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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Originally posted by ashish18 View Post
    This scenario was here for last 5 years. Then why RE prices still moved ahead ?
    Govt or no govt. Good or bad economy - RE is dead simply because it has become unaffordable, unrealistic and gone into the hands of crooks. Most of the genuine buyers have even stopped looking at brochures. Till then investors can keep flipping, looking at buying, whatever they want. But buyers are not going to come to this market for next many years.
    Ashish probably I have not been clear.

    Last 5 years was UPA rule. I am NOT talking about UPA or NDA rule in scenario 1.
    I am clearly talking about weak leader in centre with probably support of Congress
    like Devegowda rule before A B Vajpayeee. Indian economy and GDP did NOT do well in time of any third fronts if you see history.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by wiseman View Post
      Given the way Kejriwal is shooting himself in the foot, below the belt and then in the head all by himself, I think the BJP might come in stronger than what people think and we might just get a reasonably strong coalition - do not underestimate the ability of smaller groups to coalesce into a support group for BJP once they sense that they are likely to form Govt - Greed and corruption will ensure it.

      Much as I dislike BJP as much as the Cong this may eventually be the scenario. Thus sentiment may not get so extremely negative as in the case of a weak coalition or hung parliament.

      Let us see.

      cheers
      Wiseman, I am a Modi fan though. But as of NOW, indians fail to recognize that VOTE NOT given to BJP directly will end up in hands of Congress either directly or via puppet government of third front.

      However die hard fan of I am of Modi, it is looking that he will probably touch just 200 along with Sena- Akali etc and that's it.

      And yes 4 months is lot of time to change it to 150 or 250 !

      Consider Mulayam as PM with support of Congress and all the third front guys and now think - what is your outlook on Indian RE ??

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Cash, not credit, drives consumer inflation. The RBI’s reliance on consumer prices as an inflation anchor is flawed
        The RBI has stirred the discussion pot by linking monetary policy action to consumer price index (CPI) inflation. Quite clearly, there has been some acceptance of the recommendations of the Urjit Patel Committee Report, which has strongly advocated this line of action.

        The theoretical justification is that CPI inflation is used all across the world for targeting inflation and logically we should do the same. It is accepted that we could fine-tune the present composition of the CPI in case it does not reflect the true nature of retail inflation, but ultimately it is this index which should be the guiding factor.

        It is, therefore, interesting to look at the CPI composition and see whether interest rates have a bearing on the prices of the respective components.

        It is important to note that in the West households use credit cards for virtually all daily transactions and hence their cost of transactions varies with the interest rate structure. This is not the case in India.

        Further, there is less distinction between wholesale and retail prices in developed markets as the value chain is truncated, unlike in India, where due to structural factors there is a gap between the two. For non-manufactured food, the value chain could be between 5-6 levels, where cumulative costs and margins get embedded. A lot of consumption takes place in rural India where cash transactions dominate.

        Around 75 per cent of the CPI would generally not be associated with the use of credit. Food items, which account for nearly half the weight of the index, are daily consumables and would be driven by cash purchases.

        For the same reasons, interest rate changes will not impact expenditure on fuel (9.5 per cent CPI weight), housing (9.8 per cent) and transport (7.6 per cent). Bills for fuel and lighting at home are not financed by any institution. Rentals for housing have to be from one’s income, while transport costs too cannot be leveraged.

        Education and medical expenses, if backed by bank loans, are normally undertaken because they are essential. Therefore, such spending is not likely to depend on the cost of credit. For clothing, credit cards may be used, especially if it is for purchase of branded clothing.

        Even purchases in malls tend to be made more on the basis of debit cards, where the question of interest payment does not arise.

        Myriad forces

        Prices of transport and housing have less to do with demand as fares move up when fuel prices increase. Rentals move up or down based on the price of property and general economic conditions.

        In case of food, while excess demand would push up prices, such demand is normally driven by cash purchases and can be linked with increasing wages. And, there is the Veblen effect — where goods are procured to make the individual look better, higher cost of credit is unlikely to be a deterrent. For the miscellaneous category, which includes purchase of consumer goods and automobiles, interest rates could have a bearing on purchase decisions, though both these industries are witnessing de-growth.

