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 Venkytalks
    It is a giant tax on the middle class.

    Completely agree with you man. In India we end up spending a lot more for which we are not supposed to pay. Besides the eg. you gave, one can see how one needs to bribe to get license, or for that matter any 'Sarkari' work. We need to pay road tax for roads which don't exists in real terms, we pay highest rate for public transport (it is economical to drive a bike than to travel using PMPML bus), the taxes on commodities like fuel are highest (petrol costs about INR 16-18/litre to govt, rest is all tax) & the list goes on.

    In the west, weekend concept is quite popular, in India it isn't coz the money required to have a good weekend is spent during the weekdays for things we are not supposed to pay for. Hence, ratio of earnings:spending (self) is much better than India.

    In Germany, one gets the feeling of guilt if s/he doesn't pay tax & hence tax evasion is very, very less in Germany than here coz people there very well know that the money is going to be used to large extent for public welfare, while we in India avid tax as we know where this money goes to!!

    Transparency is govt functioning is the primary cause which hampers all the good work.:(

    Btw, thanks ash for the link. Was indeed very good:).
    CommentQuote
  • Originally Posted by hitmady
    Do not want a debt which causes meaningless-stress & EMI of 4-5 times rent. Waiting to pay reasonable price for home.

    But this is not understood by many:(. They think that RE prices will only go up & may not be able to buy a house later:D. Funniest part is that they think as if they are alone in this world facing such syndrome well forgetting that there are many others too in the same ship.

    Wisey, thanks for the post for teaser rates. These should be ideally called as Eraser rates coz they erase all your money:D.
    CommentQuote
  • Originally Posted by realacres
    the taxes on commodities like fuel are highest (petrol costs about INR 16-18/litre to govt, rest is all tax)
    .


    This is one of my pet peeves . The industry is taxed BEFORE it creates value - because govt is lazy and finds it easy to tax the raw material rather than the finished good.

    If we had Chinese oil prices, our GDP will double.
    CommentQuote
  • What does a Sovereign collapse look like?

    Folks,

    I was lazily sifting through charts of various global indices and then it struck me, maybe I should see what the charts of Greece, Portugal, etc look like today as they start their slide towards possible collapse. They are starting to look bad.

    Then I wondered, why not go directly to the chart of the epic collapse of Iceland in 2008. See the chart attached and wonder...

    The index started at 1000 in late 2001 and rose like the typical blow-off rally to top at 9000 in mid-2007. Then see the fall.

    From 9016 on 19 july 2007 it finally bottomed at 212 on 1st April 2009 (a sick Fool's Day for them) giving up 97.65% of its value!!! On a single day of 14 Oct 2008 it fell from a high of 3004 to a low of 678 (a one-day fall of 77.4%!!!).

    And remember, Iceland is a tiny country of only around 280000 people which tried to do too much with debt. Think of what can happen when bigger countries go Iceland's way!

    Just a thought ...

    cheers
    Attachments:
    CommentQuote
  • Wisey, i know what you are indicating at. But i tell you one thing, nothing of that sort is goin to happen here. It cud be +-10%, but eventually we have a strong story.

    I mostly respect your views, but i dont know why the f. you are so pessimistic. Either you want to make out by putting up a sad mood in the market. But how many people access this shit. Very few, so called educated ones including me.

    So, why dont you start thinking straight. I dont understand, how come? a person always thinks in a pessimistic way. Acc. to you this world sucks. Please dont reply with your financial verbage(useless).

    Originally Posted by wiseman
    Folks,

    I was lazily sifting through charts of various global indices and then it struck me, maybe I should see what the charts of Greece, Portugal, etc look like today as they start their slide towards possible collapse. They are starting to look bad.

    Then I wondered, why not go directly to the chart of the epic collapse of Iceland in 2008. See the chart attached and wonder...

    The index started at 1000 in late 2001 and rose like the typical blow-off rally to top at 9000 in mid-2007. Then see the fall.

    From 9016 on 19 july 2007 it finally bottomed at 212 on 1st April 2009 (a sick Fool's Day for them) giving up 97.65% of its value!!! On a single day of 14 Oct 2008 it fell from a high of 3004 to a low of 678 (a one-day fall of 77.4%!!!).

    And remember, Iceland is a tiny country of only around 280000 people which tried to do too much with debt. Think of what can happen when bigger countries go Iceland's way!

    Just a thought ...

    cheers
    CommentQuote
  • Wisey, i know what you are indicating at. But i tell you one thing, nothing of that sort is goin to happen here. It cud be +-Ten percen, but eventually we have a strong story.

