A Nuclear Attack On Indian Real Estate…


Folks not in tune with developments in India have no idea how big a deal the recent demonetization drive is and how it will have a lasting impact on the parallel economy that has run amok in the largest democracy in the world. People who have amassed hordes of untaxed and unaccounted for cash are literally wiped out with Prime Minister Modi’s surprise masterstroke of an overnight ban on 500 and 1,000 denominated rupees. And the sector that is going to bear the brunt of what is the first step in setting the stage for a hopeful path for a prosperous India is…drum roll please…real estate.

Want to find out how big a deal this is? Try selling that piece of land or that crazily priced apartment you own in India as an “investment” and you get to realize the magnitude of its impact. There probably is no market for that piece of real estate at prices you were expecting just a few weeks back. That’s because real estate is what absorbed all that dirty money which in turn provided a floor to the absurd valuations plaguing that sector for a long, long time. But no more. As transparency in the economy gets more ingrained, inflation adjusted real estate prices will suffer mightily and price declines to the tune of 30-50% are not completely unrealistic over the coming decade. And this actually is a great thing for the economy as a whole. A country’s productive capital should not be sucked into a dumb and unproductive asset like real estate but instead should be channeled into the hands of that next Narayana Murthy or that next Premji or a Tata or a Dhirubhai who can take that capital and build that next great company that employs hundreds of thousands of workers, generating a perpetual stream of the much needed tax revenues for the country and providing hope and prosperity to millions of families.

We harped on this a few times in the past (link) that we as non-resident Indians have no business investing our hard-earned, tax-paid capital alongside that crooked politician or that tax cheat where we stand to lose about 30% of our investment the moment we sign that contract. And if you wanted to participate in the India growth story, the capital markets in that country provided the safest and the cleanest route for your savings. At least the starting line is the same between you and your fellow investors.

Gold does still provide an alternative for stashing unaccounted for cash so the next thing we want Modi to do is to jack up import tariffs on gold and “drain the swamp” for good.

Hoping that the stage is set for a corruption-free, prosperous and peaceful India.

Image credit – Maxwell Hamilton, Flickr