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 wiseman
    Aditi,

    Whatever may happen in the rest of the world, none of those things have any bearing whatsoever to do with RE in India (and Chennai and Pune RE in particular).

    If Fiscal deficits in US and UK (at 12%) and deficit in Greece (15%) along with unsustainable debt (87% in US and around 105% in UK and much higher in Greece and Japan) are bringing these countries to the brink of financial collapse, how can you connect this to India's similar levels of fiscal deficit of nearly 12% and Debt to GDP of nearly 70% and say that we are also on the brink? This is blasphemy and you could be banned from setting foot in either of these 2 cities (or even India)!:D. Of course you can always setup your own party, become its General Secretary, hire enough goons and walk right in and nothing will happen to you! :D - examples of General Secys - Amar Singh and Rahul G.

    And, even though much of India's recent growth has come from basically Govt funded projects (of a public nature) and Govt handouts like duty cuts and waivers, don't you know that the Private Sector is growing phenomenally and will soon be hiring like in the boom-boom days of 2003-07 and giving hikes of 20% or more every years?

    Which is why, as India seems completely de-coupled from the rest of the world, while the rest of the world sinks into a prolonged multi-year depression, India will forever grow at 8% and even 10% (that too on a higher base GDP of 2009 and 2010 compared to 2006), though it took an enormous amount of bubbly (credit) even to make its 2007 9% growth happen.

    All of this happens when you set aside mathematics (though there are great mathematicians on this forum who keep it all simple) and simply-fly on sentiment and the power of black money (ignore the fact that black money can also get destroyed like white money when prices go down; and you can't even take tax credit for losses with Black!).

    Just like the rapidly increasing number of fuel-guzzling SUV buyers who will not be affected by sharp fuel price at all simply because they will now be driving their vehicles on petrol and diesel fumes alone, thus avoiding paying high prices for the actual petrol and diesel.

    This sentiment is a great thing in a bull market. And of course, you know its other side when markets turn down (we saw that facet of sentiment in 2008)!!!!

    cheers


    These forums are scary .. Wish all the best to builders and ITGs their best and loyal customers !!:D
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  • Originally Posted by ash7979
    "How you calculated that ITGs got more than what they expected" I have posted in many threads with real examples that salaries of various govt departments are better than the IT companies salary these days, like many college professors are getting salary around 1 lacs/month (posted the real pay scale to prove my point, when it was asked by one of poster)


    1. I think Real said IT in past got it.. and the salary levels u mention are nowdays.
    2. Besides in the very thread where u mentioned College professors salary scale I did mention that the highest in the scale is 1 lac so one is not going to get that level of salary as soon as one joins. It is only after a lot of exp that one could expect that salary.:)

    Originally Posted by ash7979
    Do You know how much salary PSU employees are getting??? No IT company can match salary+benefit, what ONGC's employee get (except Google, MS or couple of more) or say NTPC's engineer get (I got selected in NTPC in 2000 & you know what was there CTC those days,around 7 lacs/annum and usual IT company were offering around 2-3 lacs/annum those days ,


    Wow.. that was a great achievement. Here is the pay scale for NTPC nowdays. Not exactly for a fresher but for some experienced candidates.

    ]http://ntpc.timesjobs.com/NTPC/WEB/search/JobListings.jsp

    Originally Posted by ash7979


    Now come to the point o You think that Investors are selling resale flat to IT ppls & do you know how many such deals happened in Pune in last 2-3 years...You urself many times posted in this forum,that Pune has max # of unsold flats (both Builders & Investor) & if IT guys are buying these flats then how come Pune tops the Unsold flats list in entire country, can you justify this????....Please have a balance view on any topic,when you dont know the facts :

    Most of the investors do believe that they are going to sell it to IT guys… maybe it is just their perception which might not be true.:D
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  • Most of the things have been replied by VK, hence won't repeat that. One thing which you missed while comparing Govt & IT is the time.....it is only now that Govt workers have got more, while IT lagged due to US recession. Add to it that most of the pays to Govt employees are not in cash but in forms of bonds. Also, I don't know any Govt employee or auto sector one who earns lakhs by going on-site!!
    Btw, senior Govt officials who can purchase RE at current rates need not purchase as they are given Govt accomodation & hence they have house till they work.
    Originally Posted by ash7979