    I mostly respect your views, but i dont know why the f. you are so pessimistic. Either you want to make out by putting up a sad mood in the market. But how many people access this shit. Very few, so called educated ones including me.

    So, why dont you start thinking straight. I dont understand, how come? a person always thinks in a pessimistic way. Acc. to you this world sucks. Please dont reply with your financial verbage(useless).

    How can you compare Ice-land with in-dia. Its nuts man. I didn't expect that from you. We are bl... more then equivalent to hundreds of Ice-lands, Man u gotta think logically.

    We are America of 1970s man. Do you disagree? Think logically :)
    CommentQuote
  • Originally Posted by findingnemo

    Wisey,

    i know what you are indicating at. But i tell you one thing, nothing of that sort is goin to happen here. It cud be +-Ten percen, but eventually we have a strong story.



    Can you please elaborate on the 'strong story' part?
    CommentQuote
  • Thanx guys for all the posts the good ones and the combative ones.
    Well realacres remember emergency by Indira Gandhi,
    something good came of it too you could get any of your
    govt. work done without paying a penny more and no dada's on the streets either.
    CAN
    Originally Posted by realacres
    Completely agree with you man. In India we end up spending a lot more for which we are not supposed to pay. Besides the eg. you gave, one can see how one needs to bribe to get license, or for that matter any 'Sarkari' work. We need to pay road tax for roads which don't exists in real terms, we pay highest rate for public transport (it is economical to drive a bike than to travel using PMPML bus), the taxes on commodities like fuel are highest (petrol costs about INR 16-18/litre to govt, rest is all tax) & the list goes on.

    In the west, weekend concept is quite popular, in India it isn't coz the money required to have a good weekend is spent during the weekdays for things we are not supposed to pay for. Hence, ratio of earnings:spending (self) is much better than India.

    In Germany, one gets the feeling of guilt if s/he doesn't pay tax & hence tax evasion is very, very less in Germany than here coz people there very well know that the money is going to be used to large extent for public welfare, while we in India avid tax as we know where this money goes to!!

    Transparency is govt functioning is the primary cause which hampers all the good work.:(

    Btw, thanks ash for the link. Was indeed very good:).
    CommentQuote
  • Why do you guys always get pessimistic when I post?

    Originally Posted by findingnemo
    Wisey, i know what you are indicating at. But i tell you one thing, nothing of that sort is goin to happen here. It cud be +-Ten percen, but eventually we have a strong story.

    I mostly respect your views, but i dont know why the f. you are so pessimistic. Either you want to make out by putting up a sad mood in the market. But how many people access this shit. Very few, so called educated ones including me.

    So, why dont you start thinking straight. I dont understand, how come? a person always thinks in a pessimistic way. Acc. to you this world sucks. Please dont reply with your financial verbage(useless).

    How can you compare Ice-land with in-dia. Its nuts man. I didn't expect that from you. We are bl... more then equivalent to hundreds of Ice-lands, Man u gotta think logically.

    We are America of 1970s man. Do you disagree? Think logically :)



    Nemo,

    Where did I even remotely hint that this is going to happen here? Get a grip on yourself!

    If you have ever read posts of mine here, I've always said that in a bad world we seem to be the strongest for a country this size!!!

    I have always reiterated that if ever I was telling guys to hold of, it is only because they will be able to amass more down payment and also get a lower price so that they can minimise their loan amount, own their home earlier (meaning 100% own!) and pay lesser EMI so that they can handle their lives better because of more cash in their pockets throughout.

    Now, anything particularly wrong with all of that?

    Every time I post, I find that you guys react even more pessimistically than I do! Why?

    I was only wondering about what would be the repurcussions if some of the EU countries or even the bigger countries headed in that direction ... And the chart is a telling story about the real stakes at play here if whole countries go wrong in their policies and the millions it will affect.

    And if we are America of 1970s, you better start getting worried about your future since, after that America went straight down to where it is today. Only, because of the way they printed money, they seemed to flourish. While in reality, first they go off the Gold standard for their currency and then, each passing day, they sent out all their manufacturing jobs (70s and 80s) and then their Service jobs (90s and 00s). You don't want India today to be America of the 1970s. Maybe America of 1920s or 1950s.

    cheers
    CommentQuote
  • Wisey, I think you read too much Market Watch and Business Insider. I also used to do that (before I started wasting time here) and ended up getting overly doom and gloom - which did not materialise and I lost opportunity.

    These are right wing republican type publications. People there are like you - they talk gloom but make profit with market going up or down.

