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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  • Home market shrinks, again

    Following charts show how the home sales have started to dip, including Pune.

    http://www.business-standard.com/india/news/home-market-shrinks-again/385344/
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  • Originally Posted by ams444
    Perfect!!!!


    One more that won't go down all that well here, but what the heck! :D

    The RE boom is partially being fueled by NRIs who are returning with a differential in earnings and savings.

    NRIs must pay 25-30% extra stamp duty and registration costs. Like an indirect tax on NRIs. Or even better, start taxing NRI incomes. :p

    Before you guys start throwing eggs at me, I'm an NRI, too.
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  • Amit Builder's (Balewadi Emerald park guy) ad in today's news paper. 2-3BHK luxurious flat in AMBEGAO BUDRUK starting at 35L
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  • Yes. Indeed home sales are dipping:

    Here is another link:

    ]http://www.dnaindia.com/money/report_real-estate-prices-have-come-a-full-circle_1350093

    Builders have not learnt the lesson from 08-09. Very true!

    Originally Posted by realacres
    Following charts show how the home sales have started to dip, including Pune.

    ]http://www.business-standard.com/india/news/home-market-shrinks-again/385344/
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  • Originally Posted by razer
    One more that won't go down all that well here, but what the heck! :D

    The RE boom is partially being fueled by NRIs who are returning with a differential in earnings and savings.

    NRIs must pay 25-30% extra stamp duty and registration costs. Like an indirect tax on NRIs. Or even better, start taxing NRI incomes. :p

    Before you guys start throwing eggs at me, I'm an NRI, too.


    are bhai, kyo khud ko aur sab NRI ko gaad-raha hai..!!!:D
    OK, let NRI's pay only stamp duty (double / triple) and take the flat free :)
    Sab ka faaida, government get double revenues, NRI get the property cheaper and the builder will also get rid of his excess inventory :D
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  • Heat is just starting to turn on now ...

    Originally Posted by maheshk2k
    Yes. Indeed home sales are dipping:

    Here is another link:

    ]http://www.dnaindia.com/money/report_real-estate-prices-have-come-a-full-circle_1350093

    Builders have not learnt the lesson from 08-09. Very true!


    Already? Well, in a contracting phase, first volume will fall, then price will follow. When price falls, volume will pick up a little as if things are becoming normal. Then volume will once again fall (this is where we are currently). This will be followed by price falling again ... and these mini-cycles (of around 1 year each) will keep going on till the final bottom is reached.

    You will realise that there will be many false bottoms on the way down and this is normal. Each time there is a fall in price, everyone will cry "opportunity to buy on dips" and jump in only to find there is another bottom a little lower along the way ... in the meantime their EMIs and interest payments will already see their investments in the negative which closes the gate for a sell-n-exit in case of emergency.

    But, no amount of telling this will convince the die-hard bulls who have been brought up on only-up prices in the last couple of decades which was due to too much easy credit.

    But remember that this Sovereign Debt crisis is going to hit EVERY DEVELOPED COUNTRY (from US to Japan to UK to EU and so on). So, if you thought Greece is a problem, just wait till it comes on for the real biggies!!!

    With Obama admitting that all those trillions of $$$ seem to not be having much effect in jumping the US economy up, they are at a loss of what to do. With inflation threatening on one side, the FED is slowly moving to tighten. The Chinese are tightening forcefully and stopping the buying of Treasuries which makes Japan a bigger buyer of US debt. If foreigners (who buy 60% of US debt) give up on the US, it will start sinking like the Titanic. More than 40 states in the US are in Fiscal Emergencies with California, NJ, etc threatening to go bankrupt in the next few months. This will lead to millions of Govt jobs (all high paying, Union-backed jobs of teachers, firemen, police, etc) going down the drain adding to unemployment since Govt was the only net-positive employer in the last 2 years!!!

    Perversely, the Dollar is only going up, up and away (temporarily due to een worse crisis in Eurozone) as already predicted. Automatically this implies that the Dollar Carry Trade will unwind with force pulling billions out of our markets (even non-stock-market investments like in RE).

    Already analysts who are bullish on India long term are talking of this year being the peak for India and for funds to start pulling out partially to return later at lower levels. With so much money being pulled out, expect declines to get seriously sharp as this year progresses. If you are bearish this year, you will do good. Hold off all new taking on of debt as prices will get better later, interest rate rise will kill you this year and the job scene will also start getting jittery.

    cheers, you will do good. Hold off all new taking on of debt as prices will get better later, interest rate rise will kill you this year and the job scene will also start getting jittery.

    cheers, you will do good. Hold off all new taking on of debt as prices will get better later, interest rate rise will kill you this year and the job scene will also start getting jittery.

    cheers, you will do good. Hold off all new taking on of debt as prices will get better later, interest rate rise will kill you this year and the job scene will also start getting jittery.

    cheers
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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.


