Friday, December 21, 2012

How Real estate in India keep going up n how will it burst ...



Dear friends first of all apologies for not writing much over last few months. With lots of work at workplace kind of lost rhythm on blog...anyways let’s get into this mysterious topic.

First of all to See How it keeps going up  ... Let’s go to a bank in Mumbai (earlier referred as Bombay) it’s a city with decade of escalating home prizes.

Year 2009 Month ending January. It’s a Friday afternoon.

Seth Nirmal Shah (Reputed  ... Real estate developer) enters in Bank in a bit worried face and talk to security “Tell Mr Joshi Nirmalbhai….here...”

Security calls the Branch Manager. Branch Manager comes out and received Mr. Nirmal Shah to take him in his office.

 Mr. Joshi: “Please have a seat sir. Will you take tea / coffee?”

Mr. Nirmal: “No thanks... I am here to talk something bit serious... See the booking is happening but its bit slower than expected after this America... news. I don’t think we will be able to pay you loan this whole quarter. 

Mr. Joshi: "What. ...."

Mr. Nirmal: “See Mr. Joshi...We have to file results in March. I can’t show losses on book as it will create panic and no one will buy from my new projects.”

Mr. Joshi: “Sir but last quarter also you said same. I had taken special approval from corporate only for you…with Promise that he will pay pending installments over next 6 months“

Mr. Nirmal: “I am very thankful to you for that Mr. Joshi…. But I am serious I have not paid Labor contractor yet this month. Sand and cement contractors don't even talk without cash at least you help me.”

Mr. Joshi: “Sir Can I suggest you one solution”

Mr. Nirmal: “Sure Sir Advice form educated person like you is always welcome…”

Mr. Joshi: With bit enthusiasm “See sir this is u know demand supply equation…. now that demand is low why don’t you reduce price and sell of flats. Your Profit Margie is huge as both of us know…that way u can clear all payments and I won’t have any issue to approve loan for your next Project….”

Mr. Nirmal: “With cunning smile … never even think like this Mr. Joshi … …"

Mr. Joshi: "But Why? It will benefit you, me and...Buyers also...”

Mr. Nirmal: "See Mr. Joshi  ... We have hiked rates just today slightly... to keep our Assets on our book performing” and remember that's only way this business run. And that helpful to you too…."

Mr. Joshi: “But how’s that Sir …I just need my loan repaid...”

Mr. Nirmal:  “Mr. Joshi remember... Half flats that are unsold is my asset. And remaining that are sold is your bank’s asset for next 20 years. If we make rates down we both are in trouble... as assets become Non Performing on your and mine book”

Mr. Joshi: "But ….for me  ... I have to take hit on bad loans if not bad assets...”

Mr. Nirmal: “I know … remember my friend  ... no one buys home when prizes start dropping... do u understand this ….. I don't sell flats I sell fear that they won't be able to buy it tomorrow and for wealthy it's just an investment ...That's my business... anyways...  Bottom line for you is if I reduce price u will have bad assets and bad loans both…”

Mr. Joshi: " But sir for common man....when... hmm I think I get you … but I can’t tell if corporate will approve to not have collection this whole quarter”

Mr. Nirmal: “That’s ok …..  But let me know in 2 days…..  And if you think it’s not feasible for you to continue loaning us we will shift our loans to ICCCIIICC Bank. Their person met us yesterday and he was talking about some new proposal of re-Structuring loan. I told him I have relations with Mr. Joshi let me talk to him and get back…”

Mr. Joshi: “No no.. sir don’t take such drastic step whatever ICCCIIICC can give you we will give you all that with .5 % less rate. We also have got a circular from Central Bank about “1 time Restructuring of real estate Loan” we are waiting for corporate communication for clarity on same” You are our big customer. After all we get home owners loans also from you only J”.

After 2 Days:

Monday Afternoon: Office of Mr. Nirmal Shah.
Mr. Joshi comes to office with smiling face …

Mr. Nirmal: “Good Afternoon sir…………. any good news?”

Mr. Joshi: “Yes Sir came here to give you great news  ... as I told you last week, we got a circular form Central bank for 1 time restructuring of real estate debt for Developers it means u don’t have to pay anything for next many months and after that we will reduce rate of interest by .5% only for u.” Also if you promote out bank to your new customers we can think of additional .5% reduction in interest sir!”