    Not everyone can make money trading. I cannot.

    But in investing, believing doomsday scenarios can be very harmful

    After 6 months of down, you always get 6 months of up is my current thinking, with experience of hindsight.

    Having said that, I see very little up side and very big down side in stocks and bonds. RE prices are also cracking in NOIDA. So I am waiting for a crash patiently (since I plan to benefit from it). I want RE to crash despite getting into RE, because a sustained recession means I can buy more.

    Nemo, expressing your opinion without foul language is always nicer for others to read.
    CommentQuote
  • Originally Posted by wiseman
    Nemo,
    Every time I post, I find that you guys react even more pessimistically than I do! Why?


    Very Simble yaar, People hate depressions, Erosion of their investments,
    glooms and dooms, etc.

    Once in a while you should say India is Shining, Jai Ho RE, etc.
    Paal bhar kay liya hame (India ko) pyar kar lo, Jhuta hi sahi ...

    That should give some feel-good factor ...
    CommentQuote
  • People should inform on what to invest/where to invest rather than on where not to invest.

    Also most discussion regarding indices going up or down has little relevance in reality for realty. People in 1999 waiting for RE prices to go down; might not have imagined the rates of 2009 in Pune.

    So no point in speculations of downturn, just see what looks best investment (safe and appreciating) and do it. As far as Pune's RE prices are concerned; they are extremely unbearable, but people are buying by taking loans and NRIs are booking apartments in third class localities of BlueRidge or Park Street based on power point presentations, website's manipulative pictures of happy people and landscaped gardens...And whenever they come(if they come back) and start staying in those places; thats going to be costly area anyway even though it is third rated now.
    CommentQuote
  • Originally Posted by enduser
    Very Simble yaar, People hate depressions, Erosion of their investments, glooms and dooms


    Wisey, you definitely scare a category of people who has bought 2BHK in kothrud/baner for 60Lacs with loan of 40L+.
    Let them live in fool's paradise.
    You know a famous quote "India is decoupled from western economies".

    Two years back in Mumbai I could hear people saying their RE is worth 1 crore. Now same people have come down to 50L.
    I seriously doubt if they can buy RE worth 50Lacs
    CommentQuote
  • :):):)

    (Since message was too short, a few words more)

    Originally Posted by enduser
    Very Simble yaar, People hate depressions, Erosion of their investments,
    glooms and dooms, etc.

    Once in a while you should say India is Shining, Jai Ho RE, etc.
    Paal bhar kay liya hame (India ko) pyar kar lo, Jhuta hi sahi ...

    That should give some feel-good factor ...
    CommentQuote
  • ]http://economictimes.indiatimes.com/quickiearticleshow/5568341.cms

    For a change from pessimism, I agree with the thoughts expressed in this article.

    Throughout the history of man, wealth creation has always meant owning some property.

    Things are not going to change beause we hate builders and their corrupt ways.


    The article is reproduced below:

    Noted journalist and writer, late V S Upadhyay, who played a key role in acquiring land from DDA for Delhi-based journalists in Gulmohar Park and was also responsible for enrolling many journalists as members of a cooperative society which built this posh area in South Delhi, used to tell his junior colleagues that they must purchase a house before reaching the age of 40.

    And if possible, they should buy another house before they retire!

    While giving this sage advice, he also used to say that those who do not get any pension after retirement must buy another property before retirement as it would give them social security in the later stage of their life.

    The thinking behind this advice was that if you have more than one property, you could rent out one and earn a good amount. Naturally, those who invest in property cannot be losers and it is advisable to invest in realty . This is especially true for all those who do not get pension benefits.

    Samir Jasuja, CMD of PropEquity, says that property can be a great source of income for your retired life, or in case you loose your job, as many people have done last year. There is no question that property would not help if your investment were made at the right time.

    “Those who invest in realty should have a longer period of time to enjoy benefits of appreciation as it is a long-term game. One should not expect miracles in a short span. It wouldn’t make any sense for a 60-yearold to invest in a property to earn rental income as real rate of return would not be profitable” , says Jasuja.

    There is also an opinion that if you are thinking of a second property, you should not have any hang ups in investing on the outskirts of your city. With the passage of time, even outskirts become part of a city.

    You can meet many people in various trans-Yamuna colonies, who will tell you that they came to that part of the city when it was bereft of any worthwhile facilities. After facing hard times for a couple of years, development commenced .

    And with development, values of their properties went up multifold. That has changed the class character of a large number of people. As rates have really gone up in main parts of the city, one should not mind investing in outer or little unknown areas.

