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 techynt
    Total private ownership of gold by people of India is around 18k tons. But that does not belong to the govt or RBI. So unless GOI comes up with a plan like USA/FDR did in 1930 to seize all gold in exchange for cash, Govt cannot sell all that gold.

    BTW with inflation so high it’s a bad idea to seize gold and give cash.

    RBI needs its reserve of gold for to meet its current account if things go bad, just like they did in early 1990.

    Gold is neither expensive nor cheap since its industrial use is very small, it’s kind of an ancient currency used as an emergency fund. Doomsday preppers in USA buy gold and silver for that purpose when the system collapses currency may be useless(IMO its silly to prepare so much instead of enjoying life today).


    I think you missed the point. India is an end consumer of gold, investment share as percentage of total holdings is miniscule.

    While govt is capable of manipulating the market with its 25 billion of gold which is 50% of the total annual imports of gold, it will not affect anything because the gold will only get consumed. So no point in such needless activity.

    Indeed, it makes sense for govt to sell gold when prices are high rather than wait for it to fall (cost of gold production 400-500 dollars an ounce which is the base price to which it can fall)

    I nowhere said that Indian govt will confiscate gold. Instead, market itself will prevent the speculative bubble. Since Indians end use gold and dont invest in it, when prices rise, the end use reduces, automatically curtailing imports.

    This is not the case in other countries where gold is not end used and ETF holdings in gold form a much larger percentage.

    Most Indians have sufficient gold in the form of ornaments bought for end use by the ladies. They dont need to hedge further into ETFs.

    While I am a perma gold bear, I still feel that it is a better hedge against INR depreciating against USD than real estate
    CommentQuote
  • Just simple question :-

    If everything is good in RE as builders claim, why aren't the contractors of several projects not paid in past 2 months ? The contractors are not only those who are part of construction activity but even labor contractors. Some have taken off their JCBs (earth movers) & dumpers from the site due to non-payments.
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  • To Venky & Wiseman


    We have been seeing FII money flowing into Indian markets to the tune of billions. ( for the past few days it is moving out, and that is different topic altogether).

    My question is, if FII buy stocks (cash market buying) we say that money is entering into India and it is good for Indian economy. I heard we make day to day purchases (oil etc) only with that money nowadays.

    I want to know what happens to the money FII's make by trading in derivatives markets? Because the money the make in derivatives is more than enough to cover their cash market buying for the month, given the way they manipulate the Indian equity markets.

    1. How that money is accounted for?
    2. If they book the profit and take the money out of India, will it considered as money moving out of India?
    3. Is there any control for such money like it should be invested in India again like that?
    4. Will that not affect the currency exchange rate?
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  • Originally Posted by mangoman2012
    To Venky & Wiseman


    We have been seeing FII money flowing into Indian markets to the tune of billions. ( for the past few days it is moving out, and that is different topic altogether).

    My question is, if FII buy stocks (cash market buying) we say that money is entering into India and it is good for Indian economy. I heard we make day to day purchases (oil etc) only with that money nowadays.

    I want to know what happens to the money FII's make by trading in derivatives markets? Because the money the make in derivatives is more than enough to cover their cash market buying for the month, given the way they manipulate the Indian equity markets.

    1. How that money is accounted for?
    2. If they book the profit and take the money out of India, will it considered as money moving out of India?
    3. Is there any control for such money like it should be invested in India again like that?
    4. Will that not affect the currency exchange rate?


    FII have brought in 40 billion odd in last 6 +months. They can take it out any time. Any restriction which you considered will have the opposite effect of drying up inflow and exagerating outflow.

    FII pulling out is very very bad news.INR will crash to 60 and below.

    Recent changes in bond market by chiddu might mitigate problems. FII might shift to indian bonds and keep money within india. Hope this succeeds. Sbi billion dollar bond placement was also good news

    FII money is not very good for india unless we also have healthy Ipo or psu disinvestment. Currently both are moribund. Psu should have more fpos. In their absence fii are just providing liquidity.

    Fii are the main derivative players. Which makes our market liquid and healthier.
    CommentQuote
  • Why NIBM is cheaper ?

    I recently came across few deals in NIBM where 2 BHKs are costing around 42L-46L aread 1000+ sqft, fetching rent around 12k.

    This sounds much cheaper compared to West Pune (Wakad, PS etc). Is this because of oversupply of RTM units ? But then why same is not true for Wakad, PS ?

    Any idea why this is so ? I find NIBM a better area because -


      Rapidly developing area with cosmopoiltan crowd.
      Lots of good societies area already present with builders like Sohbha, Rohan, Godrej coming there.
      Around 7-8 Kms from Magarpatta city, 10 kms from camp, 7-8 kms from Swargate.
      Good schools nearby like DPS.

      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
      So, for someone looking to buy in West Pune, this can be a good hedge with room for appreciation. West Pune prices are insane.


      Any opinion ?

      RealAcres,
      Where are you :) ?
    CommentQuote
  • All those so called dnyani pundits out here, talking about government to sell gold,

    Haven't the thought of "what will happen to INR if such step is taken" crossed your freaking mind???
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  • Prices shooting up suddenly during last month ?

