Assured Returns on Property - Myths Busted

As the customers have become wary in the recent times while buying properties, builders have come up with new ideas to woo customers. Out of many innovative ideas, one is Assured Returns on the property. 

One can easily size up the kind of desperation the builder is in by checking the amount of assured return he is ready to offer on his properties.

The selling point in the Assured Return Scheme is that the returns are higher than the Bank F.D.s. Well that may be true prima fascia, but one needs to specifically understand that the builder is returning back the same money in installments which was paid to him initially by the investor, over a period of time agreed in the buyer/builder agreement.  To service the interest payouts the builder jacks up the price of the new project which might not be necessarily in sync with the current market prices.

It is also quite possible that the builder

RBI Policy April 2014 - Review

The RBI has kept all rates unchanged on 1^st April 2014, as was expected. It has maintained status quo in its first bi-monthly review of monetary policy whereby the reverse repo, repo and the MSF rate continue to remain at 7.00%, 8.00% & 9.00% respectively. However, it reduced liquidity available under overnight repo by 0.25% of NDTL of banks and moved this amount to the 7 and 14 day term repo window.

The central bank’s view going forward is that, it sees moderating inflation and is trying to achieve a target of 8%  CPI by Jan 2015. 

Nevertheless it is also skeptical about upside risks from upcoming monsoons (which can be anybody’s guess), outcome of the national elections and the fiscal policy (new central govt. budget for the remaining year), geo-political events and their impact on the commodity prices.

As already highlighted in my earlier blogs, RBI has very limited firearm with which it can tame the inflation. The onus lies more with the central government which needs to ...

Rates Unchanged - RBI's Dec'13 Policy Review

Well any central bank has the onus of regulating the money supply in the economy keeping a tab on the inflation. But somehow I fail to understand that, how can one tame inflation by inflation? By increasing rates the household budgets are inflated immediately. How can one tame inflation by just increasing the interest rates?

Simply stated, when RBI decides to increase rates, it tries to restrict the money supply in the economy, by making it more expensive to borrow, and thereby anticipating that the inflation will come down in prospect.

But food inflation does not exist due to excessive money supply. People don’t necessarily take loans to buy food articles, THINK! Food inflation occurs primarily due to non-existent infrastructure in the farm-to-fork logistics chain. Food inflation may also be caused due to illegal hoarding, as was seen recently in the case of onions, or due to unruly weather. The RBI can’t fight food inflation by snowballing rates. It has got only policy rates to play around with, and nothing much as a firearm to control inflation.

RBI should not meddle with INR - the new media hoopla !

As suggested earlier in my blogs that the INR should be allowed to float free and it will be best that it finds its own inherent value. Not only country’s CAD has evaporated at the levels which the INR has brushed over the period of last month, but the trade deficit too has significantly diminished.

 

This could only have been possible with the depreciation of the INR, though some would argue that this depreciation would cause inflationary pressures. But these pressures shall be short term which will subside over a longer term. The currency’s depreciation will have miniscule effect on the inflation as a whole.

It has been proved since time immortal that a weak currency always helps in the exports, whatever little may it be. It eventually adds up to the growth of a nation.

RBI - Raghuram Rajan's new joke !

The Finance Ministry recently announced that it will provide banks with additional liquidity so as to finance cheap loans for automobiles & consumer goods this festive season; to help the middle class population of our country. Though announced by the Fin-Min, but what is amusing and surprising is that this was done after taking a nod from the RBI governor. Ahem!

The RBI governor who in his previous review of the monetary policy said that it is imperative for the RBI to target and fight inflation first and then look for recovery and growth in the economy had hence increased repo rate by 25bps. This was seen as a move to reduce and contain inflation, which is still at a level more than the reserve banks comfort level. And then soon Fin-Min announces a release of liquidity into the system by providing cheap loans.

Even a naïve will know