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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  • In our company, 12% of total package is variable for all non-sales / higher management staff.

    In 2008, we received almost 70% of this pay. This year 0%. (so 10% less salary)
    Variable pay is given as per company performance and individual performance. Some may receive 80% while some may receive 40%.
    Also if company does exceptional this goes up. when bad, it goes down.


    Originally Posted by realacres


    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?
    CommentQuote
  • Infosys is pretty smart, they reduced the slots for rating 1 by 25 % this year, so automatically you save money there and then give average hike of 8%..
    So effectively the cost of employees for the company is same, but average hike is supposed to make all people happy.. and reduction in rating 1 slots is supposed to make top performers happy as they are diffrentiating capable people...
    CommentQuote
  • Infosys is pretty smart...
    The reduced the number of slots for rating 1 by 25% this year.. and gave average hikes of 8 % to all people..

    So they try to satify everyone one with a meagre hike and tell the top performers that we are diffrentiating you from other people so we reduced slots...

    And effectively the cost of employees for the company remains the same...I mean the total money paid out to employees stays same after this change as well
    CommentQuote
  • Originally Posted by Dipti
    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.

    package in IT company generally mean CTC (Cost to company)... and IT companies many times even include the desk charges/commutation facility... some companies even go further and include anything and everything... so.. package is really far from in hand salary :D
    CommentQuote
  • Originally Posted by ams444
    some companies even go further and include anything and everything... so.. package is really far from in hand salary :D

    Man, so what is the tentitive range of varibale pay? Like Aditi said 12%, what is it in general (not company specifics). Man, I need this as when I speak with builders, they say these IT guys are earning 'X'L/annum, hence the rates are at par with incomes & blah..blah. I do say to builders about variable pay scale but having precise avg figs. helps a lot to pursue our point of hyped rates.
    CommentQuote
  • Originally Posted by ams444
    package in IT company generally mean CTC (Cost to company)... and IT companies many times even include the desk charges/commutation facility... some companies even go further and include anything and everything... so.. package is really far from in hand salary :D


    Infosys even charge for Parking for their employees, isn't it interesting:D:D:D
    CommentQuote
  • Originally Posted by ash7979
    Infosys even charge for Parking for their employees, isn't it interesting:D

    Seems they want to push people to use public transport:D. Btw, are parking charges included in variable pay?:D
    CommentQuote
  • Parking charges are NOT included in your package.
    Instead, you have to PAY from your OWN pocket, just the way you pay parking charges when you park your vehicle in mall. (Though on monthly basis, direct deduction from your salary)
    Yes.. you heard it.. they charge you for parking your vehicle in your own office premises which is far off from city....

    Wonder if other IT companies do the same....

    Originally Posted by realacres
    Seems they want to push people to use public transport:D. Btw, are parking charges included in variable pay?:D
    CommentQuote
  • 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?


    No.of cabs fallen: This is cost cuting....nothing else.
    Variable Pay :Yes it is average 10-15% upto 10 years exp..But now a days companies started increasing this for new offers.It is something similar to yr company i.e.share profit.But there is again difference depending on yr performance.
    Last years very few companies like IBM have given variable(around 50% average.). But no increament.
    CommentQuote
  • 3-4 years experience 25-30% variable.
    6-7 years 40-50% variable.

    Infosys..
    CommentQuote
  • I think Wiseman has insiders in some big IT companies. He might be able to give out some details.

    VK
    CommentQuote
  • Originally Posted by veeemkay
    I think Wiseman has insiders in some big IT companies. He might be able to give out some details.

    VK


    Wisemen do not respond to average souls like us very often . Of course when they do respond they do it in 'ishtyle' by writing detailed analysis.
    CommentQuote
  • Originally Posted by sanav3
    3-4 years experience 25-30% variable.
    6-7 years 40-50% variable.

    Infosys..

    Is it?? 7+ ko salary mil raha hai kya?????
    Infy is blacklisted for me atleast.

    Hey one more factor about variable pay that I observed.....some companies has given variable sometimes 100+% ......but for few MNC's it is always around 50-60%....
    So that also need to consider
    CommentQuote
  • Originally Posted by kothrud_pune
    Is it?? 7+ ko salary mil raha hai kya?????
    Infy is blacklisted for me atleast.

    Hey one more factor about variable pay that I observed.....some companies has given variable sometimes 100+% ......but for few MNC's it is always around 50-60%....
    So that also need to consider

    yep..............
    many IT companies have funda of base variable component & one may get more than 100% of base component depending on his performnce/rating
    for e.g
    satisatctory 100%
    Excellent 130%
    Outstanding 160%
    &
    normally base component is 10% of yur fixed salary
    after recession comapnies are tring to give Hike in form of variable pays & it pays them dual advantage of paying the amt at the end of financial yr & second retention as if employee leaves the orgniztion before financial yr he is not enetitled for variable pay
    CommentQuote
  • They might also hire temp workers through agencies
    (I'm not sure how it goes in India nowadays) For
    they will not have a lemon sitting on their desk waiting for a fat severance pay.
    CAN
    Originally Posted by pramods007
    yep..............
    many IT companies have funda of base variable component & one may get more than 100% of base component depending on his performnce/rating
    for e.g
    satisatctory 100%
    Excellent 130%
    Outstanding 160%
    &
    normally base component is 10% of yur fixed salary
    after recession comapnies are tring to give Hike in form of variable pays & it pays them dual advantage of paying the amt at the end of financial yr & second retention as if employee leaves the orgniztion before financial yr he is not enetitled for variable pay
    CommentQuote