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 NG2014
    "Once you go above 50 lakhs then the numbers havent changed much. They have doubled but thats just expected. Anyone who is earning more than 50 lakhs and paying 10-12 lakhs in income tax needs to get his/her head checked"

    Hero,
    How do you avoid paying taxes apart from the normal exemptions and tax saving investments per various sections, legally i.e.



    Here is a link that applies to UK but a similar strategy will work in India - How the wealthy avoid paying tax | Money | The Guardian

    People may cry that this is tax avoidance but I dont care. Half of the tax money is wasted on crap social projects.

    In India dividend tax is paid by the company and it is 15% (I am not sure about the latest rates) but once the company pays dividend tax the investor who gets the dividend does not have to pay any income tax. Mukesh Ambani earns 25 odd crore in salary but 1200+ crore in tax free dividends :)
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  • Originally Posted by southsea
    While interesting, that data neither proves nor disproves the contention that IT is too small to make a fundamental impact on RE.
    Take the same data and you will see how much the skew is towards the lower end.
    1. 75% in the lowest bracket - 0-5L
    2. 24% in the 5-20L bracket. If this bracket follows the same pattern as the overall one, then likely that 75% of this will be in lower end (say 5-8L).
    3. The rest is anyway too small (assuming 10-15% of them are in IT).

    The biggest companies in IT pay a starting salary of about 3.6L. (17 years back they paid 1.8L, which was rather princely then).


    The data shows that number of people in the 20 to 50 lakhs group has gone up from 161,431 in 2011 to 543,593 in 2014. That single data point is positive for a whole host of industries - cars, houses, clothes, education, travel, entertainment etc etc.

    When looking at data look at quality and not just the number. Will post something on that in a day or two.

    The whole thesis that the Indian consumer is struggling is not true. People look at the GDP data and is that is down then assume that salaries are taking a hit.
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  • Originally Posted by NG2014
    "Once you go above 50 lakhs then the numbers havent changed much. They have doubled but thats just expected. Anyone who is earning more than 50 lakhs and paying 10-12 lakhs in income tax needs to get his/her head checked"

    Hero,
    How do you avoid paying taxes apart from the normal exemptions and tax saving investments per various sections, legally i.e.

    Salary you have to pay tax.

    Other types of income there a so many ways to not pay tax.

    Even real estate with high capital gains and low rents is a way to beat tax.
    Originally Posted by herohiralal
    The data shows that number of people in the 20 to 50 lakhs group has gone up from 161,431 in 2011 to 543,593 in 2014. That single data point is positive for a whole host of industries - cars, houses, clothes, education, travel, entertainment etc etc.

    When looking at data look at quality and not just the number. Will post something on that in a day or two.

    The whole thesis that the Indian consumer is struggling is not true. People look at the GDP data and is that is down then assume that salaries are taking a hit.

    How much of it is people with 18L salary in 2011 going to 22L salary in 2014?

    Just govt DA increase and annual increments will do that.

    I cannot believe so many started earning a whole lot more betwen 2011 and 2014 with such poor economic performance
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  • Originally Posted by compuwalah
    Taking a step back, if we put together both stats what it means :
    Transactions volume is more or less same (may be slightly down or slightly up does not matter for this argument) - based in registration data.
    Investor portion has gone down significantly - based on RA's chart

    So this only points that the number of end users in RE market has risen considerably (good chunk of people playing waiting seems to have finally thrown in the towel ;)). In case of any slump (or some other good investment oppurtunity arises), much less number of properties will come to open market (due to resale) that it would have been earlier (due to investor dumping). So not a good news for people waiting for "humpty dumpty had a great _____" (fill in the blanks ) .



    Investor's transactions are never recorded/registered in any govt. department.

    Private agencies doing survey has to believe on builders input which is unreliable data.

    Sales numbers if not helping to cool down prices for end users then what is the purpose of such report to end users?
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  • This is in response to hero's prediction using nascom data-
    If we take nascom data, then it means 12 lakh new jobs have to be created in next 6 years. i.e 2 lakh per year. But if you see 2014 hiring it is only 1 lakh. If there was a demand why is this job number only 1 lakh? It should at least be 1.5 lakh ......not able to understand how demand can suddenly jump by 100% to achieve this 2 lakh jobs per year...
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  • Originally Posted by Carefree
    But if you see 2014 hiring it is only 1 lakh.


    Any source of this 1 lac figure? Because so far we saw in news TCS alone recruited 35k this year.
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  • Have a basic question about buying a house ....hope members can give there opinion.

    Let's assume that I buy a 2 bhk at 80 lakh today which is the norm nowadyas in bangalore from a good builder. say I want to sell this After 7 or 8 years. Considering interst costs I may have to get at least 1.2 crore after 7 years to break even. Now who will buy this 7 year old house for 1.2 crore ?

    1. Investor - why would he buy this as he will not be able sell this later for more money as this is a old apartment?
    2. New house buyer ( who is in his 30's or 40's) - would not he go for a new house rather than buying old house?
    3. New house buyer ( who is in his 20's) - interst cost will be too prohibitive for him to afford it.

    So if I am not able to sell the house, how can I say that it is worth 1.2 crore ?
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  • Originally Posted by Carefree
    Have a basic question about buying a house ....hope members can give there opinion.

