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....
Read more
Reply
12597 Replies
Sort by :Filter by :
  • I have a slightly different, and an almost to a fault, positive view of IT pros (I'm not one though).

    I think since ITGs have spent the majority of their careers in somewhat professional environments, they tend to view others who work for a living similarly.

    They will tend to pay and treat their maid, driver, and rickshawallah a little better. Whereas, those who are moneyed, and have 3-4 times the incomes of regular ITGs, will continue to treat the rest of the junta in the same way, and will pay them half or even lower.
    CommentQuote
  • Originally Posted by realacres


    In the Times Property Issue of 06/02/2010, these are some of the statements of the builders:-

    Dilip Mittal, Director, Mittal Brothers says, "Every area of Pune has something special to offer, whether it is the eastern side where Magarpatta IT Park exists, or the western where Hinjewadi IT Park draws the IT crowd".

    Atul Mahashabde, Partner, Om Developers, says, "We are exhibiting two projects The Island at Wakad and Angel Hills at Talegaon. We are offering free registration during the exhibition. Wakad has proximity to the IT Park and the PCMC area will be the centre of the city in the future".


    So, it is upto you to decide & note that we are not against ITGs or even investors for that matter. We are not debating whether what these ITGs did was right or wrong but that they worked as major factors for exponential increase in RE prices, that's all.




    the reason why the builder use this term is that wherever IT parks have been made owners have got very good rental in last 5 years.....

    while 2003 the rentals were in range of 2-3 k now they are in 10-12k/
    So they are alluring the future owners that if you buy here owing to the IT park and from IT employees you can charge handsome rent.

    Now 30 - 40 percent of today's rentals are with Defense personnel whose "pensioners heaven" had been made hell or side income whatever.....
    why IT/service sector employee pay high rental because they stay on sharing basis and so 500 or 1000 here and there does not make a difference ....

    So when there was scope of high rentals .... RE seemed to be a very good investments .... at the price during 2004 - 2005 .. then it became fashion ... oah you haven't bought a flat ??
    BOSS grow up .... go now and order a flat ...
    ....
    Hey I am going for booking will you join me ..
    aah yes ... let me fetch my cheque book ....
    can we book on ??
    of course. ....:D

    every one who has money became suddenly hellish interested in Major cities RE.
    a 15 - 20 L flat giving you rent of 6 - 8 thousand in year 2006 what else you can dream for ???:)

    that lead to mad race ... and in India the scales are higher and knowledge/common sense is ignored for Greed.

    but consider now the case for a IT/service industry person having family and how tough for him to pay such high rental of 10k.....
    and we talk about him owning one ...

    IMPOSSIBLE for him .... how do you expect him to pay 35K EMI when take home is maybe in range of 30 - 50 K
    majority of Service industry falls in this.

    And its their DUTY to create the "feel good factor" even though their pockets may be empty.

    So builders are not targeting IT people now .... rather wealthy individuals who have money to invest and forget for long term.
    CommentQuote
  • Originally Posted by frugality

    So builders are not targeting IT people now .... rather wealthy individuals who have money to invest and forget for long term.


    Very true. I know owner of a well know township called up some rich people all over Maharashtra requesting them to book a flat in thier project. The number of booking was hugh.

    Instead of they should have lowered the rates a little bit and called up common man to book flats there. The number of booking would have been 'hugher'

    Anyways, by the next election, everything will be all over. I am hoping !!
    CommentQuote
  • Originally Posted by frugality
    the reason why the builder use this term is that wherever IT parks have been made owners have got very good rental in last 5 years.....

    while 2003 the rentals were in range of 2-3 k now they are in 10-12k/
    So they are alluring the future owners that if you buy here owing to the IT park and from IT employees you can charge handsome rent.

    Now 30 - 40 percent of today's rentals are with Defense personnel whose "pensioners heaven" had been made hell or side income whatever.....
    why IT/service sector employee pay high rental because they stay on sharing basis and so 500 or 1000 here and there does not make a difference ....

    So when there was scope of high rentals .... RE seemed to be a very good investments .... at the price during 2004 - 2005 .. then it became fashion ... oah you haven't bought a flat ??
    BOSS grow up .... go now and order a flat ...
    ....
    Hey I am going for booking will you join me ..
    aah yes ... let me fetch my cheque book ....
    can we book on ??
    of course. ....

    every one who has money became suddenly hellish interested in Major cities RE.
    a 15 - 20 L flat giving you rent of 6 - 8 thousand in year 2006 what else you can dream for ???

    that lead to mad race ... and in India the scales are higher and knowledge/common sense is ignored for Greed.

    but consider now the case for a IT/service industry person having family and how tough for him to pay such high rental of 10k.....
    and we talk about him owning one ...

    IMPOSSIBLE for him .... how do you expect him to pay 35K EMI when take home is maybe in range of 30 - 50 K
    majority of Service industry falls in this.

