Sunday, December 11, 2011

We get what we deserve - Part I (Real Estate Bubble)

In the background of Euro crisis the question on everyone mind is what is in store for us for medium to long term. I feel medium term Indian economy is going to suffer and markets will fall huge. 


The long term growth story of India is intact. Everyone seems to be agree on this fact. However, the medium outlook is still blurry. The macro indicators tells that the picture is not as rosy as painted by our government and other analysts.

The main reason for all these malaise is the housing bubble fanned, patronised and encouraged by government itself. The bubble which started in early 2005-2006 has reached alarming proportions and now it is matter of time before it explodes on our face.

China finally understood that to develop their economy and to maintain their GDP growth they need to control their spiralling property (RE) prices. They are taking steps in the right direction. It is understood that they put some sort of restrictions on Real Estate sector and due to the measures RE prices are coming down there. Chinese inflation is also in the region of 4-5. Stock market is also not hugely over valued in China although still china grows over 8-9 percent.

On the other hand, India and its corrupt politicians does not acknowledge that the spiralling Real Estate causes such a sickening effect on inflation and economy. so far there was no meaningful discussion started in India about these menace.

Congress leaders ( It is rumoured that Priyanka Vadra has stake in DLF) has huge stake in RE. Almost all the leaders irrespective of parties have huge stake in RE. It is anybody's guess that all the black money of politicians are parked in real estate. This explains why the government is not ready to take on this sector to control the inflation.

During last down trend ( US Housing Collapse), India managed well because Interest rate was less and government could afford to provide sops to their real estate developers and inspite of huge fall in equities the RE sharks managed not to reduce the prices. One must agree to the fact that they have handled the situation very intelligently.

Unfortunately this time, it would be very difficult for them as Interest rates are at peak levels and I know clearly that government is in a fix.

  ( we will talk about the interest rate scenario and RBI dilemma in next post)

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