        So, even for this balance 23-25 per cent of index, which could possibly be subjected to monetary policy impact, higher interest rates may not lower demand for such funds.

        There could still be a counter argument that Indian society is progressively aping the West and using cards and loans often to satisfy its needs. To check on this, the credit profile of banks can be looked at closely.

        Borrowing trends

        Today, the share of personal loans is around 18 per cent in gross bank credit, which includes mortgages accounting for around 9.5 per cent. The rest of the credit is to agriculture, industry and services, which cannot be related with the CPI.

        Further, credit cards (0.5 per cent), loans against consumer goods (0.2), education (1.1), and automobiles (2.3), the ones that can be related to the CPI, would account for a sum of not more than 5 per cent of outstanding credit. Even if all purchase decisions in this category are being guided by monetary policy action, not more than 5 per cent of credit would be affected.

        Does this mean linking interest rates to CPI is not valid? Calibrating interest rates with CPI inflation is certainly a strong line for policy action if it is defined as a tool to align nominal interest rates with positive real returns.

        One of the challenges for the economy has been a decline in financial savings as negative real returns have worked against instruments such as deposits. Today, a one-year deposit gives a return of around 8.5 per cent, which adjusted for 10 per cent, CPI inflation yields a real return of negative 1.5 per cent.

        This has been a concern for the RBI. Therefore, increasing interest rates to protect real rates is a logical reaction from the central bank. But using this tool to bring down CPI inflation may not quite work out.

        How then are we to react to the use of CPI as a guiding milestone for monetary policy? Tuning interest rates with CPI inflation will help to a large extent to protect savings, but not perhaps in bringing down inflation.

        The writer is Chief Economist, CARE Ratings

        (This article was published in the Business Line print edition dated February 10, 2014)

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Shocking :-(

          Yacht parties, politicos, flawed rules behind bank NPA woes - Moneycontrol.com

          Non-performing assets (NPAs) in the banking sector, or bad loans as they are commonly known, have been making headlines for the past many months now. The economic downturn has certainly weakened the ability of many borrowers to repay their loans on time. Some businesses have been hit hard by regulatory changes. Still, many believe that a good number of bad loan cases are the result of dubious promoters who know the loopholes in the system, connivance with corrupt bankers and political interference.

          To get a ringside view of the situation, I met up with R, a former bank chairman, over breakfast, at an Udipi joint near his place in suburban Mumbai. For obvious reasons we can't take names here. We chatted for nearly an hour. R had worked with the government in different capacities before taking over as chairman of a mid-sized quasi-public sector bank. Let me cut to the explosive points first, and then tell you the story of the conversation from the beginning. - R discovered that many jobs of bank chairman involve bribing politicians. - He found that from liquor barons to small businessmen, loans go bad because of political influence. - Banks are clandestinely participating in project loans with long gestation periods when they are not equipped to judge the viability of projects and business models. Little wonder, the banking system is now sitting on a volcano of bad loans – maybe as much as 10 percent of all loans "All non-performing loans do not necessarily result from corruption; at the same time, not all bad loans are the result of a slowing economy.


          It is a combination of factors that causes a loan to go bad," R said after we had placed our order. "Every bank has a credit appraisal system, based on which loans are sanctioned. Banks have to check the durability of the business model, promoters' credentials and other such aspects before lending money. There are instances where the business model may be sound, but becomes the victim of a weak environment." "Also, banks may have a good credit appraisal system in place, but the officials implementing the system may be corrupt. In some instances, the officials may be honest but the credit appraisal system itself may not be good enough to be able to assess the risks associated with some complex business models. And there are cases where you have corrupt officials and a weak appraisal system - which is the perfect breeding ground for bad loans. "The problem of bad loans has been aggravated by the fact that banks are trained to lend to corporates for their working capital requirements, and not for projects with long gestation periods.

