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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  • Realacres had announced that he is quitting IREF since it got acquired by a broker. IREF is such an addiction and difficult to quit. Wonder if he is still lurking around?
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  • Originally Posted by BaagadBilla
    -- My budget is 45-50 lakhs.

    For a 2bhk in Pune ?

    I would go for (a) for about six months - 1 year. You are already stuck with KUL Nation.

    Just curious. I do not know about the properties in Pune. But one of my friend is trying to sell a property in Pune(completed in 2004, Nyati Estates, Mohammadwadi) in that range. But he told me that it is very difficult to sell at these times whereas new u/c properties are priced around Rs.60 lakhs. Why the preference to riskier u/c properties in Pune?
    CommentQuote
  • Originally Posted by Counterfeit
    Just curious. I do not know about the properties in Pune. But one of my friend is trying to sell a property in Pune(completed in 2004, Nyati Estates, Mohammadwadi) in that range. But he told me that it is very difficult to sell at these times whereas new u/c properties are priced around Rs.60 lakhs. Why the preference to riskier u/c properties in Pune?


    Just curious to know- at what price did your friend buy and how much is he looking to sell at?
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  • Originally Posted by frankm
    Just curious to know- at what price did your friend buy and how much is he looking to sell at?

    It will be very awkward on the part of me to call him on the lines of a broker who is in a position to help him(I am settled in Delhi) as I talk to him only occasionally .
    I happened to talk to him 3 or 4 days back when he mentioned about his plan to go back to his native place within 2-3 years and about his efforts for selling the property. I have posted the project name and location after calling him just now.
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  • Originally Posted by Counterfeit
    It will be very awkward on the part of me to call him on the lines of a broker who is in a position to help him(I am settled in Delhi) as I talk to him only occasionally .
    I happened to talk to him 3 or 4 days back when he mentioned about his plan to go back to his native place within 2-3 years and about his efforts for selling the property. I have posted the project name and location after calling him just now.


    Not an issues. I was under the impression that you know him well...
    Cheers!
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  • Housing

    Yes Real is missing on some vacation?


    But Housing owner/promoter seems to be an honest/different guy.
    He has reportedly distributed/sold his majority shares with employees
    if news is to be believed.


    As long as the new dispensation does not interfere with free speech am OK with it.
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  • Originally Posted by Sansei
    Yes Real is missing on some vacation?


    But Housing owner/promoter seems to be an honest/different guy.
    He has reportedly distributed/sold his majority shares with employees
    if news is to be believed.


    As long as the new dispensation does not interfere with free speech am OK with it.


    Many veteran members have gone on vacation.. or have reduced their visits.
    I also see an increase in the number of marketing posts ... Less of genuine buyers.
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  • Originally Posted by Sansei
    Yes Real is missing on some vacation?


    But Housing owner/promoter seems to be an honest/different guy.
    He has reportedly distributed/sold his majority shares with employees
    if news is to be believed.


    As long as the new dispensation does not interfere with free speech am OK with it.


    Rahul Yadav is always in the news for some wrong reason or the other!
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  • Originally Posted by BaagadBilla
    Domestic car sales rev up 7.73% in May - Moneycontrol.com

    Car sales up by 7 percent. Now that is a big jump!
    It may mean that most people are now tired of stagnant or rising property prices, and have stopped waiting. Instead they are spending elsewhere like cars or ACs.

    This thread used to be one of the most active in the past year. Now very few posts .. very few are interested in buying property it seems.


    With prices more or less stagnant and builders holding on to high prices in the hopes that people will buy,who would be interested?
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  • Domestic car sales rev up 7.73% in May - Moneycontrol.com

    Car sales up by 7 percent. Now that is a big jump!
    It may mean that most people are now tired of stagnant or rising property prices, and have stopped waiting. Instead they are spending elsewhere like cars or ACs.

    This thread used to be one of the most active in the past year. Now very few posts .. very few are interested in buying property it seems.
    CommentQuote
  • Originally Posted by BaagadBilla
    Domestic car sales rev up 7.73% in May - Moneycontrol.com

    Car sales up by 7 percent. Now that is a big jump!
    It may mean that most people are now tired of stagnant or rising property prices, and have stopped waiting. Instead they are spending elsewhere like cars or ACs.

    This thread used to be one of the most active in the past year. Now very few posts .. very few are interested in buying property it seems.


    I was just chatting with a KUL executive who quoted 4050/sq.ft for a 2bhk flat+plus 25 floor rise. If you bargain,they'll obviously reduce it further,given that Lalit Kumar Jain is in a deep mess and he needs more bakras. 1.5 years ago when I booked (Yes, I was also made a bakra, I paid 3950+25Rs floor rise). So in effect, the rates have remained stagnant over 1.5 years. Jo abhi tak 8 lakh diya hai, woh bank mei daalta toh 1.1lakhs interest jama hota abhi tak!
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  • Originally Posted by Counterfeit
    Just curious. I do not know about the properties in Pune. But one of my friend is trying to sell a property in Pune(completed in 2004, Nyati Estates, Mohammadwadi) in that range. But he told me that it is very difficult to sell at these times whereas new u/c properties are priced around Rs.60 lakhs. Why the preference to riskier u/c properties in Pune?


    Cant say why? More NRI + Mumbai investors are active in Pune maybe?
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  • Originally Posted by BaagadBilla
    Cant say why? More NRI + Mumbai investors are active in Pune maybe?


    It could also be because UC properties do not necessarily need a loan right away . What should be understood is that to pay a loan in full one should be employed with certainty for at least 10 years. That certainty is no longer there.
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  • Originally Posted by ashwinrath
    It could also be because UC properties do not necessarily need a loan right away . What should be understood is that to pay a loan in full one should be employed with certainty for at least 10 years. That certainty is no longer there.


    Yes, true. For example, I booked in KUL precisely for that reason. I've paid him till date from my own savings and havent taken a loan. I was looking at talking a loan once I've exhausted my own repayment capacity but looking at the way things are moving at KUL, I dont think, he will finish it in the next 5 years atleast!
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