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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  • There are Kumar World, Kumar Properties, Kumar Builders...are they of one and same person?

    Similarly there is Goel Ganga groups and Goel Ganga developments.

    There is one K Raheja which is different from person behind Raheja Garden

    Numerous names of same entity to confuse people or they are different?
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  • Puser, They are different entities and headed by differnt people in most of the cases. For example Kumar Builder and Kumar Properties is completely different group
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  • Originally Posted by birendra
    Puser, They are different entities and headed by differnt people in most of the cases. For example Kumar Builder and Kumar Properties is completely different group

    Yes, Kumar were 2 different groups, but belonged to same family just like Raviraj Group & Siddhivinayak group, both are brothers:- Naupatlal Sankla Enterprise. However, as Kumar builders has gone bankrupt, the siuation has changed:D. The reason for having multiple groups under same name is to save tax & get some benefits in RE sector, though both are owned by the same family. It is just a crude method of having subsidiaries.
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  • And ask them what is % of variable pay in it.
    Ask any employee of Infosys how they are fooled with variable pay structure.
    Just check readers' comments followed by the same news. You will fathom the level of frustration in Infosys employees.
    Originally Posted by bloger

    so the official figures are 3.25 for infy, i am sure other tech compnies offer same range..
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  • Originally Posted by maheshk2k
    And ask them what is % of variable pay in it.
    Ask any employee of Infosys how they are fooled with variable pay structure.
    Just check readers' comments followed by the same news. You will fathom the level of frustration in Infosys employees.

    Hi Mahesh, I don't know whether you are from IT or not but I have a confusion in mind:-

    When I ask my friends working in IT, they tell me huge number of employees sitting on bench & then here comes the news that IT cos are hiring. How can any company hire when many people are already sitting on bench? Can someone clear the air please?
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  • Originally Posted by maheshk2k
    And ask them what is % of variable pay in it.
    Ask any employee of Infosys how they are fooled with variable pay structure.
    Just check readers' comments followed by the same news. You will fathom the level of frustration in Infosys employees.


    You must be working/worked with Infosys, mahesh :D:D

    Infosys has created such a hype in media, that everybody think that all ppls working in Infosys are earning in Crores But even reality is entirely opposite:(:(:(...And somebody also posted somewhere that IT ppls are getting easy money,ask him to work for infosys & then talk about easy money (after working (8Am-8PM) almost 6 days a week....

    *Bytheway I have never worked with Infosys;)
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  • Conducting walk-in every week end. But never seen anybody hired in the company. Also not seen any new face on the floor from past one year as well..
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  • Originally Posted by realacres
    Hi Mahesh, I don't know whether you are from IT or not but I have a confusion in mind:-

    When I ask my friends working in IT, they tell me huge number of employees sitting on bench & then here comes the news that IT cos are hiring. How can any company hire when many people are already sitting on bench? Can someone clear the air please?


    Normally the people on bench are hired for projects in pipeline.
    Also, all IT services companies project their bench 'strength' while bidding for projects. It shows that the company can immediately allocate ppl to the project.
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  • Originally Posted by realacres
    Hi Mahesh, I don't know whether you are from IT or not but I have a confusion in mind:-

    When I ask my friends working in IT, they tell me huge number of employees sitting on bench & then here comes the news that IT cos are hiring. How can any company hire when many people are already sitting on bench? Can someone clear the air please?


    It is proposed hiring...planned hiring..... based on pipeline of projects. if projects dont come then "GET OUT" and dont show your face again.

    These hiring includesa huge number of Campus hiring which means they will actually join after 1 year.. and we all know what happened in 2008/09 a lot of companies asked the freshers to stay where they are not taking them onboard.

    Man everyone is out to get the common man..I have decided I am no longer going to be a common Man.. i will turn the table and become Media/builder/Politician and R**E the common man.* :p

    * The above text is in Blue is proposed change in me.. so anyone in Media please do not go anf publish an article about how common man is moving over to the other side of the table. :D
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  • Originally Posted by ash7979
    You must be working/worked with Infosys, mahesh :D:D

    Infosys has created such a hype in media, that everybody think that all ppls working in Infosys are earning in Crores But even reality is entirely opposite:(:(:(...And somebody also posted somewhere that IT ppls are getting easy money,ask him to work for infosys & then talk about easy money (after working (8Am-8PM) almost 6 days a week....

    *Bytheway I have never worked with Infosys;)


    Not sure what the truth is but their statements create hype in pune re....as all these lallus and kallus take it as verdict
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  • Originally Posted by veeemkay
    It is proposed hiring...planned hiring..... based on pipeline of projects. if projects dont come then "GET OUT" and dont show your face again.



    yes..at the same time they need to prepare themselves if someone put down the papers....One thing done as cost cutting is reduce the number of employees on bench .
    Also as there were no increament in last 2 years ...companies r preparing themselves for employee rotation...All know that many people will leave aftre this appraisal...so u will see a huge recruitment across all companies..
    So recruitment donesn't mean new project..... that can be employee rotation ...
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  • Infosys is hiring in mass is a news for media. But its half truth. Ask media to check how many people resigned in last quarter form Infosys and then you will come to know.

    Real, packages for many indian IT companies are a way to fool people. there is huge component under variable clause and you get very little in hand salary :(.
    Companies will hire more fresheers, 1-3 years experience people as they will get people working on less salary. See how many companies are hiring people more than 6 years of experience? and then evaluate the hiring progress for the IT companies.
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  • Thanks for the info friends:). Hence, can we say that what we see is not true in real terms? The place where I live right now used to be busy with many cabs working for IT/BPO when I landed here. However, the number of these cabs have fallen by more than 70-75%.

    Btw, I hear a lot about variable pay scale in IT. How does it work generally & how much is the real take home salary on average? And what are prospects for IT employees having 6+ years exp, if all recruitments are for freshers or 1-3 yrs exp?

    * In our co. the pays to management is based on profits & is mix of pay+shares. How is it in IT? No. of projects?
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  • The higher you go in a company, more of your sal is variable.
    Same thing applies to IT as well... middle tier employess have 30-40 % pay as variable.
    Now even this variable pay has 3 different components in Infosys, so the process is pretty interesting :D
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  • Originally Posted by realacres
    Thanks for the info friends:). Hence, can we say that what we see is not true in real terms? The place where I live right now used to be busy with many cabs working for IT/BPO when I landed here. However, the number of these cabs have fallen by more than 70-75%.

    Btw, I hear a lot about variable pay scale in IT. How does it work generally & how much is the real take home salary on average? And what are prospects for IT employees having 6+ years exp, if all recruitments are for freshers or 1-3 yrs exp?

    * In our co. the pays to management is based on profits & is mix of pay+shares. How is it in IT? No. of projects?


    For IT companies, there is way to be in the news. Just conduct the interview and don’t recruit any one until not get any bakara( needy/sacked skilled professional) on cheap rate. Situations is like this, companies are is not giving the variable ( 10-15%) but giving the increment of 5% :) . Ganda hai per dhnada hai ye.
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