Not sure if you have heard this, but this is true in many cases. Take the example of travel options from Mumbai to Pune. You have air, trains (exclusive to Pune and all trains going south), taxi, buses, ….and all seem to be full. When each of these services started people may have wondered…’Is there a demand for such a service’…
When I went to a doctor for a friend…one question the doc asked was ‘Is it paid for by the company or by the insurance company’. I guess he was asking : Do you need a proper bill and do you really care how much is the bill for? Sad, but true.
Similarly when a lot of money is available to buy an asset, price of the asset goes up. For example the amount of money available for housing finance is just gone through the roof. Just SBI alone has a mortgage (residential) of Rs. 100,000 crores. This is not small. Now assuming that Hdfc, Axis bank, Icici bank, Indiainfoline housing, Dlf, and zillion others put together should have another Rs. 8,00,000 crores, at least.
The builders go to the banker and decide how much money they have to make from a particular product. Based on project cost, funding cost and the probable demand flats are priced. Due to the availability of easy money just too many people are buying houses (with borrowed funds) and keeping it locked. The assumption is that the house for Rs. 1500 psf WILL appreciate to Rs. 3000 in 3 years…so even borrowing at 12% is fine…because the implied rate of return is about 24%
Too many people are over committing – and hoping that flipping will work. Well flipping does work in a boom…what happens in a slow down is the question to answer.
Imagine you and your spouse are working in Jet Airways and Kingfisher. Have a take home of Rs. 180,000 p.m. and you are paying 2 EMIs totalling Rs. 110,000 …Rs. 70k is your monthly expense.
Suddenly one income stops, other stutters….OMG.
The worst thing is the same thing is happening in the MBA colleges also. Banks know you will get a degree (and in most cases your Dad’s house is hypothecated), colleges are charging a bomb (bank is paying no?) , you get a degree…but hey..somebody changed the scrip…
You were supposed to get a salary of Rs. 6 lakhs, right? well the best offer is Rs. 250,000 (GROSS)…then there is tax, bonus, how will you pay rent, food expenses and the education loan?….
believe it or not…the next sub prime problem INTERNATIONALLY will be the student loan…in India it will be called a scam…of course we will not do anything till the figure reaches…Rs. 200,000 crores…
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