    Agree 100%
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  • Originally Posted by wiseman
    Already? Well, in a contracting phase, first volume will fall, then price will follow. When price falls, volume will pick up a little as if things are becoming normal. Then volume will once again fall (this is where we are currently). This will be followed by price falling again ... and these mini-cycles (of around 1 year each) will keep going on till the final bottom is reached.

    You will realise that there will be many false bottoms on the way down and this is normal. Each time there is a fall in price, everyone will cry "opportunity to buy on dips" and jump in only to find there is another bottom a little lower along the way ... in the meantime their EMIs and interest payments will already see their investments in the negative which closes the gate for a sell-n-exit in case of emergency.

    But, no amount of telling this will convince the die-hard bulls who have been brought up on only-up prices in the last couple of decades which was due to too much easy credit.

    Already analysts who are bullish on India long term are talking of this year being the peak for India and for funds to start pulling out partially to return later at lower levels. With so much money being pulled out, expect declines to get seriously sharp as this year progresses. If you are bearish this year, you will do good. Hold off all new taking on of debt as prices will get better later, interest rate rise will kill you this year and the job scene will also start getting jittery.

    cheers


    Intuitively, I agree. Stocks will definitely fall. I am a definite India bear. I see nothing around me to justify India shining.

    I am not an RE bull - prices will fall 10-20% for sure in next 2-3 years. Glut willprevent rise also.

    But I think RE investment is still worth it as a rearguard action to preserve wealth - not because it will go up but because booking will materialise into a flat 3 and a half years later. A long way away.

    A flat booking on CLP is like a stock SIP - just forget about short term movement, plan for a 15-20 year entry into RE. Pay the amounts as the demand letter comes. And do not plan to sell for at least 15 years, keep it and enjoy it - You have to spend money somewhere. Better an appreciating asset than a depreciating asset.
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  • Enjoy

    The comments are also interesting

    ]http://www.businessinsider.com/henry-blodget-man-bulldozes-house-before-it-gets-foreclosed-2010-2
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  • Found this in a report i received ...

    Here's an interesting piece of trivia for you. As per reports, real estate major Unitech, which has constructed 35 m sq ft of residential projects since it started off operations in 1986, has launched 24 m sq ft in just the first nine months of the current fiscal FY10. Many other realty biggies too have similar bold plans. Add to that the fact that as per a DNA Money report, prices in several cities have started appreciating significantly. Thus, the logical question that arises is that with burgeoning inflation, rising interest rates and a likely roll back of the lax policy by the government, will demand be able to keep up with such a supply glut?

    Real estate companies in the past have proven themselves to be an over enthusiastic lot. Most companies' business models in this industry have elements of both business and speculation. While they have paid the price of having such an attitude in the last one year, they seem to back to their old ways. But this time, with investors much more skeptical of investing in the industry than they were in 2008, the danger is twofold. One is of demand, supply and price dynamics moving unfavourably. The second is that of delayed execution of projects of such a large scale.
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  • i am searching for a house for rent bangalore. i got to talk to a few brokers asked them about the real estate trend. they say the market is still flat. apparently both sellers and buyers are waiting. i also talked to a direct owner. he was actually planning to sell it off , didn't get a good deal and hence renting it out. he says he will sell only when it reaches the expected price. :-)
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  • Originally Posted by kaatesha
    .....he was actually planning to sell it off , didn't get a good deal and hence renting it out. he says he will sell only when it reaches the expected price. :-)

    Good, so you don't have to shift your house for few years now;).
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  • Originally Posted by kaatesha
    he was actually planning to sell it off , didn't get a good deal and hence renting it out. he says he will sell only when it reaches the expected price. :-)


    This is because, these investors, in general, are very optimistic people and they take hell of time to convince themselves that price can actually fall.

    Also another reason is still the mood in the market is flat(neutral) to bullish, and for investors its only bullish, so they keep convincing themselves that they are going to get their target price.

    Same people when the mood in the market changes to bearish(and they are convinced about this), panic and buyers too disappear from the market like anything.
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  • SBI hints interest rates may rise from June 2010

    http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=7369&cat_id=2

    Btw, many banks like HDFC, BOI etc. have increased their FD rates by 150 basis point:). Man, cash is best in current times.
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