Saturday, February 22, 2014

The Common Man in the Real Estate Market.

The Common Man in the Real Estate Market.

(Disclaimer: I have no especial knowledge of economics, finance or on any of the subjects I talk below except for what I picked up from reading in the popular media- so the sources for this post are all out there in the public domain- in newspapers, magazines and television.) 

Suppose you want to buy a piece of land to call your own, to build your dream house where you can retire to in your old age (the dream of every working man and woman), what do you do to make it a reality? As a first step you go out with the so-called real estate brokers (which group includes pretty much everyone else except you nowadays) and you pick them up in your vehicle when they say, where they say and you grin and laugh at their inappropriate jokes and accompany them as they take you all over the city into places you never knew existed, while they keep eating masala dosas and drinking umpteen cups of tea in your name (this is for your work, isnt it?) and finally they deign to show you worthless pieces of property at humongous rates which you just cannot afford on your salary unless you are prepared to mortgage your unborn children and their unborn children too in the bargain. And every time you pass the bank where you took the home loan you are reminded of the evergreen classic movie “do bigha zameen” where the serf/farmer is tied to the hoe and pulls it himself instead of the draft bullocks- a burden which finally lays him under six feet of ground.

Seems an impossible situation right? You are given a choice of selling your soul to buy a house or going through the rest of your life dependent on the whims and fancies of your house owner. If the said house owner is barely tolerable – which means he doesn’t resort to midnight knocking at your doors to check if the noise he heard from your house was you drilling a new nail in his walls then you can count yourself very lucky. On the other hand there are other kinds of picky house owners who will give you every kind of exam (including a rectal exam if you let them) or sniff at your breath to test if you eat non-vegetarian (eggs and meat) food even if you swear on your favorite dead saint that you eat only dead plants and grasses like they do, if you ever go to them to ask to rent their house before maliciously declaring that they have now decided to let it out to only a certain specified caste or community and you sadly don’t belong to their choice of preferred denomination.

And then there are those ultra-conservative landlords who swear that those who roam around in the nights are anti-social elements even if they are honest rent paying tenants and hence strictly lock their gates at eight in the night (an hour after sun down) to prevent the crime rates from rising. Not to mention ecologically-minded landlords who decide to act with a social conscience and conserve water by making sure that all the groundwater stays in the ground where it belongs and consequently their tenants don’t waste the two buckets or so water they are supplied through the taps every day at midnight. I could share more and more stories of such crazy, avaricious landlords but the point is made I guess, so I will move on with the rest of the post. which is about how every tenant, the “everyman” people talk about wants and yearns and dreams of the day he will be the sole owner of a piece of land to claim as his own where no else can come in and order him to behave himself, rent paid on time or not. I am sure you can understand the desperation of the hordes of people out there who are searching for such a piece of their own to own.

But if by accident you happen to switch on the television, especially the financial channels where men wearing suits and ties talk in big, big words about the economy, foreign exchange and stuff like that which goes way over your head, so what do you hear day in and day out from these self same knowledgeable economic experts and financial pundits? You hear them keep advising you that you are about to be cheated in the real estate market that is if you are stupid enough buy any land or an apartment, that the real estate market is going through an artificial bubble and once the housing bubble burst prices will drop down to the pavements- so dont buy land but go and put your money on stock markets - buy stocks like Enron, Satyam etc. their only financial advice seem to be to repeat the same two phrases “financial markets and stock markets”. If you believe them the only way to real wealth is through paper money where you are handed a piece of paper which says you own such and such a piece of company but where in reality unlike the directors and other owners of the company who drive around in luxury cars and dine in fancy restaurants all you get is a letter to attend a stockholders meeting where you hear the bad news that the depression is killing that sector of the economy so their annual dividends is once again in the red.

Well, if you are fool enough to listen to such experts and postpone your decision to buy that apartment then you are merely wasting time, for the situation does not change even when the economy tanks or a recession comes on us from America or even when the promised real estate bubble turns out to be just a stock market bubble and the stocks of much vaunted “rising sector” companies like Satyam which were heavily recommended by the same economic gurus were the ones which pop like soap bubbles. More than a working knowledge of economics what we need is commonsense in such conditions. We need to remember that land supply is limited and hence land is a valuable commodity. That’s why the real estate market is soaring even during recession times. But it brings us back to our original question, when there is a large gap between the average income and average cost of land what can we do to change this situation?  

Well you can take the conventional route and apply for a mortgage at the bank and hock your wife and children to pay the EMI every month and barely make the two ends meet for the rest of the month. But our wise bankers and economists and financial gurus will make sure that you the common man cannot take this easy way out to divert your money from its great role in saving the national economy and financial markets. They will get the RBI governor to increase the lending rates which means your local banker hands rubbing gleefully will increase your monthly EMI payment rates thereby making sure that you have two choices – either sell your mother-in-law if you find a buyer for her or just abandon your plan to buy a home. 

You can’t beat the system ever for our bankers are clever enough to even punish the wise guys who seek to sell some ancestral property left them by an ancient forefather to foreclose their loan- for the bank will penalize you with heavy penalties for early closure of the loan- the only instance in the world where you get punished for paying back the money you borrowed. And as an alternative the banks will provide with easy loans to play the stock market and inject money into the financial system. For what they hate is real wealth- wealth which does not come from the stock markets. And to facilitate this- all rules, all laws and everything which the entire political and financial system of our great country India does is to force you into putting all your money into stocks, bonds and mutual funds- at your own risk of course.

And yet if you look around you can find a busy property market where even second hand apartments are going for crores of rupees and lands are changing hands every day. How do they do it? Simple. They have the help of those great benevolent gods of our times – our politicians. If a politician decides so, he can help you buy your favored piece of land with no hassles. He flicks a finger at his favorite bureaucrat who issues a government notification declaring the land as “needed for essential government purpose” and forcibly acquires it in the name of the government. The landlord is paid a pittance as compensation and chased off his property. Then the land is declared surplus to needs and is thrown off into the auction pool where it is finally divided between the politician, the bureaucrat and you – if you are lucky enough to know one of the two and are prepared to pay them what they demand for it. That is the easiest way land changes in urban centers in India.

Go look at any of the large IT parks where software companies have raised multistoried buildings and parks and food courts in acres and acres of land. Ask their owners how they were bought or acquired and you will find this tale behind every one of those land-allotments. Multinational companies and IT/ITES companies whose incomes from foreign remittances range in the billions of dollars- all of them get their land for free from the government as part of software parks and industrial corridors. No one pays a single paisa to the original owners except as bribes to the politicians and bureaucrats who sanction these land allotments under their discretionary quotas. This is a universal truth known to everyone but we keep our eyes closed to it willfully.

Every single company which prides itself on its clean corporate governance and is held up as an ideal for its probity and whose CEO’s and CFO’s are feted by our media is part of this fraud on the ordinary landowner and common man- the aam admi- you and me. There has never in the history of Indian IT industry or manufacturing history been a company which refused land from the government but bought it straight from its real owners. Why should they when they have the might of the law to do their dirty work? And that’s why everywhere you go around the cities and their suburbs you find large software parks and multinational factories- there is no greenery, no wetlands, no water bodies nothing but the concrete dust of large construction works. Amidst all these riches of land is the irony of the common man searching for a small plot of land to call his own. Of such contradictions is our great country India made. Will it ever change? What do you think? Will the common mans dream to own land remain forever a dream? Tell me your thoughts.

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