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 compuwalah
    So one need to bank on 2-3 years of stagnation. What if that doen not happen ? Then would buying in 2009 would have been wise ?

    Lets assume there is a stagnation. Now tell me this.
    One person bought in 2009 at a rate of 2900 and paying interest of 10% per annum and for 1000 sq ft flat this cost was 29L + stamp etc = 32L. He will finish his loan off in next 10 years (15 years loan period). Otehr person bought in 2014 with rate of 6K so cost of 60 + stamp = 64L. This guy will take 30 years to replay the loan. (assming that person not compromising on location na keeping the EMI same ).

    So first guy paid 32L + interest and second 64L + interest + Rentals

    Which one is better in your view ?



    completely agree with you

    buyers in 2009-10 beneiftd in following way

    1) 25% loading on carpet
    2)No loding on terrace
    3)50%terrace
    4) no service tax
    5)no TDS
    6)lesser stamp duty


    my 2bhk saleable was 1020 (760carpet + 160 terrace )

    going forward we dont know waht tax govt wil levy .. also new reqgulations introduced make lot of things compulsory for builders who intern increase loading due to additional cost example .. 2 stair cases,two lifts and then one compulsory stretcher lift , increased open area ratio , new fire safety and evacaution regularions , STP,WTP solar water ... these are beneficial to buyers though .. but builers load them to ur sealabale

    plus my emi has now become easily manageable

    now the same flat goes for 60-65L resale all inclusive you must pay atleast 55k emi for it ...
    a new flat with same area will cost you 68-70L atleast
    ... so ppl who waited from 2009-11 till now are clearly at loss and possible victim of jealouy ... going forward is differnt story
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  • Bangalore: The list of large sovereign wealth funds and pension funds chasing Indian real estate has grown longer, with sovereign wealth fund Government of Singapore Investment Corp. Pte Ltd(GIC) entering into Rs1,500 crore joint venture agreement with Brigade Enterprises Ltdto invest in projects in South India. The Bangalore-based property developer and GIC, through an affiliate company, will create an investment platform, through which it will invest in and acquire land for residential and mixed-use developments—including shopping malls and offices—in cities in southern India, Brigade said on Monday. The Brigade-GIC tie-up follows a slew of pension and sovereign funds who have partnered with individual developers to invest in real estate projects, giving the sector a much-needed flush of capital, both in the form of debt finance and equity. In February, Piramal Enterprises Ltdsigned a strategic alliance with CPPIB Credit Investments Inc., a wholly-owned subsidiary of Canada Pension Plan Investment Board (CPPIB), for a $500 million realty debt fund, where each would initially put $250 million in the debt fund that will offer rupee debt financing to residential projects across India’s major urban centres. In May, Xander Group Inc.and an investor consortium led by Dutch pension fund asset manager APG Asset Management NVannounced a $300 million venture to buy income-generating commercial office assets across India’s main office markets. Before this in 2012, APG and Godrej Properties Ltdformed a residential platform to invest Rs770 crore. The Qatar Investment Authority (QIA) has also invested Rs1,600 crore—Rs800 crore in two tranches—in Bangalore-based RMZ Corp.to invest in commercial office projects. Brigade’s association with GIC goes back to 2012, when the developer and GIC affiliate Reco Begonia jointly bought a piece of land in Whitefield in Bangalore from Hindustan Unilever Ltdfor Rs125 crore. The first joint venture project, Brigade Cosmopolis, will be home to over 880 families and is under construction, said Suresh Kris, chief financial officer, Brigade Enterprises. The investment will be made in the form of equity. “Instead of investing project by project, it made sense to build a platform to speed up the process and also get a commitment,” said Kris, adding that the focus will be on Bangalore, Chennai and Hyderabad. Lee Kok Sun, managing director and co-head (Asia), GIC Real Estate Inc., said in a statement, “As a long-term value investor, GIC is believer in India’s growth potential. We seek partners who share our philosophy and values and have a reputable track record in the markets in which they operate. We are therefore pleased with the opportunity to partner Brigade, one of the leading developers in South India, in this joint venture.” Property analysts said while these funds invested through private equity (PE) funds before this, in the form of limited partners (LP), they have now chosen to partner developers directly. “Many fund managers weren’t able to deliver promised returns, which is why pension funds like these became disillusioned,” said Ambar Maheshwari, managing director (corporate finance) at Jones Lang LaSalle India, a property advisory firm.