    Vijay Jindal, MD of SVP Developers, says that among buyers of his flats in various projects , the number of those who already own properties are pretty high. That is an indication that the present generation knows for sure that investment in property would help their cause when the chips are down.

    Anil Makhijani, a realty expert, strongly feels that land can be another option for those looking for a second property with a specific goal.

    Between land and constructed property, the former is a lucrative option as it is much easier to sell it and the rate of appreciation is also higher. If you live in Delhi, then you should not think twice in buying land in any part of NCR. That would ensure for you enough returns in future.

    Realty experts say that those dependent on loans for buying a second or third property should focus on it early in life. For example, one should start thinking on lines of buying a second property before In that case, you would get enough time to shed all loan liabilities before reaching the retirement age. Discussing the purchase of a second or third property, Avinash Aggarwal, director marketing of Orange County, says that if one were to look back at the situation of 15-20 years ago, one would realize that, earlier, people were satisfied after buying one property.

    “As salaries have gone up over the years, there has been a paradigm shift in the attitude of people in terms of investing in realty. If investors settle for one property earlier, the later generations have been investing in multiple properties,” says Avinash.

    He is spot on. Now, people are investing in realty with clear-cut thinking that their investment in property would be their source of income in post-retirement life. With higher disposable incomes and more loan options, this thinking is being adopted by a larger number of families.

    For a change from pessimism, I agree with the thoughts expressed in this article.

    Throughout the history of man, wealth creation has always meant owning some property.

    Things are not going to change beause we hate builders and their corrupt ways.


    The article is reproduced below:

    Noted journalist and writer, late V S Upadhyay, who played a key role in acquiring land from DDA for Delhi-based journalists in Gulmohar Park and was also responsible for enrolling many journalists as members of a cooperative society which built this posh area in South Delhi, used to tell his junior colleagues that they must purchase a house before reaching the age of 40.

    And if possible, they should buy another house before they retire!

    While giving this sage advice, he also used to say that those who do not get any pension after retirement must buy another property before retirement as it would give them social security in the later stage of their life.

    The thinking behind this advice was that if you have more than one property, you could rent out one and earn a good amount. Naturally, those who invest in property cannot be losers and it is advisable to invest in realty . This is especially true for all those who do not get pension benefits.

    Samir Jasuja, CMD of PropEquity, says that property can be a great source of income for your retired life, or in case you loose your job, as many people have done last year. There is no question that property would not help if your investment were made at the right time.

    “Those who invest in realty should have a longer period of time to enjoy benefits of appreciation as it is a long-term game. One should not expect miracles in a short span. It wouldn’t make any sense for a 60-yearold to invest in a property to earn rental income as real rate of return would not be profitable” , says Jasuja.

    There is also an opinion that if you are thinking of a second property, you should not have any hang ups in investing on the outskirts of your city. With the passage of time, even outskirts become part of a city.

    You can meet many people in various trans-Yamuna colonies, who will tell you that they came to that part of the city when it was bereft of any worthwhile facilities. After facing hard times for a couple of years, development commenced .

    And with development, values of their properties went up multifold. That has changed the class character of a large number of people. As rates have really gone up in main parts of the city, one should not mind investing in outer or little unknown areas.

    Vijay Jindal, MD of SVP Developers, says that among buyers of his flats in various projects , the number of those who already own properties are pretty high. That is an indication that the present generation knows for sure that investment in property would help their cause when the chips are down.

    Anil Makhijani, a realty expert, strongly feels that land can be another option for those looking for a second property with a specific goal.

    Between land and constructed property, the former is a lucrative option as it is much easier to sell it and the rate of appreciation is also higher. If you live in Delhi, then you should not think twice in buying land in any part of NCR. That would ensure for you enough returns in future.

    Realty experts say that those dependent on loans for buying a second or third property should focus on it early in life. For example, one should start thinking on lines of buying a second property before In that case, you would get enough time to shed all loan liabilities before reaching the retirement age. Discussing the purchase of a second or third property, Avinash Aggarwal, director marketing of Orange County, says that if one were to look back at the situation of 15-20 years ago, one would realize that, earlier, people were satisfied after buying one property.

    “As salaries have gone up over the years, there has been a paradigm shift in the attitude of people in terms of investing in realty. If investors settle for one property earlier, the later generations have been investing in multiple properties,” says Avinash.

    He is spot on. Now, people are investing in realty with clear-cut thinking that their investment in property would be their source of income in post-retirement life. With higher disposable incomes and more loan options, this thinking is being adopted by a larger number of families.
    CommentQuote