Mr. Nirmal: “That does great  ... believe me it’s a game changer Mr Joshi!! Bravo to Central bank and Finance Minister   Chidambaram... after all he is foreign educated... he understands pain of business… Cheers Mr. Joshi thanks you so much!! ”

Mr. Nirmal : Pickup phone and tell his “Sells Team Head “ “Tell all semiserious buyers that everything is sold …and tell all serious buyers that there is only 1 flat left with 20% higher price than what we discussed yesterday . There is no hurry for sale.” 

Mr. Nirmal: "see Mr. Joshi...we are taking care of your Assets Quality they are performing like never before. And there is no question of Bad loans as once market picks up we will start getting “new Investors” and we will clear loan. !! Kudos to Government“.


I believe that this “Imaginary” discussion is what’s keeping real estate Running.!!!


But it reminds me an old story.

Once upon a time King Promises one greedy Person to give all Land that he can run across. He put condition that if he stop, he loses 90% of it. And then of course man keep running till he finally die vomiting blood…
To me today’s this “Performing Real estate” is like that man. Only difference is King’s idea was to make him fail (May be he was not educated from Harvard). Today’s King’s promise is to make him win.

So our all the best to this running asset and it’s promoters.. They snoozed it's inevitable collapse in 2009. Now it seems they are doing some “Changes” to keep it running again for few years.. But I doubt if they can beat nature’s law that “something that artificially goes up (Typical Bubble) burst one day”

Regarding how will it burst : Same what we talked before .. Interest rates will become pin to this bubble 1 day. I know many think rates will go down in 2013 and may be they will but in the end they will blast this super bubble in dramatic way. As Interest rates will rise eventually to levels world have never seen before..

Coming to why Harvard Educated P Chidambaram doesn't understand it!! Well Fact is whole bunch of Harvard / Top School educated Wall Street Professionals never understood it before 2008 crisis. So why should he be only one to get it. I mean these brilliant powerful people think they are beyond nature… Remember he is same person who kept telling “Fundamentals are sound – Don’t panic” just before market collapsed by 70% from it’s peak. From what I see he just doesn't get it like many others…



P.S: Just to make it clear … I have simply huge respect for Big Schools in world. It is my unfulfilled dream to be grad from Top Schools in US. Recent contribution of these Big Schools to Free education platform like  https://www.coursera.org has increased my respect for these schools even more.. (I recommend my Blog readers to explore same)

But very honestly looking into actions of their students, I don’t trust their economics department anymore.

Author

Monday, August 20, 2012

Greece Back to Basics.. !!


"The Greek financial crisis is not all negative," he says.
"It is providing a huge opportunity for people to see that the system they live in is not working, so they can begin looking for alternatives."
Read more on ...
Thanks
Author.

Tuesday, July 31, 2012

HSBC sets aside $2bn to cover fines - Is this what Banks were invented for ?

Yesterday

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9437527/HSBC-chief-apologises-for-shameful-scandal.html


Says :


In total, Britain’s largest bank said it had set aside $2bn in the first half of the year to cover the cost of "money laundering" as well as compensating UK customers "mis-sold payment protection insurance" and "interest rate swaps".


For a common man like me these 3 world are as alien as some other complex financial terms e.g. (LEAPS Derivatives, Exotic option, Tangible Common Equity ).

But one thing is pretty clear and that is NONE of these "Activities" are at the core definition of  Bank as per me.

Bank was invented to reduce risk for lender (saver) and  provide credit to good Borrowers (Typically entrepreneurs)

None of these word sound close to this basic function of Bank.

u Deserve it HSBC !! Unfortunately those 2 billion which u are set aside are not your money by any chance.. they are of common people and when u give it to any governments common man will feel that their robbed money is given to Governments ...as always without asking them ....


Author.

Tuesday, July 24, 2012

Not During my Term

In India Pranab Mukharjee has Managed the economy well "During his Term" :) I mean people are big time unhappy for inflation and have got impoverished but Pranab da was lucky to be able to quit before main event that is looming on India when Interest rates will spike sharply than ever before !!

Lucky Pranab da !! enjoy life as President.. of India !!