    And its their DUTY to create the "feel good factor" even though their pockets may be empty.

    So builders are not targeting IT people now .... rather wealthy individuals who have money to invest and forget for long term.


    maybe the decline is closer then 2 -3 quarters ... Rentals have started going down in spite of best efforts of brokers / builders.....
    so soon the knee jerk will be over ...
    maybe in a quarter ...
    CommentQuote
  • Originally Posted by realacres
    Well, simple exercise:- The T-shirt which is available at camp/laxmi road for INR 550/- is available for INR 460/- in Pimpri market. Once when I told a shopkeeper about this, he said:- "Tumhare umar ke log nap tol karte nahin, paisa rehta hain, kharch kar dete hai, computer se kafi paisa kama liya".


    Hmm in a way yes, but then again in most of cities you always have places which are expensive & places which are cheap. Blaming the IT is the new Buzz, not that its entirely untrue but in most cases IT has been a catalyst if not the real cause.

    Another reason for rickshaw menace & some other areas of price hike is due to a large influx on people from outside Pune(this includes people from other cities of Maharashtra too & not just out of state guys) who didnt know what was the right price for labor & other commodities.

    And this is not just in IT but also people who came for other industries like Auto, Telecom etc etc
    CommentQuote
  • Originally Posted by razer
    I think since ITGs have spent the majority of their careers in somewhat professional environments, they tend to view others who work for a living similarly.

    They will tend to pay and treat their maid, driver, and rickshawallah a little better. Whereas, those who are moneyed, and have 3-4 times the incomes of regular ITGs, will continue to treat the rest of the junta in the same way, and will pay them half or even lower.

    Well, I differ on this. My maternal uncle has built houses for all his maids & 2 drivers & this will be wrong to say that IT people treat others well. I know some ITGs in our locality who take cigarrettes on credit from panwala, payment to kiranawala is done after 1.5 months.

    Fact remains that in most cases as both are working (hub & wife), it is peanuts for them to pay few hundred more the maid. Ofcourse, in last 5-6 months I have seen the demand from maid dropping as ITGs are doing things like folding the clothes etc. on their own.
    CommentQuote
  • Originally Posted by realacres
    Well, I differ on this. My maternal uncle has built houses for all his maids & 2 drivers & this will be wrong to say that IT people treat others well. I know some ITGs in our locality who take cigarrettes on credit from panwala, payment to kiranawala is done after 1.5 months.

    Fact remains that in most cases as both are working (hub & wife), it is peanuts for them to pay few hundred more the maid. Ofcourse, in last 5-6 months I have seen the demand from maid dropping as ITGs are doing things like folding the clothes etc. on their own.


    Thanks for this example. I have seen such people, too. But I've seen fewer of these people. I know a few more ITGs who are generally of that easy-going disposition.

    But yes, to generalise on the basis of that would be wrong, hence I said "almost to a fault".
    CommentQuote
  • Originally Posted by Technocrat
    Another reason for rickshaw menace & some other areas of price hike is due to a large influx on people from outside Pune(this includes people from other cities of Maharashtra too & not just out of state guys) who didnt know what was the right price for labor & other commodities.

    And this is not just in IT but also people who came for other industries like Auto, Telecom etc etc

    Yep, quite true about migration.....but if you check the profile of Mall visitors, most of them are from IT. This survey was done by the malls themselves. Ofcourse this doesn't mean that a chap sitting in Barista has to be from IT only, but these ITGs gave impression to rest how big sums they were earning & created false impression for many as Ashish said.

    However, I remain firm on my stand that it were only ITGs who were unable to digest the money properly vis a vis other proffessions.

    Eg. Look what a marwari kirana store boy will do if he gets INR 1k, & compare that with an ITG. You will get the difference.

    Man, most ITGs saved after spending while in other proffessions, mostly it is spend after savings. Fact remains that even ITGs never expected that IT will be flat in 5 years from the boom period. This I am saying from my personal experience w.r.t. my classmates who became ITGs.
    CommentQuote
  • its 99th page!

    Hi All,

    Let me take a minute off from the ongoing discussion arnd ITGs and congratulate all those who have actively contributed to this thread and made it to 99 (+1=100!!) pages of interesting discussion for readers like me. Reiterating once again - its really enjoyable following all the quality exchanges in this thread.:)

    I dont know if theres any other thread which has touched 100 pages in this forum.

    Keep it going friends..

    Cheers.
    CommentQuote
  • Realacres, you are generalizing the ITGs with a broad stroke. I agree with most of what you have said, but same is true for people in other professions too.

    Everyone these days seems to be wearing those badges and working in AC. most probably they are doing some very low level karkoon type job compared to let's say my friend in Tata motors who is designing and testing engines and is black with smoke.
    CommentQuote
  • Originally Posted by ttt43
    Realacres, you are generalizing the ITGs with a broad stroke. I agree with most of what you have said, but same is true for people in other professions too.

