Sunday, February 27, 2011

Invest Here Or The French Alps: Can Union Budget 2011 Fix ?


Ms Artha Property Real Estate  Services has today advertised luxury apartments starting at  Rs 1 crore (approx $220,000) in today's newspaper. If you live in any of the four or five big cities, you must be reaching for your cheque book. I almost did. Hold on. These properties are not in Gurgaon, Noida, Bandra or Andheri. Actually, perish that thought. These  properties, we are told, happen to be  in the French Alps (Viry). Oh, that's just  10 km from Geneva.

The  luxury apartments advertised range from 470 square feet to 870 square feet + balconies. Of course, 75% finance is available (from a Swiss Bank I would think) at 3.4% interest and monthly EMIs are lower than Rs 20,000. And  Ms Artha Property promises that possession is April 2013. Now that concerns me. But site visits are promised in March, so reckon you can go see for yourself. Which is doing better than many folks I know who bought properties without seeing anything in Mumbai. And they still are'nt seeing anything except dwindling bank balances.

A day before the Finance Minister presents his Union Budget its worth using Ms Artha's advertisement (no ill will towards this enterprising relator) as an indicator of where we stand as an economy. Which is on very weak footing. Wouldn't it be you think, if the Alps are more enticing to buy property in than Andheri, in north Mumbai. Of course you can't live in the Alps and commute to work. But these are trifling details, you would agree. Oh the reasons.  The French are facing their own pressures and like other such economies need investments from outside. Like we are not.

The Twin Canons

We are facing worse pressures thank to the twin canons of inflation of rising asset prices and can't seem to be able to do much.  These two factors  (the rest can focus on the rest) are killing this economy and its people. The first we usually try and respond to, the second we do not, except through some distant monetary measures. Each time, something has happened with the latter, its usually the result of an equally distant development (like a global economic meltdown) or providence or a combination of both. I am waiting to see what it would be this time.

So if there is anything the Union Budget can do, apart from lets say new measures for subsidy targeting, it is to drive the nail into inflation. Can the Union Budget do it ? Perhaps not entirely. Can the Union Budget bring down prices of real estate so that ordinary people can buy houses and there is not such an artificial supply-demand gap that every politician gets into the game as they have been. Perhaps not directly. But it can surely set various  balls rolling.

The first is to signal  monetarily (to the country at large and the Reserve Bank in specific) that interest rates should and will  rise. And rise to a point where some backs will break. Yes it sounds difficult to digest. But we did survive similar phases in the late 1990s. And till date, the problem has always been availability of capital, not the cost of capital. Am not saying the second is not important. And if you, as industry, are still seeking cheaper capital, than try borrowing from where Ms Artha is lining up funds, at 3.4%. And Im only half-kidding.

Cleaning Up The Pipelines

Theother thing is to focus on is declog the pipelines. Lets look at the flow of funds in the system, particularly in public services. There are ideas and committees that are working on this already. The right signalling combined with stringent action will help free up a lot of government funds.  And ensure they reach the right person in the right manner. Technology is offering  fascinating and affordable solutions to these issues that have plagued us for decades.

I would categorise imports as a pipeline problem in some ways. Lowering the tariff barriers and streamlining flows (technology can aid this process with greater precision) will help address some inflationary pressures. Though not all. There are other pipelines that need declogging, including of course availability of real estate. And education. Its interesting what open markets can do in a country. We have over 500 television channels and close to 90 news channels pumping out information (which may be all of us don't want) all day but not enough schools to educate our children or food to feed them. Which we desperately want.

And the problem is not the lack of pipelines. Because they will get created with the right incentives, including appropriate policy. Its about declogging them to ensure that they deliver the goods. That's the only way you wont add additional flight of capital to the problems we already face. Else, it would make more sense to invest in the French Alps and gaze at the mountains than see inflation eating your savings up. Oh and I forgot to add, if you think the Alps are too cold, you could settle for villas in Bali. Ms Artha promises to set you up there too. And its still cheaper than Andheri.

 

 

 

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