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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  • Brand new Mahindra plant opened huge 700 acres campus in Chakan. Who cares if Bajaj moved out. Natuarally Pune has come off age and this plant only to produce export vehicles (just like major IT companies in Pune caters for export market) . The manufacturing for low cost domestic market has to move to cheaper location. Cities like Pune is only for export only kinda things. That is the reason people are being bullish on Pune :)

    http://economictimes.indiatimes.com/articleshowpics/5680133.cms

    Hope I counterweight the bears to balance the mood :D as it was getting bit depressing for past few days in the forum.

    Also there has been sale of 1400 vehicles in Pune in just 2 days on occasion of Gudi Padwa.
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  • Junk Bond Avalanche Looms for Credit Markets

    Junk Bond Avalanche Looms for Credit Markets

    $700 billion due and US has to raise 2 Trillion dollars in 2012.

    So whoever said that 'you have to pay for your sins now or later' ......
    one day will come hunting all.

    Enjoyee till that time

    http://dealbook.blogs.nytimes.com/2010/03/16/junk-bond-avalanche-looms-for-credit-markets/
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  • Originally Posted by compuwalah
    Brand new Mahindra plant opened huge 700 acres campus in Chakan. Who cares if Bajaj moved out. Natuarally Pune has come off age and this plant only to produce export vehicles (just like major IT companies in Pune caters for export market) . The manufacturing for low cost domestic market has to move to cheaper location. Cities like Pune is only for export only kinda things. That is the reason people are being bullish on Pune :)

    Man, let me correct you. First, Bajaj was in PCMC limits, got fed up of poor infra & rising octroi & hence moved out. Chakan is not in PMC, or PCMC. Similarly, you can't compare Ranjangaon MIDC with Pune!!;)

    In Mumbai, major cos. including RIL have shifted their offices from South Mumbai to outskirts like Nerul, Thane. The rentals at BKC (Bandra Kurla Complex) are down by over 40% & properties which have been put up for sale here are yet to find buyers.
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  • Realtors back to share-pledging to raise funds

    Look at the builders now, they still are pledging their shares to raise capital & many have not yet been able to recover their already pledged shares as well:D.

    Though pledging of shares is considered the last fund-raising avenue, several developers are taking the route, indicating their difficulty in raising finances, according to a report published in DNA.
    Read here for more:-

    http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=7958&cat_id=8
    CommentQuote
  • Originally Posted by realacres
    Man, let me correct you. First, Bajaj was in PCMC limits, got fed up of poor infra & rising octroi & hence moved out. Chakan is not in PMC, or PCMC. Similarly, you can't compare Ranjangaon MIDC with Pune!!;)

    In Mumbai, major cos. including RIL have shifted their offices from South Mumbai to outskirts like Nerul, Thane. The rentals at BKC (Bandra Kurla Complex) are down by over 40% & properties which have been put up for sale here are yet to find buyers.


    So Bajaj Auto took deacades to come to that conclusion . Sounds unreasonable. They moved out as Pune was turning to be expensive as cost of living in the city went up pretty high and it was not affordable for workers to survive on the salary. Bajaj is only the start. Many more firms will move out in coming years and that's a good sign. Only businesses with good profit margins can survive in Pune going forward. Also don't be too technical about PMC/PCMC :D . Consider Pune being referred to Sus to Chakan (NS) and Hadapsar to Chinchwad (EW) . Not technically PMC :).
    Let us leave Bandra Kurla or downtown NYC out of picture and limit the discussion to Pune.
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  • Originally Posted by compuwalah
    So Bajaj Auto took deacades to come to that conclusion . Sounds unreasonable. They moved out as Pune was turning to be expensive as cost of living in the city went up pretty high and it was not affordable for workers to survive on the salary. Bajaj is only the start. Many more firms will move out in coming years and that's a good sign. Only businesses with good profit margins can survive in Pune going forward.

    Yes, I was trying to say the same thing. Median income is not enough to buy RE at current rates, in short cost of living with RE is high.
    Also don't be too technical about PMC/PCMC. Consider Pune being referred to Sus to Chakan (NS) and Hadapsar to Chinchwad (EW) . Not technically PMC .

    Man, I am not being technical, why I said this is coz these cos are exempted from paying octrois & all. Also, they enjoy additional benefits from state govt by starting manufacturing plant at Chakan MIDC. Hence, the statement. Point to say was PMC/PCMC didn't play any role in bringing them here.

    * PS:- Nano went to Gujarat, yet the RE prices didn't rise. Got the point man?

    Let us leave Bandra Kurla or downtown NYC out of picture and limit the discussion to Pune.

    Point taken, but this was just to illustrate the real picture of the state of economic affairs. The bear has not yet gone away, it is still enjoying honeycomb:D.
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  • What has nano moving to Gujarat got to do with increasing RE prices?
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  • Gujarat RE prices has historially been logical. They rise and fall with market but the market is quite competitive and open. In pune, few with power control it. The land price around Nano project (Sanand) has increased several fold, as govt is planning this belt for auto sector. Though home prices in nearby big city Ahmedabad has not much effect of nano but still in the downturn from 2008-2010, the rates have been slightly up unlike mumbai and pune. But overall the rates are logical. Recently a friend bought a spacious 3bhk (under const) in 27-28L which u can't imagine in pune. Also a friend's father bought a 2bhk in 17L in east Ahmedabad.

    Originally Posted by realacres

    * PS:- Nano went to Gujarat, yet the RE prices didn't rise. Got the point man?
    .
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  • Originally Posted by Technocrat
    What has nano moving to Gujarat got to do with increasing RE prices?