    Everyone these days seems to be wearing those badges and working in AC. most probably they are doing some very low level karkoon type job compared to let's say my friend in Tata motors who is designing and testing engines and is black with smoke.


    By the way, what IS the full form of ITG? IT Guy?? I tried back-tracking this thread to see the first post that introduced this term, but this thread has way too many posts already. Everyone is using this term as if it is common knowledge but I'm hearing this term for the first time.

    Since I am already on this, what does DP road mean?? Please confirm if it means Development Plan road. If so, does it mean a road that is going to be constructed or already constructed? Or does it simply mean a road that is part of the municipal plan, constructed or not?
    CommentQuote
  • In most of the cities there are both type of places costly and cheaper. For eg. Nagpur, it has Bardi (costlier) and Mahal (cheaper) market places.
    About maid the point is very true. I stay in area where less IT janta is present and maid charges are low. again note that even maid charges are shared as rent so people (batchlors) dont bother much.
    Pune is costly when it comes to cloths, grain as well. I get all type of dals in half the rates from my hometown. Whereas in Pune the price is double. Same for cloths.
    I think IT people are partly responsible for hike not completely responsible. Pune has poloticians (local gundas), mumbai people and dont forget to add people from Police (govt employees who earns lots of B-money). Recently a couple working in police that too not on higher post(our owners relative) purchased a 50 L flat on cash. Have many friends whose dad working in police and I can see the power of b-money.
    CommentQuote
  • Originally Posted by realacres
    Yep, quite true about migration.....but if you check the profile of Mall visitors, most of them are from IT. This survey was done by the malls themselves. Ofcourse this doesn't mean that a chap sitting in Barista has to be from IT only, but these ITGs gave impression to rest how big sums they were earning & created false impression for many as Ashish said.

    However, I remain firm on my stand that it were only ITGs who were unable to digest the money properly vis a vis other proffessions.

    Eg. Look what a marwari kirana store boy will do if he gets INR 1k, & compare that with an ITG. You will get the difference.

    Man, most ITGs saved after spending while in other proffessions, mostly it is spend after savings. Fact remains that even ITGs never expected that IT will be flat in 5 years from the boom period. This I am saying from my personal experience w.r.t. my classmates who became ITGs.


    i think many ITGs are in malls because many of them visit abroad and get used to the environment. They just want to re-live their experience or tell others what is like in western countries...

    however, i agree that sadly many people (including ITGs) think that it is a symbol of something.. same people crib when maid asks for a Rs. 50 raise or bargain with a grocery shop owner or when milk gets expensive by a rupee but dont even blink when multiplexes raise the tickets to Rs. 200-300+

    people should use simple steps... earn honestly, spend wisely to have savings and extend your hand to people who are unorganized and live on daily wages...
    CommentQuote
  • Originally Posted by ttt43
    most probably they are doing some very low level karkoon type job compared to let's say my friend in Tata motors who is designing and testing engines and is black with smoke.

    Right man. Your friend in Tata motors too has lot of brain contribution to be put in though he may look like car mechanic at the end of the day;). However, ask your friend how much did he had to work & time needed to be spend to reach this level & it's corresponding time taken by an ITG.

    Man, I have seen some boys boasting to their parents that how much you are earning/month after 25 years of experience, I am earning more than that in less than 2-3 years from the day I started working. Now is this the way to say things, that too to the parents? Best part:- Most of these chaps are now laid off or recieved hefty pay cut in salaries:D. (Some may think why I am happy with this coz they deserve this when they use such words that too with their parents).

    One general thing which I have seen is ITGs are more arrogant than rest of the professions like the chap which came to me for patent info & was speaking on fone or during the time of festivals, these ITGs consider it to be downmarket to go house to house & collect donation for festive seasons. Even they use harsh language against the watchman of the society while those who have Audis in our society are extremely soft spoken.

    Hence, as ITGs got more than they expected, arrogance was there (this is not true for all) & this led to the factors like hey man, I bought a flat at x/sq ft & you are still homeless!! Some bought 3 flats, thinking they will sell 2 flat with profit & hence get their own one free (maybe I mentioned this somewhere) & it was this arrogance/lack of knowledge which led the builder fraternity exploit it. Today, most of these chaps are having tough time in managing their EMIs, not only home loan, but car, personal & credit card as well.

    *PS:- I am not against IT/ITGs. What I just want to say that IT sector proved to be curse to the city rather than boon & it's effects on RE can't be ruled out.
    CommentQuote
  • Originally Posted by asliarun
    By the way, what IS the full form of ITG? IT Guy??
    >> Yes.
    Since I am already on this, what does DP road mean?? Please confirm if it means Development Plan road>>
    >>Yes
    Or does it simply mean a road that is part of the municipal plan, constructed or not?

    It means that it is only on paper & doesn't exists of now in reality on ground. DPs are also subject to change, hence don't accept anything on face value.
    CommentQuote