Ravi Karandeekar's Pune Real Estate Market News Blog: deflation

Showing posts with label deflation. Show all posts

Saturday, January 10, 2009

Wait for 6 more months - Promoters and Builders Association of Pune tells you not to book now!

Take off point or Tip off point for Pune real estate market?

On Friday, to cheer up the property buyers who are sitting on the fence, waiting for the property prices and home loan interest rates to come down, Promoters and Builders Association of Pune (PBAP) gave a good news!

PBAP president Lalit Kumar Jain told the media that "In a few months interest rates would come down to around 7.5 per cent!" He also added that "It will be the take off point for the city's realty sector once again."

It means, now PBAP is also convinced that there is some sense in not booking a flat at this point of time and suggests you to buy a property after a few more months when interest rates come down!

Few means 6 months!

PBAP is giving you this tip because each and every member cares for Pune property buyer. And every builder is as anxious as the home buyer to find out when the wait is going to end and when (flat) booking will resume in full swing.

One of my source, has told me that this claim about interest rate is not only a motivational slogan but it is based on the solid prediction of nun other than CEO and Managing Director of ICICI Bank Mr. K V Kamath! Mr. Kamath has declared that "interest rates are set to fall by up to five percentage points in the next six months as inflation is moving towards zero level.

"All I can say is that four-to-five percentage points correction in interest rates from where it is today...this correction, I think, will be by July...this is where the interest rates are tending in six months from now," Kamath said in an interview.

But the credit for jumping to the conclusion that "low interest rate would be a take off point for Pune real estate" goes to PBAP! Because, actually in the same interview Mr. K V Kamath has warned us about the impending "deflation"! Mr. Kamath says:

"Interestingly, we are heading towards deflation that is very clear, or rather we are heading towards very low level of inflation...

Those who understand little bit of Economics and Finance will tell you that it would be a tip off point and not take off point!

Deflation: a declining spiral:

In simple terms "deflation" is totally opposite of "inflation".

In 'inflation' we have to pay more amount of money to buy a flat or a thing.

In 'deflation' we have to pay less money to buy a property or anything!

It means rate of the property along with the profits of the builder goes down.

Let me quote Colin Asher, an economist at Nomura Securities. He told Radio Free Europe that the problem with deflation is that:

"In deflation, there's a declining spiral. Businesses make less profits so they cut back on employment. People feel less like spending money. Businesses then don't make any profits and everything works itself into a declining spiral.

Deflation also has a psychological element as it becomes rooted in peoples' psychologies and becomes self-perpetuating.

Consumers are discouraged from buying expensive items like automobiles or homes because they know those things will be cheaper in the future."

What is your take on waiting for 6 more months?

Atul, who's comments you must be reading on this blog, i am sure, will say, "i am telling this for last couple of months!" Yes, i accept, i found it very difficult to agree with him.

Even now, i find it difficult to understand why the leader of more than 300 big and small builders in Pune, Mr. Lalit Kumar Jain is not encouraging property buyers to book a home when things are going exactly as Mark Gongloff (CNN Money) describes! He says:

"when prices fall simply because people have no desire to buy -- leading to a vicious cycle of consumers postponing spending because they believe prices will fall further -- then businesses can't make a profit or pay off their debts, leading them to cut production and workers, leading to lower demand for goods, which leads to even lower prices."

What is your take on postponing booking a flat for 6 more months and waiting for property rates and home loan interest rates to come down as Mr. Lalit Kumar Jain suggests? Please, share your views in the comments. (Comments Policy)

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Tuesday, September 4, 2007

The School of Hard Work Or Habituated Hand-Outs?

After signing the ‘American Dream Downpayment Act of 2003’ Bush added, “We want people to be fully aware of what it means to buy a home and what it takes”. The contradiction, if otherwise unclear, was that the President was signing a law that gave free money to those who could not afford to buy a home, and then he planned to educate.about the hard work, savings, and planning that is required to buy a home.

With Wall Street packaging and selling mortgage reset time bombs, rating agencies dolling out A's first and asking questions never, and many homeowners essentially signing future default notices before their new home purchases were finalized.

Bush's efforts at expanding homeownership since 2003 have gone unnoticed as the subprime debacle widens. Unfortunately, so have the costs of funding Bush's homeownership initiatives.

What should not remain unnoticed is the irony of it all: near the height of the housing boom Bush wanted to do everything he could to boost already record high homeownership rates, but now, as the boom turns to bust, Bush is eying a plethora of emergency policy moves to simply try and keep ownership rates stable.

You can not help but wonder whether or not many Americans would have been better off if Bush simply left the mortgage market alone.

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Monday, September 3, 2007

Bush's Bogus Bail Out: Introduction To Tony Soprano Economics 101

In the current George W. Bush-Tony Soprano, infamous main character of the HBO TV series "The Sopranos", scheme, every time a corporate player commits fraud, he gets to keep the profits, and borrowers have to pay an inflation tax as a result.

Eventually, this results in the fraudsters owning more and more of the nation and world economy until they own it all.

Money is simply printed out of thin air to bail out the fraudsters which causes all of our expenses to rise because we don't have the rigged income to hedge those costs as the fraudsters do.

We have only begun to see the reverberations of the mortgage meltdown. They will be as sweeping and mind boggling as global warming or an earthquake measuring 10 on the Richter scale. Tony Soprano economics aren't necessarily noisy, but they are gargantuan in their reach and ramifications.

Global economic meltdown, initiated by the ruling elite of the United States with full knowledge of omnipresent, pervasive global resource depletion-or as some have called it "Peak Everything", will obliterate the American middle class and result in the ownership of the planet by a voracious ruling elite.

Tony's predecessor said it best decades before Tony was even a twinkle in his father's eye:

"Capitalism is the legitimate racket of the ruling class."

Al Capone

Column: Carolyn Baker

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Sunday, September 2, 2007

What is Deflation?

In common usage deflation is generally considered to be "falling prices". But there is much more to it than that.

Often people confuse deflation with disinflation or with Depression (as in "the Great Depression"). These three terms are related but not synonymous.

According to Investorwords.com the definition of Deflation is "a decline in general price levels, often caused by a reduction in the supply of money or credit.

Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. The opposite of inflation."

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Looking beyond the mortgage mess: Should the government fix the mess?

We need to think beyond the mortgage crisis and consider the greater danger of deflation.

Deflation happens when consumer prices decline over time. It's especially hazardous for a society in debt (because your assets are worthless while your debts remain the same) The way it could work now is that as more houses are repossessed & sold at a discount, those houses compete with houses already on the market, pushing prices down. For most of us, our home is our most important financial asset.

We don't have to travel back in time to see the implications: Just look at Japan, where deflation has been a problem since the 1990s.

As we debate public policy, one of the biggest problems with deflation is that governments have few tools to counter its effects. A central bank can only drop interest rates to zero.

read more | digg story