    You urself many times posted in this forum,that Pune has max # of unsold flats (both Builders & Investor) & if IT guys are buying these flats then how come Pune tops the Unsold flats list in entire country, can you justify this????....Please have a balance view on any topic,when you dont know the facts :D:D:D:

    Man, the unsold flats inventory was for builders alone i.e. the builders unsold flats are max in the country. If you add to it investor ones (Actually sold on paper), the number is huge. Hope you got the point.
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  • Originally Posted by realacres

    Man, the unsold flats inventory was for builders alone i.e. the builders unsold flats are max in the country. If you add to it investor ones (Actually sold on paper), the number is huge. Hope you got the point.


    I agree that Number is Huge..Still you feel that IT ppls are buying RE

    And builders, investor & general Non-IT always have such perception that EVERY IT ppls are earning in lacs, I think thats the reason Pune in general has such a huge unsold flat by builder & huge # of Investor owned flat & I think this wrong perception is creating RE Bubble in Pune (if any)...So, I can say IT ppls are responsible for RE price rise in Pune indirectly , due to wrong perception of others towards IT ppls:D:D:D
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  • Originally Posted by veeemkay
    Most of the investors do believe that they are going to sell it to IT guys… maybe it is just their perception which might not be true.:D
    This is what I was trying to say dear, that Indian Media has created such a wrong picture of IT in india that most of the Non-IT ppls has wrong perception towards them & those very ppls then bash IT ppls for every price rise

    I was wondering whether IT ppls also responsible for price rise in Sugar as well, as sugar also gone from 15-20 Rs KN in 2004-05 to current 40-50 Rs Kn in 2009-10 (that is also almost 200-300% hike from 2004-05 price)....and if you compare other commodities the price rise story is not very different then Sugar ...Can anybody share what the price of Gold in 2004-05
    This is what I was trying to say dear, that Indian Media has created such a wrong picture of IT in india that most of the Non-IT ppls has wrong perception towards them & those very ppls then bash IT ppls for every price rise

    I was wondering whether IT ppls also responsible for price rise in Sugar as well, as sugar also gone from 15-20 Rs KN in 2004-05 to current 40-50 Rs Kn in 2009-10 (that is also almost 200-300% hike from 2004-05 price)....and if you compare other commodities the price rise story is not very different then Sugar ...Can anybody share what the price of Gold in 2004-05
    This is what I was trying to say dear, that Indian Media has created such a wrong picture of IT in india that most of the Non-IT ppls has wrong perception towards them & those very ppls then bash IT ppls for every price rise

    I was wondering whether IT ppls also responsible for price rise in Sugar as well, as sugar also gone from 15-20 Rs KN in 2004-05 to current 40-50 Rs Kn in 2009-10 (that is also almost 200-300% hike from 2004-05 price)....and if you compare other commodities the price rise story is not very different then Sugar ...Can anybody share what the price of Gold in 2004-05
    This is what I was trying to say dear, that Indian Media has created such a wrong picture of IT in india that most of the Non-IT ppls has wrong perception towards them & those very ppls then bash IT ppls for every price rise

    I was wondering whether IT ppls also responsible for price rise in Sugar as well, as sugar also gone from 15-20 Rs KN in 2004-05 to current 40-50 Rs Kn in 2009-10 (that is also almost 200-300% hike from 2004-05 price)....and if you compare other commodities the price rise story is not very different then Sugar ...Can anybody share what the price of Gold in 2004-05
    This is what I was trying to say dear, that Indian Media has created such a wrong picture of IT in india that most of the Non-IT ppls has wrong perception towards them & those very ppls then bash IT ppls for every price rise

    I was wondering whether IT ppls also responsible for price rise in Sugar as well, as sugar also gone from 15-20 Rs KN in 2004-05 to current 40-50 Rs Kn in 2009-10 (that is also almost 200-300% hike from 2004-05 price)....and if you compare other commodities the price rise story is not very different then Sugar ...Can anybody share what the price of Gold in 2004-05
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  • ITGs, builders both share are responsible

    Originally Posted by ash7979
    Still you feel that IT ppls are buying RE

    No I don't think so.