    Read more at: http://www.livemint.com/Companies/foDNo7MxvC1zaCdNyLtgWJ/Brigade-GIC-to-jointly-invest-1500-cr-in-residential-deve.html?utm_source=copy
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  • Amazing that RealAcres missed this news...he was probably focusing on guys getting fired in few incompetenet firms...

    China too wants to invest 5bn in industrial parks of India | Accommodation Times

    Anyone who is seeing only bad news when sensex has run up 60% in last one year is not doing justice to his intelligence
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  • Originally Posted by compuwalah
    So one need to bank on 2-3 years of stagnation. What if that doen not happen ? Then would buying in 2009 would have been wise ?

    Lets assume there is a stagnation. Now tell me this.
    One person bought in 2009 at a rate of 2900 and paying interest of 10% per annum and for 1000 sq ft flat this cost was 29L + stamp etc = 32L. He will finish his loan off in next 10 years (15 years loan period). Otehr person bought in 2014 with rate of 6K so cost of 60 + stamp = 64L. This guy will take 30 years to replay the loan. (assming that person not compromising on location na keeping the EMI same ).

    So first guy paid 32L + interest and second 64L + interest + Rentals

    Which one is better in your view ?


    Wrong comparison in many ways.

    Second guy saves EMI amount for the period 2009 onwards and lives on rent.

    Then, he is willing to wait as long as property doesn't decline. Once it declines, he gets in with whatever saving he has.

    Meanwhile he is investing money into stock market at average 16% pa (no tax on Capital Gains for long term and this is BSE ROI since inception).

    Somewhere along the line the renter is not only going to surpass the early buyer, when he does buy property he will get a new home several years newer and better.

    Since he is NOT paying usurious interert to banker and exorbitant price to builder (at any point in time) as well as earns much higher tax-free returns on his savings, he will ALWAYS be at an advantage eventually to the early buyer who basically becomes a milch cow for the banker and builder.

    We can do the math, but in concept this is how it will work out.

    We can all throw whatever we want into the equation to slant the argument to our line can't we? :D

    The best time to buy is always when prices are reasonably priced.

    cheers
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  • @Compuwallah - "So one need to bank on 2-3 years of stagnation. What if that doen not happen ?"
    What if prices fall 20-30%? Given the current RE market, stagnation is probably the most optimistic outlook. By many accounts on this thread, discounts abound in Pune. Discount + free registration + free parking, pretty soon these things add up to a fair bit.

    2. "assming that person not compromising on location"
    Furthermore, resale houses sell for about 10-15% lesser than a comparable new house. Factor that in too. As Wiseman has posted, if you torture the numbers long enough they will admit to whatever you want :). I agree this holds for me too. The points I was trying to make were
    1. A simplistic comparison based on price alone is misleading.
    2. Inflation (and the power of compounding) will steadily erode your gains if prices are not rising. If you are levered, then it is worse. You are essentially paying 10% a year, and your asset price is flat. Your equity could be wiped out in 2-3 years.
    When prices were rising faster than interest rates, gains were multiplied due to loans. Now losses will be enhanced.
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  • @Southsea .. resales dont sell at 15% discount unless thy are very old 15 yrs plus

    most resales (3-10yrs) sell at similar rate as prevalent in the area .. since 1000 Sqft of reale correspond to 1100-1130 in new projectsdepending on terrace size you get larger area which is an advantage and may corespond to discount you are saying
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  • @Tangent - "most resales (3-10yrs) sell at similar rate as prevalent in the area"
    As a buyer if you have the option of buying a new versus an old one at the same price, rationally speaking which one would you chose? (No different from buying cars :))
    Conversely as a seller, to compete you have to sell for lesser than the new one.

