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 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.



  1. Well as always.. nice article in simple words. But we aware, colleagues of Mr. PC like Mr. Sibbal and there kinds are after people who try to put there open voices.
    Second the mad rush to get own homes is majorly in big cities, where if not taking homes, people have to shell out at least 10K per month for some place to stay (I won't say decent place) and still have to travel miles. So either pay rent whole your life, of pay little more amount for 30 years and get your own place, that is what majorly running this business and is promoted the same way. So I agree that the ROI can burst this bubble, but again govt. and business unity will bailout industry and will avoid burst for some more time.

  2. Thanks Abhishek for thoughts and comment.

  3. Excellent put, I wouldn't have grasp it had I not worked with apps development company. We have given numerous demos, seminars to create the necessity of our apps to move on with the technology which apparently shoot up our sales. This is business, you like it or not. Banks are even worst, in Europe & States, they have given upto 125% mortgage just based on self income declaration and result we can see now. Prices are at 2003 level but in India due to black money its all different scenario all together.

    well my advise for middle class people will be to buy some land/house in second tier city where they will be likely to retired rather then taking huge loan and paying 80% of your take home whole life. Personally I have taken one beautiful villa in Jaipur and investing money in PPF, FDs and my kid's education till I feel I earned enough and move to India as early retirement.

    good luck..

    Sandeep Singh Choudhary

  4. Well I like this conversation, real estate market in India is developing day by day and it will go higher within some years. As we all know that India is an archeological symbol in the world.

    Sanjeevni Group

    1. Thanks Sameer for Your Comments


  5. Thanks Sandeep! For your comments

  6. While the idea presented is good but the outcome may not go that way. I mean it most probably will not burst. Stock market also is no different here.
    If you see stock market then it is majorly driven by fluctuations.
    A stock of company A which is priced X does not pay a devident Y in a year and the price of share by the end of year is highly likely to cross (X + Y).
    To retain profit you can sell that stock next year.
    The actual performance of a company you can see in devident paid to shareholders. But people in general will take cue from the hypothetical trend that has nothing to do with real performance. And you do really get profit by this buy/sell process. This is what in general the stock-market is all about.
    And I believe it will continue to be like this - It will not burst - rather it has gone to the next level that is - secondary market options/futures.

    1. Thanks for your comments ! Well stock market will keep going up and down .. But Real estate In India is very serious "SuperBubble" which by the way will trouble only India and no one else. Day will come when all these Computer Engineers / Some Big Degree holders will realize that may be giving whole fortune of their life to "Hardly literate Notorious Person called Builder" and enslaving yourself in Bank Debt was not as great as thought before..

      - Author..

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  8. Very great interview transcripts

  9. Eye opening article on the how the real estate might burst in india any time

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