of the time being spent in tea and other such TP things). If the trend continues, we will soon loose the work to either the Chinese or some of the east european nations. The rest of the world is not foolish enough to get sub-standard work from us and to support our life style to purchase those million dollar flats. It is going to collapse and when it will collapse, all these pompous would be jobless.



    Isnt the world (India included) gorging on cheap chinese made t-shirts, toys and electronics which dont last more than a few yrs so why do you think the world wont tolerate cheap Indian IT labor?

    Seeing lot of global companies setting up or expanding captive units in India to avoid the problem of inefficiency you have mentioned in the post above.

    RE Bears might have accepted defeat but that does not mean we RE bulls (for the next few yrs only) have to fight with IT bears now :) I am an IT bull (but for a much longer time of 8-10 yrs) so lets start another sticky thread otherwise people here on this thread will throw the rule book at us :)
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  • Originally Posted by Venkytalks
    I am more worried about rupee collapsing. 90 ruppes to dollar can mean havok

    Strangely re will protect you from this havoc though gold would be best


    Well if we hit 60 RBI will step in and sell dollars, at 65 we will see petrol and diesel price increase to curb imports, at 70 we will see deposit rates on NRI deposits go up along with more increase in petrol and diesel, at 75 we will start seeing gold imports go down as consumption would die down at such high prices.

    All this will make the next elections interesting but I think the path to 90 will not be smooth. Its unlike 1991 where we didnt have enough $$. Also seeing Indian oil consumption slow down we will see global oil price go down.

    Living in an interconnected global economy has some advantages :) The pain gets shared.
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  • A new mangoman

    Originally Posted by puser
    you the same mangoman who is suspended?:)


    Dear Sir,

    I am new to this forum and am from bangalore. An innocent end user who is so upset by the reality mafia and waiting for a crash to buy my first property.

    You know there is no dearth for mangomen in India?
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  • Originally Posted by mangoman2012
    Dear Sir,

    I am new to this forum and am from bangalore. An innocent end user who is so upset by the reality mafia and waiting for a crash to buy my first property.

    You know there is no dearth for mangomen in India?




    But then RE is NOT going to crash or reduction in prices for next 10 years for sure ...better buy NOW else next year you will change your name from mangoman to BananaMan ....
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  • How the sentiment will change?

    Originally Posted by realpune
    You are right about most of these. But the sentiments are not going down in RE market. The artificial sustenance of prices is still creating an illusionary picture of RE market being firm at least in Pune.

    It's very important for sentiments to change. Although transactions are falling every passing day, people still don't perceive that prices can fall. The overall ponzy scheme formed by realtors, bankers and govt is still working.

    By the way, as i posted earlier prices in Marathwada region have crashed by 30-50% already! Lets see where do we go from here.




    Sentiment can change only by these 2:

    1. Newspaper should write original news like
    struggling infosys, no new recruitments, sharp drop in campus interviews etc

    2. Newspapers should somehow report the actual registrations happened in the property market in 2012 compared with 2010-11. I guess the numbers would be scary. But no research has been done on this.

    3. And the more important sentiment changer is stock market crash. That is not happening. Instead the market is going up. so....

    Let us wait
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  • I am pretty sure Amitji

    Originally Posted by amitgupta00
    But then RE is NOT going to crash or reduction in prices for next 10 years for sure ...better buy NOW else next year you will change your name from mangoman to BananaMan ....


    I am pretty sure about the collapse... I have given 3 scenario's. Atleast one of them will going to happen.

    You need not wait beyond mid 2014 ( longest of 3 predictions) to see that
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  • Originally Posted by mangoman2012
    I am pretty sure about the collapse... I have given 3 scenario's. Atleast one of them will going to happen.

    You need not wait beyond mid 2014 ( longest of 3 predictions) to see that




    Mangoman ,

    I hate to say tthis but you are definitely living in a mango world .
    Entire global and indian financial ,RE ,Bond markets are completely manipulated along with media industry worldwide.
    Do you thing they will lose all there control without a fight and a severe damage to masses.
    Better join them rather stand against them so just go out and buy RE till your full capacity.
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  • 2014 elections may act as the trigger.
    There would be enough politicians and their cronies in the market to sell.
    Market has declined most of the times whenever Congress has gone out of power.
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  • Originally Posted by abc111
    2014 elections may act as the trigger.
    There would be enough politicians and their cronies in the market to sell.
    Market has declined most of the times whenever Congress has gone out of power.




    Stop Daydreaming.
    RE prices will not reduce instead they will go up 10-15% per year for sure.
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  • Time alone would be the judge to decide who is day dreaming.
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  • Originally Posted by abc111
    2014 elections may act as the trigger.
    There would be enough politicians and their cronies in the market to sell.
    Market has declined most of the times whenever Congress has gone out of power.


    Politicians should have already started selling to liquidate. RE in India is simply unpredictable and investments can't be timed. Thanks to western central banks who are printing to eternity let any problem arise. That is what is preventing that missing trigger for RE prices correction in India.

    The ever increasing inflation in India too is acting as a cushion to RE prices. Did you hear about the latest announcement to hike diesel price by Rs 10 over 10 months ? Imagine what impact it will do on inflation at least for the short term. And RBI is talking about cutting interest rates!!!
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