    And builders, investor & general Non-IT always have such perception that EVERY IT ppls are earning in lacs, I think thats the reason Pune in general has such a huge unsold flat by builder & huge # of Investor owned flat & I think this wrong perception is creating RE Bubble in Pune (if any)...So, you Now I can say indirectly IT ppls are responsible for RE price rise in Pune, due to wrong perception of others towards IT ppls:D

    Yep, agree with this as well:)....but ITGs too purchased thinking that the increments for next 20 years would grow like they did in boom period & over-stretched themselves & no are in a fix:D. Hence, this overstretching of budget made the builders hike the prices. Had ITGs bought based on current incomes & not PROPOSED:D future ones, such type of price hikes would not have happened at first place.
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  • Originally Posted by realacres
    No I don't think so.


    Yep, agree with this as well:)....but ITGs too purchased thinking that the increments for next 20 years would grow like they did in boom period & over-stretched themselves & no are in a fix:D. Hence, this overstretching of budget made the builders hike the prices. Had ITGs bought based on current incomes & not PROPOSED:D future ones, such type of price hikes would not have happened at first place.


    In 2004 Indian economy was growing very well, not only IT even other sector grown by very fast..so, not only IT ppls, everybody has bought RE thinking that they will get extraordinary return in next 5-10 years...So, why only Blame IT...

    Do, you have idea about city like Nashik & Nagpur where they dont have IT, what were the rates in 2004-05 & Now???

    I know about my hometown Bhopal...in last 5 years rate are almost triple in Bhopal (Bhopal RE grown very fast in last 1 year as well, equity-master has done such research).BHopal dont have even a single IT company...So how you justify the Price rise in such Non-IT Cities....
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  • Simple!

    Originally Posted by ash7979
    In 2004 Indian economy was growing very well, not only IT even other sector grown by very fast..so, not only IT ppls, everybody has bought RE thinking that they will get extraordinary return in next 5-10 years...So, why only Blame IT...

    Do, you have idea about city like Nashik & Nagpur where they dont have IT, what were the rates in 2004-05 & Now???

    I know about my hometown Bhopal...in last 5 years rate are almost triple in Bhopal (Bhopal RE grown very fast in last 1 year as well, equity-master has done such research).BHopal dont have even a single IT company...So how you justify the Price rise in such Non-IT Cities....



    Ash,

    You don't have to have IT companies in Bhopal for this! The reason is, Bhopalis working in IT companies in NCR, etc are investing their money back in Bhopal. Still, its IT people who ultimately buy!:D Just kidding.

    Take the case of Kerala. Since no Keralite is making big money in Kerala, but still buys property there jacking up the prices, how do you explain that? They earn in the ME and re-invest back in their home town or village.

    Besides, its not only IT people who benefit from the IT business. What about the taxi fleet owners, the food suppliers, the Event Management company owners, the Inox owners(!). The multiplier effect of the freely spending IT guys is what ripples across the economy.

    The fact is, its employees of the Export Industries who have the extra punch in terms of spending on high margin and high value items - simply because they have been making big money for so long (its only recently that other businesses have caught up on salaries). This is why the general term IT people being used to blame everything on.

    cheers
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  • Originally Posted by wiseman
    Ash,

    You don't have to have IT companies in Bhopal for this! The reason is, Bhopalis working in IT companies in NCR, etc are investing their money back in Bhopal. Still, its IT people who ultimately buy!:D Just kidding.


    Hey Wiseman,I was not expecting this from you man!!!You Mean that the ppls who belong to Bhopal & working in IT in NCR are buying flats both in NCR & then in Bhopal as well??? ...And by your logic ,then ONLY IT pps are the responsible for every Price rise in india be it IT city or Non-IT city & be it RE or Sugar or say petrol:D:D:D
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  • At least some people think different!