          So when you lend to a business you don't understand fully, and with restrictions imposed by the system, that is the starting point for trouble. "The flaw in the system is that banks are not allowed to make a loan with a tenure of more than seven years, because no depositors park their money with banks for more than that period. But many large projects take more than 10 years to start generating cash flows, and even banks are aware of this problem while agreeing to finance the project. "So many companies pre-date their COD (commercial operations date) of the project, even though there is no chance of it becoming operational on that date. From the COD, the project becomes eligible for working capital loans from the bank. But that is just an eye-wash because the money is actually still being used for project finance. In three years, the working capital loan limit too would be exhausted, and the project would still not have started generating money.

          "Ideally, only one-third of a bank's loan book should be exposed to project finance, and the rest should be working capital loans. But if you look at the loan books of most PSUs at present, it is about 70 percent project finance and 30 percent working capital loans. "Project finance loans are best done best by financial institutions like the erstwhile IDBI and ICICI, which understand infrastructure projects better," he said. Over a crisp rawa sada dosa, R looked back on his days at his bank fondly, and said his strategy of focusing on small businesses paid off well. "I focussed on lending to small and medium enterprises instead of large corporates. And though loans to SMEs are risky, small businessmen are more honest when it comes to repaying loans. That's because it is difficult for them to get loans, and even one black mark against their name would make it twice as hard. And that is why I feel RBI's strategy of combating inflation by keeping interest rates high could be counterproductive. The RBI benchmark rate may be 8 percent, but the effective cost of loans for SMEs is 15-16 percent. And these businesses account for almost 60 percent of the GDP. How can you revive the economy by hurting the very segment that contributes a major chunk to growth?," R asked.

          On the contrary, some of the large corporates turned out to be slippery customers when the economy went into a downturn, he said. R told me how he had a liquor baron literally on his knees when that man tried to default on a loan."He was behind on his interest payment, and refused to provide additional guarantees when asked for. First he got a cabinet minister to intervene, and when I refused to budge, he got a Chief Minister to call and put pressure on me to go easy on him. I made it clear that he would be shown no leniency. Finally I called up the liquor baron himself and told him that I was going to dump the shares of his flagship company he had placed with me as collateral, and that I was personally flying down to Mumbai to oversee the sale of the shares.

          For all that carefully crafted media image of a suave and unflappable industry captain, the man panicked and begged me not to sell the shares. He then flew down to my office and provided the additional guarantees that I had asked for. I then wondered why my counterparts at other banks had not been so aggressive," R said. R says too often when promoters default on loans and then get their loans restructured on very favourable terms, it is often with the connivance of top officials of the bank. "Either the chairmen of the banks have taken kickbacks from the promoters or they are unable to withstand pressure from their political bosses. Taking on the ministry is not easy, and more so if you owe your current job to political patronage. Even I got invitations for yacht parties hosted by the liquor baron where the guests would be ‘well looked after.' I never used to attend them, but I know plenty of chairmen who used to attend those parties. Later it came as no surprise when banks were willing to settle for a lower amount than what they could have got, when loans were restructured," R said.


          "On one occasion, a prominent businessman, whom I kept avoiding because I knew his intent, landed up at my house early in the morning with a travel bag containing Rs 2 crore. I panicked and had to call the guards to have him thrown out," R says. And R did not mind trying unconventional methods, if he knew there was a good chance of recovering money from errant borrowers. He told me of an incident involving the promoter of a mid-size firm, who had borrowed Rs 70 crore from his bank.

          "He was not paying up despite repeated reminders. I knew he could pay if he chose to because I kept hearing about his flashy lifestyle. So I did something that no bank chairman would have dared to do. I somehow convinced him to issue a cheque of Rs 5 lakh so that I could show a part payment and issue him a fresh loan. He issued me a cheque, and knowing fully that it would bounce, I deposited it in a branch in the area where my bank was headquartered. We then filed a case against him and he was forced to come over in response to the court's summons. Once he came where I wanted him to, I had him arrested using my influence. I told the cops to ‘treat him well', which they did to good effect. I was surprised to get calls from the offices of chief ministers of two states, requesting that the man be released. I never realised that this apparently small-time businessman was so well connected.

