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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  • sarkarsk ,
    Quite true.
    Price, quality,marketable title,timely delivery are all total gambles in the RE industry.,
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  • Originally Posted by sarkarsk
    Whole India is wiling to buy but buyers are priced out. Sweet spot is 40-60L and stock for it are available far away from habitation.


    +1

    Black money investors , greedy builders and corrupt politicians ne mil ke price manipulate kar diye aur end users ka gharonda ka sapna tod diya..!
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  • Originally Posted by anupparekh
    One more big MNC company in Pune that I am aware of, announced sudden layoffs yesterday. Affected employees were informed yesterday afternoon.

    Sad story. With so much IT students passing out each year... I really wonder where the IT story is going. IT life has become very unpredictable. Best to have as much less liability as possible.


    Prepare for the worst, hope for the best :)

    which company are you referring to?

    Symantec which has a major presence in Pune is also undergoing a massive re-org and being split up into two companies. I am guessing there will be impact there as well...

    Antivirus Maker Symantec Splitting Into Two Publicly-Traded Companies - Forbes
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  • Infosys has bought land in Pune after 11 yrs. Does anyone know where?

    I couldn't possibly comment: Infosys buy land in Pune after 11 years
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  • Originally Posted by sarkarsk
    Slowly the hire and fire policy is getting accepted in Indian IT.

    Wouldn't this make people extra cautious ?

    That's why sales are so down now. The smart people who took plunge in 2009-2012 and bought RE, are in comfortable position now. Some of them may have taken loan such that 50% of salary goes as EMI that time. But now it must have come down to 40-30% of their take home salary which is very comfortable.

    Those who have bought in past 3 years are actually in loss. And if you see the inflation, the incomes have actually gone down. Just see the savings of people in last 2 years & you will get the point.
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  • Originally Posted by vaibav123
    RA,
    While i am fully with you on issue of over leveraging.
    Taking bigger loans and for longest possible period to get smaller EMI(But forgetting over the tenure of loan you will repay much,much more than original loan)

    +1

    Individuals have to take loans for buying flats-that is now almost unavoidable unless they get assistance from parents etc.

    Yes, loans can be taken but issue is to what extent. 10 yrs max to max duration with 30% of take home income in EMI is fine.

    Now we should see how many individuals have defaulted on home loans-due to job loss or other causes like company exiting Pune/India.
    Calculated risks have to be taken for acquiring big ticket productive assets like flat/commercial shop-which will bring in returns higher than F/D.

    +1.

    Pune RE is now not VFM and self use is purchases are ok,but investment buys are avoidable for salaried people.

    If Pune RE is not VFM, why good for self use ?? Why throw away money on hyped up asset ?? At the end of the day, money is money, be it that of end user or investor.
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  • In dull property market, investors choose financing over flats

    The stagnant real estate market is witnessing a significant shift in stance by investors.

    These investors, who previously purchased new apartments in bulk in the hope of earning a premium on appreciation, are not keen to buy so many flats nowadays.

    They say that with no signs of a revival of property rates, they prefer to offer funds to developers at high interest rates.

    These investors are disappointed that there has been no improvement in the real estate market in the past year or so.

    "Property rates have been stagnant and at some places developers have had to sell flats at lower prices. This has restricted our purchase of flats.as investment as it is difficult to exit with liquidity," said one investor, requesting anonymity. "So we are offering loans at high interest to developers who need funds."

    Pankaj Kapoor, managing director, Liasas Foras, said investors are in fact shifting the risk to developers.

    "The market is not moving up. There is so much inventory that it has resulted in a drop in prices. If property prices fall by 20-30% it could cause a huge loss for investors. So they have chosen the safe route to park their money. This will also ensure some profit for them," Kapoor said.

    The head of the real estate research firm explained that this is part of the industry cycle.

    "Investors always seek to put their money in productive areas. The return is very important. If the return is not good even small investors shy away from buying. Today there is a huge gap between affordability and demand. Buyers are finding it difficult and this had impacted prices," Kapoor explained.

    The Maharashtra Chamber of Housing Industry (MCHI) organized a property exhibition recently, but found the response tepid.

    "Most big developers didn't participate in the MCHI property exhibition as there is no point in spending so much money for stalls without assured returns," said a senior developer from South Mumbai.


    In dull property market, investors choose financing over flats | Latest News & Updates at Daily News & Analysis

    ^^ Another eg. that apart from end users, even investors are not putting money in RE.
    Banks also not giving money to builders. So, what option is left for builders ?? Either drastically cut prices or go bankrupt.
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  • Buying for self end use can always be justified by emotional rather than rational reasons.

