Mere desh ki galti

"Mere desh ki dharti", proclaimed Manoj Kumar in the classic Upkar "will sprout gold, diamonds, and pearls."

But that was the patriotic Mr. Bharat.
The market cap focused Mr. India had other plans.
Large chunks of land were cornered by a few - with much help from friendly sources with political connections.
Land banks were built.

The sona, heeray, aur moti from the glorious land of India that was supposed to benefit all was hastily converted into Special Economic Zones.
The only thing "special" about these zones was that it was an area of land where the economic interest was to be shared by a few "special" people.

Sometimes these tracts of land were to be developed into massive townships that would give abnormal profits to the few. India has a housing shortage and the real estate developers were doing us all a favour by going through the painful process of jumping through the hoops of 62 approvals to give us our homes.
Of course, each of those 62 approvals was an opportunity to share the spoils and act as a barrier to competition. The end product - priced on the basis of "super built-up area" graciously asked us to pay for the price of air on which our dreams float.

For those with connections in the seedy corridors of power, the slum rehabilitation projects in crowded cities like Bombay were tweaked to create fictitious tenants.
These re-allotments would help enhance profits of the developers.

Brand name, reputation, and religion have little meaning when it comes to the world of money - the profit motive is the ultimate objective.

The slogan shouting of roti, kapda, aur makaan and the love for the "aam aadmi" are, eventually, slogans. Governments - across the political spectrum and across various time periods - have made a mockery of India’s need for housing with the land melas that have favoured the few at the cost of many.

Government steps in
But not every plan ends up the way it was supposed to.
Not every racketeering scheme generates the profits that were envisaged.
And so it is true with the real estate "business".
The mighty, with all their connections and all their exchanges of bagfuls of money, built these land banks - but don’t have the buyers.
The "discounted cash flow" model that was used by them to generate bubble-level share prices of their unreal estate companies has, well, been discounted to a fraction of what they were trading at.
The balloon has deflated.
A land bank is now a sinking hole.
Debts have to be repaid and interest needs to be paid.
Every month.

And no sane bank is willing to lend to the real estate developers.

So, what is the solution? That’s an easy one: use the political system to be bailed out.

Over the past few years, the Reserve Bank of India was trying to control the amount of money made available to real estate. And the cost of that money.
Now they are making a u-turn.
Statements from the usual, suspect politicians - possibly with connections to the real estate industry - are nudging the RBI to open the tap and ensure that loans are given to real estate companies.

These companies, after all, have the "sona, heeray, and moti" to be harvested.

Redefine the product
We are on a strange road in real estate. India has a shortage of tens of millions of homes. And, yet, the real estate companies are sitting on dud projects. They cannot sell anything. They are in deep trouble. They needed the help of the political friends to get the land banks and now they need the help of their political friends to ensure that the banks don’t end up seizing their land!
But, sadly, the shortage of homes still exists.

Mr. Chidambaram, when he was the Finance Minister, had a solution: "if they (the car manufacturers and home developers) cut prices I am sure that the demand will increase sharply. The ball is in their court."

This seemed like a reasonable solution. If you cannot sell something at a higher price, reduce the price and a buyer will emerge at some price.
But there is a problem with that solution: the profits that every real estate developer and investor thought they had would be wiped out. And the banks that lent all that money to real estate companies? Ouch! They would be hurt even more.

The developers went on the offensive. Their alternate solution was to have the RBI give them more money at lower cost - and also extend this courtesy to the potential buyers. Rather than accept that they had built over-priced product that could not be sold, they said "lack of availability of credit is the reason why demand is down. There is room for interest rate reductions on home loans to the 7% and 8% levels that existed 2 years ago."

So the rape of the desh ki dharti goes on. The politicians have stepped in to rescue the real estate developers and revive their disappearing profits. This means that you, dear customer, are the one paying the higher price for sub-standard housing sold on a super-built-up basis. But don’t worry - the banks will be more than willing to lend you money at these artificially high prices.

The new age banks will like that increase in activity. They are not used to sitting quiet. They miss the days when they lent money to those who cannot afford to repay the loans. Their "let’s go and get market share" model is at risk.
Promotions and bonuses are due. Something needs to be done to show how brilliant they are.

I don’t know, dear reader, I don’t know.

We seem to be willing to reward people and companies who nearly blew up the economy; who followed a growth for growth’s sake business model; who had this urge for market share.

The dangers of that business model are all around us. And before we have recovered from the first mistake, we are about to make another big banking bet by turning on the tap of cheap home loans for overpriced real estate. Just to save the profit margins of the real estate developers and their partners in the political establishment.

Don’t get me wrong. Giving loans at lower interest rates for buying homes is a great idea. But first the developers need to reduce the prices of their properties by 40% to 50%. The "political connection" premium linked to real estate projects needs to be eradicated.

Maybe the Finance Minister became the Home Minister to save us from the terrorism of artificially high real estate prices and to ensure that we get our homes a lot cheaper. Maybe.