Every business has to have an office. Preferably in Mumbai or New Delhi.
This could of course be rented, but many of them prefer to buy it. They need CAs, advertising agencies, car hire companies, and zillions of other service providers.
Where should the service providers be located? In Mumbai or Delhi.
Then it needs employees. A few basic skills but need him/her in the place of work….
All this does one thing. It pushes up costs. If companies are smart they will shift all support functions to say Pune (which is not still as bad as Mumbai in pricing, but is reaching there.
Sadly the government, and the banks will not want the housing prices / commercial real estate prices to come down…- Imagine what a 30% fall in real estate prices can do to the balance sheets of SBI, Icici bank and Hdfc ltd! Also the increasing prices of a house has a ‘feel good’ factor allowing the middle class guy/gal to spend their hard earned money. Ask them to save for retirement, they say ‘Arre I bought this house for Rs. 30,00,000, NOW it is worth about Rs. 1.4 crores, I will sell it off and live in a cheaper place’. I have no clue whether it will happen, but right now it is the placebo effect at work!
Unfortunately high real estate prices suck money from the more economic activity and put it into commodities like cement and steel. Even though these are just ‘commodities’ the prices increase at a rate higher than inflation.
What can the banks really do? Simple lend to businesses that add value to the economy by creating jobs instead of giving home loans. Give say 50% of the cost of the house as a loan instead of 85%.
If Rs. 400,000 crores of bank money is withdrawn from the ‘real estate’ industry, will home prices come down? Well you do not need a PhD in banking to answer that question, do you?
If the banks started giving more loans to the SME – working capital, etc. at lower rates, and the governments created better infra (demand will take a longer time to build), there would be NO reason for all businesses to be in BKC and CP.
Suddenly you will have a demand for Baramati airport and Bhubaneshwar airport instead of people asking for more runways in Santacruz and Palam (oops Indira Gandhi hawai adda!!)
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