Tuesday, September 30, 2008

The Good, The Bad, The Ugly

I did my Engineering from VIT - Pune in 1991 and after working for 7 years in Pune thereafter, stayed away for the next 7, before coming back to Pune in 2005. I remember our college days, when we used to love watching a few good English movies at Alka and Rahul. We must have watched "Mackenna's Gold" each year (yes, this movie played every year of my engineering) and were devout fans of Die-hard. Another such movie was "The Good, The Bad and the Ugly".

Fans will recall the memorable climax scene where our protagonist (not sure if he was really portrayed as one, but we liked to believe that he was) gets into a shooting match with Bad and Ugly. The sheer tension of the scene, the uncertainity, the painful suspense, and the gripping finale.

Good wins!

I see a similar drama unfolding in the real estate market of Pune today. When I got back in 2005, properties in Kothrud were quoting over Rs. 3000 per square foot. And I thought they were expensive! Today they hover around 5 - 6000. I never found value there. I found it utterly foolish and risky that working professionals like me should leverage 80% of their current income over the next 20 years in the hope that salaries would increase and the pains would ease. Everyone told me that real-estate prices can only go one way - North. Well, that's what the Americans thought before sub-prime hit them and we faced DOW minus 777 yesterday.

Back then, banks were lending at 7.25% interest rates. The low EMI and additional liqudity tricked buyers into taking on credit risks without any thought of a possible rise in the interest rate. Many well-wishers told me - prices can only move north and the interest rate - South. Well, I thank the "Sanskar" of my father who taught me extreme caution in borrowing. If you loose your own money, you become poor. If you loose borrowed money, you become bankrupt and effectively a slave to a system which will eke every last penny out of you till the day you die.

I have seen hardships of people as the interest grew. All these days, our great finance minister felt that a 5 fold rise in property prices meant a 5 fold rise in wealth. Well, I think different. If "Roti, Kapda aur Makaan" are the primary needs of humans, then if I were an economist, I would add the real estate prices to the Consumer Price Index and count it in inflation. Had the governments of the world seen it this way, they would have arrested this un-real real-estate growth in time. But that was not to be.

So this finds us in the position of the climax of The Good, The Bad and The Ugly. As a long waiting buyer, I am waiting for prices to fall. The Builder is waiting for the Government to make a move by reducing interest to spur demand. The Government is helpless. A decrease in Interest rates could mean inflation would run away to newer highs. Not reducing interest means many builders could get wiped off. Considering the well known nexus between the builders and politicians, the problem becomes even more complex. Add to this complexity, the prospect of facing the electorate in an election year with a run-away inflation.

The Climax of The Good, The Bad, The Ugly.

Each waiting to see.....
Who blinks first?!!!

Watch this space closely. The drama will unfold.


Vishwajeet Rajwaday

The author is a sales and marketing professional originating from Pune. He also writes about his profession on his personal blog - http://spiritofsales.blogspot.com/


Hemlata said...

The ideal target for macro-economic management should be a state of non-inflationary growth, where there is growth of economic activity without any tendency to inflation. Most economists are sceptical of the ability of the authorities to prevent fluctuations in inflation. They view a small positive average rate of inflation as a more sensible target than a mean inflation rate of zero.

Watching the Indian economic scene, we can note a subtle difference in approach between the Reserve Bank of India and the Ministry of Finance on inflation targeting and marching towards a 9 per cent growth rate.
The Finance Ministry prefers soft interest rates; the RBI is scared of inflation. The Finance Ministry sees growth where the RBI sees an asset bubble. Both have conceptual differences about foreign inflows and the road map for opening the economy to Foreign Direct Investments.

T 1 said...

Everything in India seems to be complicated with a politician Nexus. "V for Vendetta" should be made mandatory for all school and college kids.