    Let's assume that I buy a 2 bhk at 80 lakh today which is the norm nowadyas in bangalore from a good builder. say I want to sell this After 7 or 8 years. Considering interst costs I may have to get at least 1.2 crore after 7 years to break even. Now who will buy this 7 year old house for 1.2 crore ?

    1. Investor - why would he buy this as he will not be able sell this later for more money as this is a old apartment?
    2. New house buyer ( who is in his 30's or 40's) - would not he go for a new house rather than buying old house?
    3. New house buyer ( who is in his 20's) - interst cost will be too prohibitive for him to afford it.

    So if I am not able to sell the house, how can I say that it is worth 1.2 crore ?


    If the market price for a similar location & specification property will be around 1.5cr+ then you will surely get a buyer 1.2cr. If not, then you may not get 1. Simple

    #Basic_Answer
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  • @Venky - "I cannot believe so many started earning a whole lot more betwen 2011 and 2014 with such poor economic performance"

    I think you might be right. I went and took a look at that data here https://incometaxindiaefiling.gov.in/ from 2011 to 2014
    That site only presents data for 'e-filing' returns. E-filing was made mandatory last year (I think).

    @Hero - I think the analysis on that blog that you posted is rather misleading. The blogger has taken an increase in 'e-filing' to mean an increase in 'incomes'. They are actually quite different.

    The data that I posted had a total tax payer base of 3.2 crores. The latest data on the blog that you posted has in 2013 a total tax payer base of 2.9 crores. (Expected given that e-filing is now mandatory).

    That blog has totally misunderstood the stats on the income tax website. I think we can safely conclude that incomes have not gone up a lot over the last 3 years.
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  • Originally Posted by anirban8
    Any source of this 1 lac figure? Because so far we saw in news TCS alone recruited 35k this year.

    This number of 1 lakh Is as per crisil report. It almost matches the nascom prediction of around 1.3 lakh jobs . All other data for previous years I have given is from nascom press releases or reports. Except tcs, not many companies are recruiting heavily from campus. These companies do lateral hiring to backfill the attrition. And product companies do not recruit in large number.
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  • Originally Posted by southsea
    @Venky - "I cannot believe so many started earning a whole lot more betwen 2011 and 2014 with such poor economic performance"

    I think you might be right. I went and took a look at that data here https://incometaxindiaefiling.gov.in/ from 2011 to 2014
    That site only presents data for 'e-filing' returns. E-filing was made mandatory last year (I think).

    @Hero - I think the analysis on that blog that you posted is rather misleading. The blogger has taken an increase in 'e-filing' to mean an increase in 'incomes'. They are actually quite different.

    The data that I posted had a total tax payer base of 3.2 crores. The latest data on the blog that you posted has in 2013 a total tax payer base of 2.9 crores. (Expected given that e-filing is now mandatory).

    That blog has totally misunderstood the stats on the income tax website. I think we can safely conclude that incomes have not gone up a lot over the last 3 years.


    Since 2010-11 eFilling has been the only way to file returns for people earning more than 10 lakhs.

    So why dont you trust the data? Are you saying people are faking their earned income to the income tax department?

    Also look at this. The amount the central govt has collected via income tax has shot up exponentially.
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  • Originally Posted by Carefree
    This number of 1 lakh Is as per crisil report. It almost matches the nascom prediction of around 1.3 lakh jobs . All other data for previous years I have given is from nascom press releases or reports. Except tcs, not many companies are recruiting heavily from campus. These companies do lateral hiring to backfill the attrition. And product companies do not recruit in large number.


    Crisil predicts that net hiring will decrease to 50,000 by 2017-18 and Nasscom predicts that net demand will rise to 420,000 by 2020.

    Best way to find about what is really happening in the IT market it become a Nasscom member or purchase one of their costly research publication. Not all IT companies are Nasscom members and captive IT establishments will rarely publish data on hiring.
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  • Originally Posted by herohiralal
    Crisil predicts that net hiring will decrease to 50,000 by 2017-18 and Nasscom predicts that net demand will rise to 420,000 by 2020.

    Best way to find about what is really happening in the IT market it become a Nasscom member or purchase one of their costly research publication. Not all IT companies are Nasscom members and captive IT establishments will rarely publish data on hiring.


    Nascom comprises all important it companies who hire in large number. The other firms and captive centre do not hire large number of freshers on a sustained basis. At max they create 10's or 100' s of jobs per year per company. They will not create jobs in thousands. Those who create jobs in thousands are in nascom. So with respect creation of new jobs we can believe nasscom numbers.

    Btw have you checked top ten companies employee addition over last three years. Except TCS there is hardly any company that had increased its size dramatically. In fact all there hiring is to fillup the attrition. Most of there head count have increased only by 20k to 30k max in last three years.
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  • @Hero - "So why dont you trust the data?"
    Because the numbers so do not add up.

    The blog claims 9million tax payers in 2011 and then a miraculous increase to 29 million in 2014. This claim seems really flaky , because the government in 2011 itself said that that there are about 30 million income tax payers.
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  • Originally Posted by southsea
    @Hero - "So why dont you trust the data?"
    Because the numbers so do not add up.

    The blog claims 9million tax payers in 2011 and then a miraculous increase to 29 million in 2014. This claim seems really flaky , because the government in 2011 itself said that that there are about 30 million income tax payers.


    For real estate analysis you need to look at the 20 lakhs + group and that is what matters. That number has gone up exponentially so has the total income tax collections.

    All this talk about people not having enough salaries is highly incorrect.
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