Real Estate: The Biggest Ponzi Scheme Ever

Movies is one of the most influential art form, they have the power to mesmerize you, influence you and stay within you unlike any other art form present. There are many movies which have moved me, made me think and introspect. One of the dialogues which manages to send the shivers down my spine is one from the fight club. Sometimes Most of the times the way we conduct ourselves, I tend to feel the words of Tyler Durden are an epitome of truth.

An entire generation pumping gas, waiting tables – slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our great war is a spiritual war. Our great depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars, but we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.

One of the things which make me believe in these words is the current real estate market in India. Irrespective of the economic scenario, macroeconomic reality, this particular market is perennially headed north. Looks like we haven’t learnt from the lessons of 2008 in the US, and all of us are guilty of feeding to the whims of this Ponzi scheme. Imagine a piece of land or a house which is sold at Rs. X. Out of which 0.85X is financed by the banks and 0.15X is paid by the individual buying the house. Now in a matter of a year with almost no economic value add the price of the same house becomes Rs. 2X. Again the individual buying it pays 0.3X and the bank finances 1.7X of the house. This will continue till and the individuals will keep making money as long as there is somebody else to buy the house at inflated house, which is why the commonly preached parables like “Real Estate never goes down”. But in reality the chain stops when one is unable to find a buyer to buy out at a significantly higher price. When that happens you are either left with an old property & a highly leveraged mortgage/bank loan. Combine that with a difficult economic situation which hits the markets where real jobs are created and actual value add are done, you got yourself 2008 global meltdown.

The fact is government doesn’t want to create a regulator and instruments because a lot of people in the government are the creators or nodal points in this Ponzi scheme. The politicians and bureaucrats who have the information on where the next extension of the metro rail would land, where the next development & infrastructure zone will be created all start these nodes of this Ponzi scheme. A Ponzi scheme, where a common middle income man spends his life savings, provident fund and at times hard earned money at Onsite too, ends up being the loser.

So in the end, I don’t say don’t risk yourself in this Ponzi scheme but make sure you aren’t in a situation where you actually become the last node.

 

 

1 comment on “Real Estate: The Biggest Ponzi Scheme Ever”

  1. Ramesh Reply

    Oh yes, Property is more than a Ponzi scheme. It produces huge distortions in wealth – the classic 1% inequality; the few lucky enough to inherit some land make huge money at the cost of the rest of the 99%. It pushes up cost of everything – schools, hospitals, retails, everything. All of us pay a huge cost to enrich a few. and as you noted, it breeds fantastic corruption.

    Property is really a four letter word.

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