    Originally Posted by ash7979
    Hey Wiseman,I was not expecting this from you man!!!You Mean that the ppls who belong to Bhopal & working in IT in NCR are buying flats both in NCR & then in Bhopal as well??? ...And by your logic ,then ONLY IT pps are the responsible for every Price rise in india be it IT city or Non-IT city & be it RE or Sugar or say petrol:D:D:D



    Well. At least some people think I'm not all gloom and doom!;)

    cheers
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  • Originally Posted by ash7979
    Hey Wiseman,I was not expecting this from you man!!!You Mean that the ppls who belong to Bhopal & working in IT in NCR are buying flats both in NCR & then in Bhopal as well??? ...And by your logic ,then ONLY IT pps are the responsible for every Price rise in india be it IT city or Non-IT city & be it RE or Sugar or say petrol:D:D:D


    Well..price rise in other commodities can be explained as inflation..but RE especially in Pune is all the result of ITGs ..RE prices in pune cant be linked to inflation..its mere speculation and insanity..Adding to it is governments apathy to stop builders malpractices ..
    you talk to any builder and he will tell u the real truth..Make the ITGs 50% in strength and see the Pune RE will crash to more than 50% in value.. & its no imagination.,.:(
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  • Originally Posted by search4re
    Well..price rise in other commodities can be explained as inflation..but RE especially in Pune is all the result of ITGs ..RE prices in pune cant be linked to inflation..its mere speculation and insanity..Adding to it is governments apathy to stop builders malpractices ..
    you talk to any builder and he will tell u the real truth..Make the ITGs 50% in strength and see the Pune RE will crash to more than 50% in value.. & its no imagination.,.:(


    Okay, I agree with you that ITgs are responsible for Pune RE price rise but could you please explain me that, then why Pune has largest unsold flat in entire country??? Why these ITgs are not buying all those flats ( I think you think that ITGs can buy at least 4 flats each)...
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  • Originally Posted by search4re
    you talk to any builder and he will tell u the real truth..Make the ITGs 50% in strength and see the Pune RE will crash to more than 50% in value.. & its no imagination.,.:(

    Yep, you move Hinjewadi out & the rates right from Aundh to Wakad & Wakad Annexe will fall;). Same goes for K'nagar to Kharadi as well.
    Fact remains that ITGs had max. amount of disposable income & in many cases both husband & wife were from IT (seen some people having a pre-condition for marriage that the other half/quarter:D needs to be from IT), hence one fellow pays EMIs while other for daily needs.
    You will find that in recent times, ITGs used to marry ITGs (hey guys & gals...don't get wrong meaning man:p). I didn't see an architect marrying a builder though.
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  • Elaborate

    Originally Posted by ash7979
    Okay, I agree with you that ITgs are responsible for Pune RE price rise but could you please explain me that, then why Pune has largest unsold flat in entire country??? Why these ITgs are not buying all those flats ( I think you think that one ITGs can buy at least 4flats each)...


    Man, it seems you didn't get the point. Let me elaborate.

      Pune has max no. of unsold flats coz Bangalore became saturated & builders thought that Pune will be next Bangalore. Simply look at the proposals for Hinjewadi ph3/4......& see where do they stand today. Pune builders just like ITGs thought that incomes will always go up. What's more, it was only ITGs who was buying without infra as well, which made builders build anything at anyplace,
      Why are ITGs not buying is simple:- They have now understood the value of money, thanks to global meltdown. Had this been not the case, rates at Wakad would have been 5k+ today!!
      Ashish, just because you took good decision of not buying RE at illogical rates doesn't mean that your colleagues too become wise. Don't consider that when we say ITG it is you, rather it is not you coz you are in minority my friend. doesn't mean that your colleagues too become wise. Don't consider that when we say ITG it is you, rather it is not you coz you are in minority my friend. doesn't mean that your colleagues too become wise. Don't consider that when we say ITG it is you, rather it is not you coz you are in minority my friend. doesn't mean that your colleagues too become wise. Don't consider that when we say ITG it is you, rather it is not you coz you are in minority my friend. doesn't mean that your colleagues too become wise. Don't consider that when we say ITG it is you, rather it is not you coz you are in minority my friend.
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  • Saw Kool Homes ad again in News Papers (ToI) after a long pause.

    Seems they are back in business at selling overpriced apartment.
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