          But I did not relent. In fact, I went to the lock-up and told him that unless he agreed to repay the loan, he would rot there, without anybody to save him," R said. "You may find this hard to believe," R continued, "but the moment he was released, he came to my office with head bowed and palms joined as if in prayer and said: I will do as you say. He finally paid up Rs 45 crore; that was better than getting nothing. On another occasion, a businessman who owed me Rs 60 crore came up to me saying that if he was given another Rs 20 crore and time till March, he would repay the entire amount. On a hunch, I agreed to the deal, and the man was good on his word.

          But there were wrong decisions. A businessman owed me Rs 13 crore, and was willing to settle for Rs 9 crore, but I insisted for Rs 11 crore. Eventually he defaulted and the bank got nothing," R said. R recollected quite a few interesting incidents. He told me of an instance when a ministry official publicly chided PSU banks for lending to a acquisition-hungry company that was now sitting on a huge pile of debt and unable to repay it.

          "I remember him saying on a business channel that he found it shocking that banks had lent money to the company despite its businesses steadily losing money. I was surprised when just a week later, I received a call from the same gentleman directing me to extend a loan to that company," R said. "I reminded him about what he had spoken on TV the week before. He was quite blasé about it. "Of course R, one has to say all kind of things; please see what you can do best for this company."

          I told him I would not make the loan, but he tried to be persuasive. The following day, the chief financial officer of that company rang me up with the details of the loan. At the end of the brief conversation, he asked me arrogantly: "So by when can we expect the loan." I told him he could expect it when I was no longer working for the bank. And while the bank's profits kept rising, R had ended up antagonising too many powerful people. And it was a matter of time before they got back at him. "I had sanctioned a hefty loan to a large business group. A week later the owner of that group called me up saying that he had got a call from an influential politician's office to pay up a certain amount, which would then be adjusted against his dues to the bank… under the NPA head, of course. I called up the politician and made it clear that my bank would support no such deal. A few days later I got a call from a senior ministry official asking me if I would interested in taking charge of another PSU bank. I knew this time I had over reached myself, and my days in the current job were numbered. So I agreed to the offer. But there was no word from the finance ministry after that. A few weeks later, I called that person and asked if there was some progress on the earlier conversation.

          I was told that post could be mine if I was willing to shell out money. "Do you know what the going rate for a PSU bank chairman's post is? Take a wild guess," he said. "Rs 10 crore," I replied. "It can go up to as much as Rs 40 crore, depending on the importance of the bank. I told him that I don't have even Rs 4 crore on me, leave alone Rs 40 crore. I never heard from him again," R said.

          I found the Rs 40 crore figure a bit hard to digest. Not to say that every single bank chairman is corrupt, but then every chairman sanctions a few thousand crores of loans during his brief tenure at the helm of the bank. Seen in the context of the loan book size, the Rs 40 crore does not appear too large. If this insight from an ex-banker is anywhere near the truth, god help public sector bankers. The system is corrupted to the core by the crony-capitalist-corrupt-politician nexus.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by Baruch View Post
            Shocking :-(

            Yacht parties, politicos, flawed rules behind bank NPA woes - Moneycontrol.com

            Non-performing assets (NPAs) in the banking sector, or bad loans as they are commonly known, have been making headlines for the past many months now. The economic downturn has certainly weakened the ability of many borrowers to repay their loans on time. Some businesses have been hit hard by regulatory changes. Still, many believe that a good number of bad loan cases are the result of dubious promoters who know the loopholes in the system, connivance with corrupt bankers and political interference.

            To get a ringside view of the situation, I met up with R, a former bank chairman, over breakfast, at an Udipi joint near his place in suburban Mumbai. For obvious reasons we can't take names here. We chatted for nearly an hour. R had worked with the government in different capacities before taking over as chairman of a mid-sized quasi-public sector bank. Let me cut to the explosive points first, and then tell you the story of the conversation from the beginning. - R discovered that many jobs of bank chairman involve bribing politicians. - He found that from liquor barons to small businessmen, loans go bad because of political influence. - Banks are clandestinely participating in project loans with long gestation periods when they are not equipped to judge the viability of projects and business models. Little wonder, the banking system is now sitting on a volcano of bad loans – maybe as much as 10 percent of all loans "All non-performing loans do not necessarily result from corruption; at the same time, not all bad loans are the result of a slowing economy.