    All of a sudden (from last 15 days or so), i noticed that Wakad prices have started quoting higher.

    A 3 BHK is being quoted at 75L - 80 L (good societies), 2 BHKs are quoted at around 60L.

    Just a month back, the same properties were quoted at least 5L lesser. I can see the same investor flats for sale with higher prices for almost an year. I can also see few resales (around 5 years) for 15-20% lesser price.

    What has changed in last one month ? Is this a coordinated move by realtors ? Don't let anyone sale below base price and buyer will give up to the pressure.
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  • Correct answer ...

    Originally Posted by techynt
    Dude you are the man. How do you deal with peer pressure? (wife, in-laws, relative, friends etc think you are not great if you live in rental home)


    I fully agree with them that I should go out and buy immediately ... on one condition!

    Since I like to buy without loan and don't have that kind of money lying around, could they put up the money? I'd love to buy it asap! :) And also I tell them that I'd love for them to "enjoy" the great investment with their money! :)

    You will never hear the topic from them again!

    Its easy to advice others. But put up your own money? The Advisors run for the hills! :)

    cheers
    CommentQuote
  • Gold to be a lousy investment in the next decade - The Economic Times

    After the US went off the gold standard in 1971, gold shot up from $35/ounce to $835 in 1980. It looked the best investment in sight. But then its price crashed and stayed down till 2001, at around just $250/ounce. Gold investors lost their shirts (and sometimes underpants) for two decades.

    However, after 2003 gold zoomed again. It reached a new peak of $1,890 in late 2011. But it has fallen steeply to just $1,501 last Friday. It may bounce back temporarily , but will then fall again.
    CommentQuote
  • Gold can sell for $100 to $100k depending on what the next guy is willing to pay for it. And to me that's the biggest problem with gold as an investment.

    Originally Posted by Baruch
    Gold to be a lousy investment in the next decade - The Economic Times

    After the US went off the gold standard in 1971, gold shot up from $35/ounce to $835 in 1980. It looked the best investment in sight. But then its price crashed and stayed down till 2001, at around just $250/ounce. Gold investors lost their shirts (and sometimes underpants) for two decades.

    However, after 2003 gold zoomed again. It reached a new peak of $1,890 in late 2011. But it has fallen steeply to just $1,501 last Friday. It may bounce back temporarily , but will then fall again.
    CommentQuote
  • Originally Posted by techynt
    Gold can sell for $100 to $100k depending on what the next guy is willing to pay for it. And to me that's the biggest problem with gold as an investment.


    Gold is the standard of currency and has been medium of exchange for centuries.

    A standard has its own value.

    If Dollar was not the standard for pricing International commodities; Dollar would have been equivalent to Toilet Paper by now because of the way in which Fed has printed money.
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  • If only things were that simple. So according to your theory Yen should be worse than toilet paper?

    Economics and finance is the most complex subject, with so many variables that even the smartest group of people are taken by surprise all the time.

    Originally Posted by abc111
    Gold is the standard of currency and has been medium of exchange for centuries.

    A standard has its own value.

    If Dollar was not the standard for pricing International commodities; Dollar would have been equivalent to Toilet Paper by now because of the way in which Fed has printed money.
    CommentQuote
  • CommentQuote
  • Originally Posted by techynt
    If only things were that simple. So according to your theory Yen should be worse than toilet paper?

    Economics and finance is the most complex subject, with so many variables that even the smartest group of people are taken by surprise all the time.


    All Fiat currencies have ended as Toilet Papers.

    Dollar was pegged to Gold till 1970s; it is only 40 years of fiat currency rule.

    Question is not "If" but "When"?

    5 years; 10 years ; 15 years I don't know.

    Collapse has to be preceded by civil unrest which weakens the state; and Japanese are too patriotic to cause anything of that sort.Moreover their society is quite homogeneous.

    It is not that I want all these things to happen;it is just that I want to highlight the dangerous consequences of super loose monetary policies.
    Privatisation of profits and socialisation of Loss can't go on forever.
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  • I am sorry dude, you talk big words but seems like you have no clue.

    Japan has a demographic problem, period. People there are not suffering even though they may not have a growing economy. Their exports has been good enough.

    Dont watch too much of the Fox news kind of economic theory....

    Civil Unrest...because of monetory easing, really??

    Civil unrest happens in deflationary environment when economy starts contracting, not in a inflationary one.

    Originally Posted by abc111
    All Fiat currencies have ended as Toilet Papers.

    Dollar was pegged to Gold till 1970s; it is only 40 years of fiat currency rule.

    Question is not "If" but "When"?

    5 years; 10 years ; 15 years I don't know.

    Collapse has to be preceded by civil unrest which weakens the state; and Japanese are too patriotic to cause anything of that sort.Moreover their society is quite homogeneous.

    It is not that I want all these things to happen;it is just that I want to highlight the dangerous consequences of super loose monetary policies.
    Privatisation of profits and socialisation of Loss can't go on forever.
    CommentQuote