Remember the scene where King Kong gets a high toying imprudently with his dinosaur victims just to impress his love interest; and ends up being thrown off a mountain cliff by one of them. Cut to real life. Somewhere along the way, the players in the segment forgot that if low interest rates could give them an unbelievable high, the same interest rates, in an upwardly reverse direction, could even destroy them overnight.
This opportunistic forgetfulness was ruthlessly exploited by our Finance Minister, P. Chidambaram, who – after failing to control inflation any
which way – decided to place the complete blame on the availability of cheap loans, and subsequently increased the prime lending rates step by step, choking almost all realty players to the point of nausea, clarifying that his “intention is to constrain demand in those sectors where there are signs of what you call overheating; and examples of that could be real estate & housing.”
So did Chidambaram succeed in taming the beast? Yes and no. ‘Yes’, because the current situation is such that with interest rates at all time highs, the growth of the real estate sector (previously projected to grow at a rate of 33% till 2010) has clearly been slaughtered. And ‘no’, because the ‘beast ain’t dead’. There are numerable real estate speculative players ready to smash into the market with their million dollar investments the moment inflation becomes further controlled, and interest rates start floating down. And there lies the Sword of Damocles. There is a massively dangerous probability now that the massive investments in realty might not end up providing even break couldn’t even returns to the players, with the industry itself poised to suffer the hugest shakeout every witnessed.
This opportunistic forgetfulness was ruthlessly exploited by our Finance Minister, P. Chidambaram, who – after failing to control inflation any
which way – decided to place the complete blame on the availability of cheap loans, and subsequently increased the prime lending rates step by step, choking almost all realty players to the point of nausea, clarifying that his “intention is to constrain demand in those sectors where there are signs of what you call overheating; and examples of that could be real estate & housing.”So did Chidambaram succeed in taming the beast? Yes and no. ‘Yes’, because the current situation is such that with interest rates at all time highs, the growth of the real estate sector (previously projected to grow at a rate of 33% till 2010) has clearly been slaughtered. And ‘no’, because the ‘beast ain’t dead’. There are numerable real estate speculative players ready to smash into the market with their million dollar investments the moment inflation becomes further controlled, and interest rates start floating down. And there lies the Sword of Damocles. There is a massively dangerous probability now that the massive investments in realty might not end up providing even break couldn’t even returns to the players, with the industry itself poised to suffer the hugest shakeout every witnessed.
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Source: IIPM Editorial, 2008
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
Source: IIPM Editorial, 2008
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
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