PLASTINO D’COSTA An economic bubble usually occurs when an asset’s price soars past its intrinsic value, driven primarily by speculation rather than fundamentals. Elevated prices might remain high for long periods, but eventually these prices, because they are detached from reality, inevitably correct when reality sets in, leading to a rapid price con traction or in capital markets lingo, the ‘bursting of the bubble’. Goa has been going through a real estate upsurge in recent times and while prices might have hit a plateau in some areas and price correction has set in other locations, the bubble has by and large been kept from bursting through artificial means. Free markets usually do not tolerate asset bubbles for too long, but India does not operate as freely as we are given to understand.
Free markets usually do not tolerate asset bubbles for too long, but India does not operate as freely as we are given to understand. Biggest problem Goa faces is that politicians, either directly or indirectly through their proxies hold a lot of real estate in their portfolio. They also have the advantage of front running where by they pick large tracts of land for a song, before government officially an nounces a major development project in the same vicinity. Changing zones is another ploy they use to make a quick buck. With so much at stake, politi cians will do everything in their pow er to keep the real estate bubble from bursting; therefore, expecting changes in laws to bring sanity to the real estate market is too much to ask.
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There are two types of groups tar geting Goa’s real estate. The first group consists of those who really want to escape the ‘hellhole’ they are presently residing in other parts of our country. When on vacation in Goa, they come in contact with our contented way of life, comparatively better infrastruc ture and active communities which reminds them of the developed world and in no time, they decide to move their base. Since there are absolutely no conditions laid down by the govern ment, buying real estate seems a cake walk—just sign the cheque and move in. After all, one property sale in their ‘hellhole’ home markets buys bigger spaces in Goa.
The second group targeting Goa’s real estate consists of corporate raid ers who slowly invade into set com munities, making space politely at first while keeping the local politician in good humour, their eventual goal remains to elbow out the local popu lation from their own common spac es, and make those areas exclusive for their guests. The local population is usually taken care of by sponsoring their events while the cash registers keep ringing throughout the year. Also a free pass is provided to the local pol itician to come and use the property anytime and entertain his gang, with the tab usually picked up by the hotel. This arrangement is similar to how the underworld would operate by de manding protection money so that the business runs without any hindrance. Can any starred hotel put their hand up and say they have never entertained any politician for free? In both scenarios above, one out come is certain: there will be no place left for Goans in Goa if there are no drastic measures are not taken by the government at the earliest.
Either the retail Indian in their individual capac ity or the corporate sector, through its huge financial backing will corner most properties. Once they reach the threshold limit, they will change the Goan way of life and that would be the eventual death knell for Goa. If for some reason the real estate bubble is kept from bursting until this time, then it is definitely bursting with or with out government intervention once the Goan way of life is replaced. So here is the solution that should subdue individual speculators from jacking up Goa’s real estate. The gov ernment should pass laws that impose a 50 year lock-in period on real estate transactions, meaning any new prop erty purchased cannot be sold or trans ferred to a new owner for a minimum of fifty years. This will only attract genuinely interested buyers who real ly believe in the long term Goa story. Sorry to say but even some Indian so called celebrities have behaved more like punters and less like long term in vestors using Goa to buy and sell real estate easily and pocket the difference.
The government has also made it its business to collect taxes, the more properties change hands the more revenue they collect. The government will have to bite the bullet and create genuine barriers in real estate trading so as to rein in on speculation or else Goa will become more like a tradable commodity and less like our home. The corporate sector apparently ad vised professionally should know bet ter if real estate in Goa has entered into a bubble territory. A little downturn in business and they make a beeline to lobby with the government, which only shows that they are not sure of their revenue stream. If revenues are going to be so precariously poised, then why is so much private tourism capacity being added? A 50 year lock in period will force businesses to go to the drawing board and work out a long term plan rather than behave like a fly by night operator. That will also allow Goa’s infrastructure to keep pace with growth in the sector. A big price boom in a short span of time will definitely create a bubble and the biggest losers will be Goans who are forced to pur chase properties at exorbitant prices, only to find out the value has dropped during the downturn.
If the opposition wants to win elec tions please include this in your man ifesto, if not then we know that your intentions are not to disturb the status quo. The central government has taken action through extreme taxation basi cally killing the crypto market; it has also reigned in on gambling sites and banned them overnight. Both decisions were taken to protect Indians from get ting sucked into something which the government knew would not end well. A 50 year lock-in on Goa’s real estate purchase might just save us from a bad ending. (The author is a Business Consultant
