Friday, November 28, 2008


It has been at least four years since I read articles talking about good values and the right reasons for business success. During the last quartet of years it appears as if the belief in doing good seemed to have been lost, having got replaced by gung-hoism. Thankfully, with this global downturn, the good things should be back and good things lead to great things.

Take the example of Bangalore. I lived in Bangalore in the late 80's and early 90's. The city was a brilliant mix of values and great weather, heritage, history and nostalgia. Then they discovered it to be the Silicon Valley of India. All of a sudden, there was a wave of thinking about how similar Bangalore was to the Bay Area.

Indians from the US suddenly descended in to the city and set up home here, promoting the idea that one could earn salaries in the US but live offshore, in inexpensive Bangalore. The number of NRIs suddenly 'finding' Bangalore was surprisingly higher than during the tech boom of 1998-2001.

In no time, real estate became the most favored investment and locals who owned ancestral property - and those who purchased it as farmland - began to sell it at a premium to greedy but gullible NRIs. The very people who moaned about Bangalore losing its old world charm were now selling land like fresh cakes at the local Iyengar Bakery. No thought was given to infrastructure and preservation of culture or heritage, or nature.

The city, which was renowned for its flora - huge gigantic trees over hundreds of years old - was fast being replaced by the visions of the financiers, and ideas of those living in deserts and arid lands. All of this laid out in neat slices, compressed and packaged as progress. So, what has all this progress done to Bangalore?

Clogged roads, 3-hour drives to the airport and vague debates on the timings for local pubs, sponsored by the local corporate brewer. The beer capital of India did not give a thought on what laws should be put in place against those drinking, driving and running someone over in one night. This is called a mad culture of "investing in real estate", which never allows for thought on how the city should develop.

Internet, and information technology, and consequently digitalization were supposed to make life cleaner and better, for rich and poor, but what has it done. Bangalore, instead, has become another Mumbai - with its hyper real estate prices, fast deteriorating infrastructure, congested roads, pollution and crime. Good folks with good money were replaced by home loan-loaded ecstatic rodeos, riding some new wave of software jobs, airline jobs or financial services jobs, and what have you, thinking that they were writing the story for the next decade. Suddenly debt was cool, and "this is how it is in the US" was a statement for every financial misstep possible.

Flipping homes became as easy as flipping burgers. Just put down 10 percent, book a property, sell it for 20 percent profit next quarter. Another variation was: Buy an inflated property on mortgage, calculate the monthly EMI, and expect the rent to pay off the EMI. Real estate trading became the new casino, in which all could participate, without understanding it. Ever heard of options in commodities and stock? What we were seeing between 2005-2007 was real-estate option trading, without any kind regulation - a perfect resume for disaster if you do not know what options can do.

Having seen first-hand the Tech boom and bust - I know enthusiasm is great for start-ups but it does not pay in the long run. Most people confuse enthusiasm with happiness. In the Tech boom of 2000, the Internet was supposed to be the great leveler, so anyone with an Internet account and a url was a company. Venture capitalists became the new kids in town, peddling the deadly shot in to the veins of start-ups - cheap capital. Meetings were held where puffed-up child-CEOs (not very different mentally from the child soldiers of Africa) were asked business plans with specific targets for burning money. There were meetings where one was given a dressing down for not spending enough. If it was burning money in 1998 then, it was taking on debt in 2004 that was the new mantra.

Frankly, the impending rout of real estate - it has not even started, mind you - will provide a great pause for all, unless of course we are overloaded with debt, having purchased property with the idea of flipping them over in 3 months and worse still, hoping to rent it for more than the EMI. Clearly, worldwide, this party is now over!

Many ask me why I am delighted with this rout of real estate stocks. I think it comes from deep within. I despise this rottenization of livable spaces, invading, decimating and converting organic material in to concrete. It's a contradiction, that we first burn down forests, fill the space up with processed rubble and then put out ads that say: "Come live in the lush greenery". Ask those who purchased apartments in Powai (Mumbai) in 1995. How lush is their environment today?

What makes real estate dangerous is that you have the most enthusiastic and emotional fools with the least ability buying in to this. The mass participation in speculation thus causes an almost uncontrolled spiraling of prices.

The repercussions of a never-ending boom in land would have been disastrous. Where would this have led us? The commercialization of water? We almost thought of this. How about air?

Fortunately, booms and busts are self-correcting bootstrapping mechanisms. Thankfully, Nature finds its own corrective path, and as this real estate mania grinds to a halt over the next 2 to 5 years, it will allow us to find our real selves and values. By the time the next bull run starts, we would have spent years "at the grinding mill" and done our time.

However, future generations would perhaps not learn from this financial turmoil, as we have not from the earlier ones, because, as is the nature of emotional beings, we will always get mired in our own ecstasies.


Venky said...

This is a truly heart felt blog. I lived in Hiranandani Gardens, Powai in 2004 and am sad to see how the place has been raped and brutalized. The ugly noveau-rich buildings have replaced greenery; the birds and plants have been replaced with snarling traffic. I lived in Bangalore in 2000 and how that city has degenerated. The violence we have inflicted on our cities is not something we would wish upon our worst enemies.

Thanks again, for a very heartfelt blog.

naresh said...

agree with each and every word of ur write-up. i live in bangalore and can see and feel everything u had written about daily....

unmesh38 said...

agree with every word but is anybody listening? greed is much greater force.




Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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