Conventional economics and finance have always told us that a Crash is bad. Even politicians and a large part of the media send out a lot of negative signals every time there is a crash. The reality is very different though.
A crash is a major economic blessing for billions of people. I’m sure many people will not believe and accept what I am saying – but that is how it always is. In the beginning most people oppose a new idea, because they are uncomfortable with change. Especially if the change is totally against what they have learnt over their lifetime. For instance 600 years ago, if someone had told me that the earth is not flat, I would be shocked and would definitely oppose the idea. But today we very willingly accept that the earth is not flat.
I remember how even people in my own family didn’t believe me around two years ago, when I told them how I believed real estate prices could easily crash by 50%. I even shared this idea with all of you in Invest The Happionaire Way. Today almost everybody agrees with that. In fact compared to peak prices of 2008, real estate can correct by as much as 70% in the coming years and even after that correction a lot of properties will be lying vacant as there is a huge oversupply – not just in India, but all over the world.
But once again a 70% crash is real estate prices is excellent – not just for home buyers and businesses, but also for the entire economy. Even though builders and brokers will not agree with what I am saying, a crash in real estate prices is excellent for them too. Unfortunately most builders and real estate brokers are members of the old economy and these businesses are mainly family run. Their mind is closed to new ideas and new ways of doing things and they might take some time in understanding this concept. But I am sure that will change soon and they too will benefit from this changed outlook. In fact they will create much more wealth too and be able to tap a large market.
Let us see how a property crash is good for the larger economy. Let us say earlier a property you wanted to buy was being quoted for Rs. 1 crore. Now most probably in order to buy that property you wouldn’t just have to wipe out your entire life’s savings but also take additional loans. Those loans would have made you work like a slave for the next twenty years of your life. In several cases both husband and wife have to work out of compulsion as they have to pay expensive EMIs to bank. People would become slaves of the “EMI Raj.”
The impact of such high property prices on the economy is that a lot of people’s savings get sucked into unproductive assets like real estate. A very small minority of builders got a lot of money - instead of this money being used for more productive purposes. In real estate more labourers get measly salaries and the profit margins are extremely high. Today cost of construction per square foot is only around Rs. 600. Based on this a 1000 sq. ft. apartment should cost not more than Rs. 6 lakhs to construct. Just imagine a flat that cost barely 6 lakhs to construct is being sold for Rs. 1 crore. A few might argue – that we need to consider land costs.
But land cost is artificially inflated across the country – India has an abundance of land all across. Just move out of the major cities and you will realize what I am saying – thousands of acres of vacant land.
Now imagine if that same property is available for Rs. 20 lakhs – which is the fare value for such a property. Now there is an additional Rs. 80 lakhs available in the economy for more productive uses. This Rs. 80 lakhs can be invested and can also boost consumption. Roads, factories and new service industries can boom if each family uses this Rs. 80 lakhs more productively. Electricity, roads, water, health care and education will get a huge boost from this money.
No amount of interest reduction or artificial stimulus package can have the same effect of this. What I am saying here is not something a lot of politicians and policy makers would like to hear – simply because there is a very big builder, politician nexus. They would rather want to reduce interest rates so that people become slaves of the “EMI Raj.” But fortunately most people have realized the risks of taking loans and how miserable life becomes.
When prices of property go down, automatically the ‘black cash’ element would disappear. People would feel comfortable to pay Rs. 20 lakhs in white by simply signing a cheque. This also helps the country, because we all know that black money is used for several illegal activities and is also used for funding terrorists. No honest citizen would want to fund terrorist activities.
Ask yourself honestly – what is one thing that sucks out most of your money and you will understand better why a real estate crash will be one of the best things to happen for the economy.
A crash is property prices would mean a lot more cash for more productive activities in the economy and the end of an era when people need to take loans and become slaves of EMI to buy homes. Today a place like Dubai has sunk billions of dollars into unproductive real estate and is on the verge of collapse – had this money been used better the economy would be much better today.
What I am saying here is just the tip of the iceberg and there is a lot more to a crash that is excellent for the economy. I have discussed more on this in Happionaire’s Cash The Crash and also told why such a happening is good for builders and people working in the real estate industry too. The real estate crash has not yet happened in India and is still to come and will probably surprise a lot of people.
India has a bright future ahead and millions of new jobs are going to be created. A lot of new capital also is going to be used productively thanks to this global economic crash. I’ll once again stress that this is one of the best opportunities in history to create immense wealth for all those who are armed with knowledge and have a little bit of patience.
One of the best things that can happen to our economy is if more people are informed and made financially literate. Right from children to corporate heads to politicians. As a fellow Happionaire, if you have liked what you have read here please feel free to share it with all your friends, family, boss, employees, loved ones and even your local politicians.
I hope you have a very Happy Holi filled with colours, smiles, love, safety and happiness!
Keep smiling and being a Happionaire!