    Buying for "investment" which by definition is rational can never be justified at current levels.

    It will take many years for the super bull run in real estate seen over last decade to return to investment grade levels.

    Bhool jao real estate ko.

    One can safely forget about real estate investment for 5 years without facing any real problem
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  • Originally Posted by Venkytalks
    Buying for self end use can always be justified by emotional rather than rational reasons.

    Buying for "investment" which by definition is rational can never be justified at current levels.

    It will take many years for the super bull run in real estate seen over last decade to return to investment grade levels.

    Bhool jao real estate ko.

    One can safely forget about real estate investment for 5 years without facing any real problem


    Mauka dekh ke chauka lagao doston! Builder ke saamne cheque book, pre approved loan eligibility + credit score ka jhunjhuna dikhao. 5 saal me koi na koi builder / investor to tutega. Grab the most of this opportunity.

    By the way, I am waiting for 50-60L purchase in koramangala in Bangalore. I will be fully armed by 3rd quarter next year (existing loan liability will be over by then). Any RTM/resale at koramangala @50L will be grabbed.
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  • Originally Posted by sarkarsk
    Mauka dekh ke chauka lagao doston! Builder ke saamne cheque book, pre approved loan eligibility + credit score ka jhunjhuna dikhao. 5 saal me koi na koi builder / investor to tutega. Grab the most of this opportunity.

    By the way, I am waiting for 50-60L purchase in koramangala in Bangalore. I will be fully armed by 3rd quarter next year (existing loan liability will be over by then). Any RTM/resale at koramangala @50L will be grabbed.


    I think resale properties will be the first ones to crumble. If they are having cash flow issues, they will be ready to sell the apartment at a huge discount as compared to the arbitrary psf rates quoted by the builder.

    Once the secondary market starts to crumble, the primary market will have no choice but to revise their rates downwards.
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  • Originally Posted by ThodiSiZamin
    I think resale properties will be the first ones to crumble. If they are having cash flow issues, they will be ready to sell the apartment at a huge discount as compared to the arbitrary psf rates quoted by the builder.

    Once the secondary market starts to crumble, the primary market will have no choice but to revise their rates downwards.


    when will it crumble ..... resales as per many of the forum are already selling lesser than new construction .. anyway after prolonged rate stagnation it seems many builders have hiked the rates (100-300) in the projects i had seen 2-3 months back
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  • Originally Posted by Tangent
    when will it crumble ..... resales as per many of the forum are already selling lesser than new construction .. anyway after prolonged rate stagnation it seems many builders have hiked the rates (100-300) in the projects i had seen 2-3 months back


    With construction costs, marketing costs going up, interest rates going up it will be very difficult for builders to sell at lower rates. Also, RE is not a traded stock, that panic button will be pressed if there is a decline by 5-10% in near term. On the macro level people can hold till they can recover the costs or it is financially viable for them to sell. Till then they can use it, rent it, lease it & earn from it.
    So, I personally don't see much white spaces for the RE prices to go down beyond 10% from current levels. Also, I agree that upside is also limited for investors in short term.
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  • Originally Posted by anirban8
    With construction costs, marketing costs going up, interest rates going up it will be very difficult for builders to sell at lower rates. Also, RE is not a traded stock, that panic button will be pressed if there is a decline by 5-10% in near term. On the macro level people can hold till they can recover the costs or it is financially viable for them to sell. Till then they can use it, rent it, lease it & earn from it.
    So, I personally don't see much white spaces for the RE prices to go down beyond 10% from current levels. Also, I agree that upside is also limited for investors in short term.

    You will get the same flat for same price after 5 years.

    For own use buy in a year when prices are lowest.

    For investment buy after 5 years
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  • Originally Posted by Venkytalks
    You will get the same flat for same price after 5 years.

    For own use buy in a year when prices are lowest.

    For investment buy after 5 years


    how are you sure that we will get same price after 5 years .... and how do you determine lowest price ???
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  • Originally Posted by Tangent
    how are you sure that we will get same price after 5 years .... and how do you determine lowest price ???


    Real estate cycle repeats itself at regular intervals.

    For end use, the cost of building the same flat on a plot will be the benchmark price to weigh against.

    For example cost of 200 sy plot in Gurgaon is 1 crore. Cost of building 3 floors in good quality is 80 L. So 1.8 Cr divided by 3 is 60L

    For a good 1400 carpet area 3BHK the cost should be 60L in decent location. It cannot fall below this unless the plot price reduces which historically never happens.

    So wait for a fall to say 70L and then you are close to ball park figure of "value". Buy for own use when your salary can easily take the EMI and voila ! You have made a value purchase !!!
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