    If inventory were constrained, you may have a point. But in todays RE market with so much supply, resale would certainly be at a discount.
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  • Originally Posted by Tangent
    @Southsea .. resales dont sell at 15% discount unless thy are very old 15 yrs plus

    most resales (3-10yrs) sell at similar rate as prevalent in the area .. since 1000 Sqft of reale correspond to 1100-1130 in new projectsdepending on terrace size you get larger area which is an advantage and may corespond to discount you are saying


    Any recent examples of 5-10 year old resales selling at same price as similar new houses?

    cheers
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  • Originally Posted by southsea
    @Tangent - "most resales (3-10yrs) sell at similar rate as prevalent in the area"
    As a buyer if you have the option of buying a new versus an old one at the same price, rationally speaking which one would you chose? (No different from buying cars :))
    Conversely as a seller, to compete you have to sell for lesser than the new one.

    If inventory were constrained, you may have a point. But in todays RE market with so much supply, resale would certainly be at a discount.



    i am just out of a buy and sell cycle so i have seen the ground reality...
    due to loading factor i would rather prefer a resale you cannot comapre it with CARs ... a 20yrs old flat in developed areas will still cost you a bomb .. as against you wont find anyone buying 20yrs fiat padmini

    @wiseman i saw transactions in kothrud ,bavdhan and in PS during my hunt ... as i said the loading (25%) 50%terrace considerations make resales very attractive ...

    note resales i am talking about good societies (well maintainted)
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  • my frnd saw 1400 resale in pebbles 1 for 1400 for 1.1 cr and and a new 1374 spaft in nyati eaquotorial costs around 93L (bith are in bavdhan budruk) .........here location too played a part .. ... which is true in most cases ... in more developed areas you have very less new construction so choice is less ..... in up coming areas the equation can be different ....
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  • @Tangent - "my frnd saw 1400 resale in pebbles 1 for 1400 for 1.1 cr and and a new 1374 spaft in nyati eaquotorial costs around 93L (bith are in bavdhan budruk)"
    Still a bit of an apples and oranges case here.

    Take a given apartment. One flat lived in for say 3-4 years. The other one opposite it, kept vacant by the owner since possession. Would you as a buyer pay the same price for both ?
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  • you are comparing apple to oranges ... in your example both are resales.... i am talking about buying new directly from builder and resale ...

    btw i sold my occupied flat at same rate as th one flat lying vacant (one floor above me ).. o cuupied unoccupied will matter only if the tenant in ocuppied has royally screwed up the appartemnt ...
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  • I would tend to agree with Tangent.If the resale flat is well maintained and say not more than 3-5 years old,I personally would treat it on par with new flat.
    Flats are expected to last at least 50years(though with our Pun builders god only knows;).
    If I get a good bargain for used flat ,only a psychological barrier needs to be overcome.
    Resale flats have an advantage also-you can check out hidden signs of seepage,meet neighbours and come to know about any problems.Many problems surface only after you stay in the flat.
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  • Originally Posted by vaibav123
    I
    Flats are expected to last at least 50years(though with our Pun builders god only knows;).
    .


    After 50 years or so when the flat has lasted its shelf life is the owner left with any asset or rights? Land or built up independent house can be rebuilt by subsequent generations but what is the treatment for such highrise apartments?
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  • I don't see any problem in going for resale flat except psychological one.. but then you should know that the land on which your flat is going to be built is also used by someone else for some other reason/purpose and this can be true for may other things as well..

    If you get a resale deal for 4-5L lower then you should go for it and you'll need hardly 1L to make it new inside out..
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