    Better infra, more per capita income, yet lower RE prices.
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  • The penultimate step ... called "going all-in" in

    Originally Posted by realacres
    Look at the builders now, they still are pledging their shares to raise capital & many have not yet been able to recover their already pledged shares as well:D.

    Though pledging of shares is considered the last fund-raising avenue, several developers are taking the route, indicating their difficulty in raising finances, according to a report published in DNA.
    Read here for more:-

    http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=7958&cat_id=8



    The last time builders pledged their stake to borrow excessively and catch the boom (2007) before it could run away, the post-crash repurcussions had many nearly going under and losing their stakes and companies.

    It was the Govt stimulus programs which came at the nick of time which provided a safety net for builders before they could crash into the ground.

    Then, not realising their luck in being saved thus, and ignoring the Govt's advice to lower prices and not be so greedy, they merrily went on a rate hiking spree while ignoring the fact that volumes were not increasing - signalling that buyers were having none of that runaway boom nonsense this time.

    Once again builders are going out on a thin branch to over-leverage and borrow more than prudently advisable in order to cash in on their belief that the global depression is over and boom time is coming (as an example, while our Govt is shouting 9% GDP growth next year, the World Bank just released a report suggesting 6.7% this year, around 7.5% next year and less than 8% in 2011-12. Personally, if Agriculture comes in lower and the world does a double dip, even these figures look too rosy!).

    This time around, the risks are much higher as builders reserves are much thinner, profitability is lower, volumes are less, buyers are much smarter and the world is on the edge of a bigger and more painful fall from late-2010 onwards. And they have still not addressed the huge debt they already have on their books from the last time.

    This time around, the expected boom may simply be a figment of builder imagination (probably is). And when the tumble does happen, there may not be a safety net to catch them before they hit ground!

    Whatever you do, do not invest in these builder's shares!:D

    cheers
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  • Better infra, more per capita income, yet lower RE prices.


    Oh so you are talking about Gujarat RE prices, I was wondering what has this got to do with Pune RE :p

    Btw many are moving to different cities which are providing sops for setting up factories, Pant nagar in Uttarakhand’ is another such place. The first Nano rolled out from there & Even Bajaj has a big plant there.
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  • Originally Posted by Technocrat
    Btw many are moving to different cities which are providing sops for setting up factories, Pant nagar in Uttarakhand’ is another such place. The first Nano rolled out from there & Even Bajaj has a big plant there.

    Yes & as many members here are ITGs, they can have a simple exercise:-
    Go to Bangalore & see the property you can buy for 3k/sq ft or say 40L. Compare the same with Pune in terms of quality, specs, location & infra & you will be surprised to see that Bangalore RE is much better, cheaper & more VFM than Pune RE. Also, I think that there may not be the case that Pune ITGs are paid more than their Bangalore counterparts. Hence, post correction, Bangalore is more lucrative than Pune despite being IT hub of India or for that matter Asia. Think.....
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  • Many apartments in Bangalore are bigger and with good floor plan. In Pune, you've not many good floor plans. I was shocked when I saw kitchen almost in living room in couple of projects with total price exceeding 40 L (for 2 BHK)...
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  • Originally Posted by HappyK

    Why doesnt the govt interfere in this matter? after all home is a basic need for each of us...if flats are costing not less that 40lakh and that too in outskirts of pune..then what is the common man going to do?


    RE buyers are not kids (in fact some has kids). Should be aware of what they're getting into by high-leverage.
    I don't think myself to be so stupid that govt needs to worry about my buying decisions.
    Govt can certainly, reduce the amount of leverage for e.g from current 6x CTC to 4x CTC seeing the over-heating in RE.

    And plz don't worry about builder's rates as buyers are aware that quoted rates like MRP, are negotiable :D
    On Gudi Padwa, I checked a 2BHK flat in Hadapsar within PMC. Initially was quoted 2900 psf.
    After 30min discussions on specs/features and total-cost, was given an offer of 2651 psf (10% discount).
    When I left the meeting, was told that rate is further negotiable :)

    Moral of the story:
    RE buyers should be relaxed & prepared to negotiate like you do at road-side shops :D.
    Hurry make you buying at higher cost
    Do check rates in surrounding projects. And quote your budget which is 40% lower than total-cost of flat offered :D
    You may be surprised that bargain of more than 20% is possible.
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  • Originally Posted by hitmady
    RE buyers are not kids (in fact some has kids). Should be aware of what they're getting into by high-leverage.
    I don't think myself to be so stupid that govt needs to worry about my buying decisions.
    Govt can certainly, reduce the amount of leverage for e.g from current 6x CTC to 4x CTC seeing the over-heating in RE.

    And plz don't worry about builder's rates as buyers are aware that quoted rates like MRP, are negotiable :D
    On Gudi Padwa, I checked a 2BHK flat in Hadapsar within PMC. Initially was quoted 2900 psf.
    After 30min discussions on specs/features and total-cost, was given an offer of 2651 psf (10% discount).
    When I left the meeting, was told that rate is further negotiable :)

    Moral of the story:
    RE buyers should be relaxed & prepared to negotiate like you do at road-side shops :D.
    Hurry make you buying at higher cost
    Do check rates in surrounding projects. And quote your budget which is 40% lower than total-cost of flat offered :D
    You may be surprised that bargain of more than 20% is possible.

    Hitmady, could you PM me details of this project at hadapsar?
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