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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  • To all boomers & realters

    Well I have straight forward question to all boomers...I am an IT guy(so called bakra :D) having 5+ experience earning 40K+ salary still not afford to buy a house in current market scenario. Cant see Not IT people will be afford the same either.... How come you people justify current pricess?? Who will buy?
    you cant bank on NRI's for all inventory you have :)
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  • Originally Posted by nilpat
    Well I have straight forward question to all boomers...I am an IT guy(so called bakra :D) having 5+ experience earning 40K+ salary still not afford to buy a house in current market scenario. Cant see Not IT people will be afford the same either.... How come you people justify current pricess?? Who will buy?
    you cant bank on NRI's for all inventory you have :)


    People are not buying at these high rates. Its holding power thats name of the game for builders. Squeeze it by not doing ANY deal and you'll get 2 BHK at 15 lakhs. You succumb and buy it for 45 lakhs. Its as simple as that.
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  • Originally Posted by kunjirs
    Rent vs Buy equation did not change in last 10 years. In 2001 in Kothrud, rent was Rs 3000 and same flat you could buy for 8-10 lacs with 8000 to 10000 EMI.


    I was renting a flat in 2005 in Sacred Heart Town, Wanawori for rent of 7000 and price of the flat was 15L. The owner had just bought the flat for investment, so I am very sure of the price. Even other bigger flat was on sale in the same complex for 17L.

    Either you are wrong with your evaluation of price of the flat or you were paying less rent.

    BTW, if you are happy buying today, please go ahead, so that people like me get more cheap renting options:D:D:D
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  • Originally Posted by RAJESHP
    I was renting a flat in 2005 in Sacred Heart Town, Wanawori for rent of 7000 and price of the flat was 15L. The owner had just bought the flat for investment, so I am very sure of the price. Even other bigger flat was on sale in the same complex for 17L.

    Either you are wrong with your evaluation of price of the flat or you were paying less rent.

    BTW, if you are happy buying today, please go ahead, so that people like me get more cheap renting options:D:D:D


    It would have been heaven if this rate was still there at wanaworie

    Now its 5000-6000 psft;
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  • Originally Posted by puser
    It would have been heaven if this rate was still there at wanaworie

    Now its 5000-6000 psft;


    it would be heaven more me as well if i could get the same in mumbai !
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  • Originally Posted by nilpat
    Well I have straight forward question to all boomers...I am an IT guy(so called bakra ) having 5+ experience earning 40K+ salary still not afford to buy a house in current market scenario. Cant see Not IT people will be afford the same either.... How come you people justify current pricess?? Who will buy?
    you cant bank on NRI's for all inventory you have

    Yes man, even in Bangalore (IT hub of India) the prices have corrected sharply despite having loads of ITGs. The areas in Bangalore which is better than Hinjewadi/Balewadi sells for 2-2.3k/sq ft, with same specs & amenities provided in current times. Same goes with Hy'bad as well.

    Then why is Pune out? PBAP + Pawar, as simple as that.
    Fact remains Pune RE remains very expensive & is not affordable to even higher middle class & those who find it affordable don't see VFM in it. Fact remains that sales aren't taking place.

    Btw, came to know about several cancelations in many builders' project have taken place in this month & this is not only after bookings but after making the agreement papers. So, builders will only inform about sales figs but will not give out cancelation figs:D.
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  • yaar yeh pawaar aur uski gang chain se kab jine denge logo ko

    Bloody buddha...how much will he exploit?
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  • Originally Posted by puser
    yaar yeh pawaar aur uski gang chain se kab jine denge logo ko

    Bloody buddha...how much will he exploit?

    Man, Pawar has Cancer, yet he thinks he is Amar:D. If Pawar & gang don't let farmers sleep in peace, why would he do that to RE buyers?
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  • Originally Posted by realacres
    Man, Pawar has Cancer, yet he thinks he is Amar:D. If Pawar & gang don't let farmers sleep in peace, why would he do that to RE buyers?


    who says they are not letting farmers sleep in peace... in fact many farmers are "permanently sleeping" now... these unfortunate souls found that suicide was a better option than getting run over by a scorpio..
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  • Originally Posted by realacres
    Good stats Venky, but then you copy pasted this from Chennai thread, so how much is this co-related to Pune RE in terms of hitting buy?;) Chennai has seen sharper price drops than Pune, hence comparing Chennai to Pune is wrong.


    Its actually for anywhere in India. I know nothing of Chennai RE either.

    But I copy pasted it from there because more of you in Pune are into this type of discussion.

    One realises how similar all of India is the moment you return from abroad. All of us look the same and all places feel the same (dirty)
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  • My generation buys at 40 years of age. You want to buy at 25. If you wait for 15 years, you will be able to afford.

    Which is exactly what you should do - wait till you are geographically settled, have savings, have a higher salary and want to raise kids.

    Originally Posted by nilpat
    Well I have straight forward question to all boomers...I am an IT guy(so called bakra :D) having 5+ experience earning 40K+ salary still not afford to buy a house in current market scenario. Cant see Not IT people will be afford the same either.... How come you people justify current pricess?? Who will buy?
    you cant bank on NRI's for all inventory you have :)
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  • Originally Posted by Venkytalks
    My generation buys at 40 years of age. You want to buy at 25. If you wait for 15 years, you will be able to afford.

    Which is exactly what you should do - wait till you are geographically settled, have savings, have a higher salary and want to raise kids.


    Right Venky. I too feel, today's generation is bit inpatient and want to buy things as soon as possible.
    Buying apartment is not like buying gadgets or cloths. It requires gud amount of savings.

    RBI should change let's say loan:down-payment ratio from 80:20 to 60:40 or loan eligibility from 6 to 4 times of net-salary.
    It will have immediate impact on RE prices as it reduces leverage & bubble and adds maturity in RE buying.

    I suppose RE bubble is lethal to Indian households as well as industry.
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  • Originally Posted by hitmady
    Right Venky. I too feel, today's generation is bit inpatient and want to buy things as soon as possible.
    Buying apartment is not like buying gadgets or cloths. It requires gud amount of savings.

    RBI should change loan:down-payment ratio from current 80:20 to let say 60:40 or reduce loan eligibility from 6 to 4 times of net-salary p.a.
    It will have immediate impact on RE prices as it remove bubble and add maturity in RE buying.
    More leverage certainly, leads to RE bubble.


    Very good points. If the policy says 60:40, and leverage permitted is brought down dramatically, then it will automatically regularize the market and prevent bubbles.

    The 60:40 rule alone could solve all the problems in one strike. The downside is that such a move is always seen as elitist, and the mango man will then say that the government is keeping housing only within the rich man's reach.
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  • Originally Posted by razer
    The 60:40 rule alone could solve all the problems in one strike. The downside is that such a move is always seen as elitist, and the mango man will then say that the government is keeping housing only within the rich man's reach.

    Then in that case, the loan should be given equivalent of 25% of person's salary. This will take care of everything as no one will be able to over-leverage themselves.
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  • Originally Posted by realacres
    Then in that case, the loan should be given equivalent of 25% of person's salary. This will take care of everything as no one will be able to over-leverage themselves.

    Perfect!!!!
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