            But not surprising!!!

            Don't you remember the Railway Member Electrical case where similar amounts were discussed in public?

            I know the Railway space very well, my father did 33 years service there and was a terror to the inefficient and corrupt - when he retired (equivalent to GM) he had a Bajaj Chetak scooter as his own!

            I have seen him sack highly connected Union employees on the spot and have catering staff throw out rotten food out of running trains on the spot and sack the responsible as well.

            What a shame we have today. Capital Punishment must be brought back for large-scale economic crimes for sure and this should be a decent deterrent. After all lakhs of crores being looted must surely result in a lot of economic deaths?! so why not a firing squad for the culprits?

            Top 10% of economic crimes by size every year, just take them out and shoot them! Seriously! It worked all through History, so why not now, when we are reaching historic highs in economic crimes?

            cheers
            Last edited by wiseman; February 10 2014, 07:02 PM.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Nice Information

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Baruch. hats off for your post . Think this would the best I have read so far in IREF in many years. Please keep such things coming.

                wiseman. for first time I am agree with your post

                My hats off to all such people who stood strong against the corruption and the reason I liked these post is that all the while corrupt people are being projected like they are invincible and can't be touched etc. But these posts give hope that standing by your point (once you are right) may just what is required to fend off these jackals.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Top 10% of economic crimes by size every year, just take them out and shoot them! Seriously! It worked all through History, so why not now, when we are reaching historic highs in economic crimes?
                  You fail to execute convicted murderers for two decades.You fail to execute people convicted of murdering a honble former PM.
                  Do you ever think we will execute people for economic offence??
                  Our nation will be left with no decision maker then by this execution decision.
                  It is a sad reality that many of our decision makers are corrupt and prone to take decisions based on other name national or commercial sense.
                  We are no China.
                  Last edited by vaibav123; February 12 2014, 07:44 PM.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Precariat = people with temporary jobs and no security

                    Technology is wiping out jobs in the West, and now increasingly in India as well. ‘Temping’ is the new norm
                    What do we talk about when we talk about growth? What do politicians, policymakers mean to tell the nation when they despair of low GDP numbers or cheer a rising growth rate?

                    That ought to be at the centre of discussions on the Indian economy, on public policy, the evaluation of extant government practices and on the promises held out by the stellar opposition.

                    One of the things we ought to be talking about when we speak of growth is, of course, employment. Higher output of goods and services, reflected in GDP, should obviously mean more jobs for people, especially the young.

                    It is exactly on that relation that the current race between the Congress and the BJP will be fought. The BJP’s prime ministerial candidate promises strong leadership for a disciplined and clean march to growing prosperity.

                    The worth of the Congress lies in its past performance, in those years of the last decade when India came knocking at the doors of the rich men’s club. That’s when India began to be counted as something of a force along with China, a bulwark against the sliding fortunes of world trade and growth.

                    What did India’s economic standing mean for jobs and growth in employment?

                    When the middle-class in cities spoke of growth, it meant the mushrooming of malls, the frenetic screeching of drills and the ungainly sights of iron rebars reaching for the smoggy sky and towns turning into vast construction sites.

                    But what did that do for job creation? The latest NSSO data may give the Congress something to crow about since it records a rise in employment in the two years up to 2011. But the jobs were mainly in agriculture with some growth in the secondary and tertiary sectors. Since then, there has been a sharp fall in GDP growth.

                    A yawning gap

                    Growth theories assume that economic expansion will or should lead to an expansion of jobs in the manufacturing and other non-agricultural sectors. So is that happening in India?

                    Evidence from the NSSO’s 66th round did point to such growth but it also noted an increase in the casualisation of work.

                    That form of contract or casual work was also noted in a study by the US Department of Labor for the period of India’s high growth. In fact, factory employment went down, and permanent employment dipped as contract work increased.

                    Now we have Assocham telling us somewhat the same thing. Contract work is increasing and, what is more distressing, it is increasing with fewer benefits for the workforce.

                    The paradox of jobs

                    Last year alone contract work increased 39 per cent — not in the informal sector such as construction or in small shantytown enterprises but in the formal sector.

                    This means automobiles telecom, retail FMC, IT, BPOs, healthcare, education — just the sectors that define the modern economy, that provide the fuel for the growth of consumption and thereby of GDP.

                    The Assocham survey is tellingly titled: ‘Rise of Permanently Temporary Workers. India’s Workforce Goes Casual’. The wonderfully evocative paradox hides the terrifying possibility of not just life’s randomness but of the means by which to sustain it. Now, even work has become a random option and that is a fact of life.

                    Assocham tells us that the rise in such permanent impermanence of work owes much to the inflexible labour laws in the country. But it protests too much.

                    The rise of impermanence

                    The phenomenon of temporary staffing as it is variously called, is gathering pace even in countries with very liberal or few labour laws. And in the country India dreams of becoming, impermanence of labour is only a step away from its extinction.

                    In their e-book, Race Against the Machine , MIT professors Erik Brynjolfsson and Andrew McAfee point out that jobs are vanishing in America both on the shopfloor and in the office; robotics is replacing the blue collar worker and now increasing digitalisation will replace the white collar worker.

                    After studying the top four tech firms in the US — Amazon, , Facebook and Google — they found these firms generated far fewer jobs than one would have thought in light of their combined market capitalisation at the time and far fewer than what the US needed for recovery.

                    Hacking itself

                    In cutting labour costs, the modern economy cuts its own feet because it reduces jobs and, therefore, consumption demand. That’s in the US. In India, the vast pool of cheap labour, including the growing pool of skilled youth armed with degrees in management, engineering, fashion designing, catering, flying and the media, allows industry to engage contract labour.

                    And as high-tech and automated technology kicks in, for instance in new private banks that would also like to avoid the headache of unions, the rate at which new jobs — contract, temporary or casual — are available, will fall.

                    The implications of blue and white collar labour displacement by high-tech are evident in the increasing emphasis of policymakers around the world on wealth creation. GDP numbers may rise on the back of a vast army of a permanently temporary workforce; so would profits for firms that may pay higher wages for the duration of the contract but little by way of social benefits that add to well-being.

                    But the net effect would be wider disparities not merely in incomes but in well-being as the benefits of rising GDP accrue to fewer wealth ‘creators’.

                    But so long as GDP grows, will employment numbers really matter?

                    (This article was published in the Business Line print edition dated February 12, 2014)

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Small correction

                      Originally posted by rambler View Post
                      Technology is wiping out jobs in the West, and now increasingly in India as well. ‘Temping’ is the new norm
                      What do we talk about when we talk about growth? What do politicians, policymakers mean to tell the nation when they despair of low GDP numbers or cheer a rising growth rate?

                      That ought to be at the centre of discussions on the Indian economy, on public policy, the evaluation of extant government practices and on the promises held out by the stellar opposition.
                      Its not technology itself that is wiping out jobs.

                      Its "automation" that is the culprit. I have been warning from time to time that it is still in infancy stage, but with change becoming so rapid, within a decade automation will be making huge inroads by replacing people at at much greater efficiency.

                      This automation is coming into every area, even including high level human intelligence. Of course, one may say that machines cannot compete with humans in really high-level thinking and so will not be a real threat.

                      Thats exactly what blacksmiths thought when they were asked to forge parts for machines that made crude "things" while the blacksmiths themselves made fine articles of the same type.

                      This was in the mid-to-late 1800s. Over the next 50 years machines progressively became better and by the 1930s blacksmithy was going the way of the dodo.

                      I'm afraid we may be treading the same path, unfortunately this time in every area!

                      Where is the next "Industrial Revolution" going to come from? This is the big question.

                      cheers

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