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From then on, it went into a tailspin and reached the low level of 5,000 units for the period of January, February, and March of 2009. This works out to an average of 11 units per day per city.

It has since picked up — mostly in Mumbai — to an estimated 9,000 units for the 3-month period of July, August, and September 2009.

This works out to an average of 20 units per day per city.

The point is, there was a small growth in homes purchased — so there was no significant growth in loans given to individuals for purchasing real estate.

But there was a huge (52%) increase in loans shown to real estate developers — loans given to keep the real estate companies afloat.

Given that foreign banks were asked to send money back home and not to lend in India, much of this increase in “loans to real estate” was probably made by the Indian banks.
And given that ICICI Bank (the largest) and many other Indian private sector banks were being careful and re-assessing the risks they had taken in many previous loans, the chunk of the “loans to real estate” must be from the PSU banks.

So, there it is:
You wish to buy real estate but are waiting for it to decline to a price that you can afford to pay.

Stock prices jump around too much so, correctly, you don’t wish to put your idle money in stock markets because you may need the money at anytime to buy real estate. Your bank deposit is with the PSU bank.

The banks have used your money to give it as a loan to real estate developers. Their act of giving the loan to real estate developers gives them badly needed cash. The real estate developers no longer need to sell their real estate to get “cash flow” to stay alive. They got the money from the banks.

Now, the real estate developers can charge you a higher price for real estate. The loans to real estate developers were about Rs 32,321 crore.

These Rs 32,321 crore was — from a cash flow perspective — the equivalent of selling 1,61,605 homes of 1,000 sq ft each.

So, some 1,61,605 homes that would otherwise have to be sold by the real estate developers to generate cash flow for the developers (to match the loans they got from the banks) have not come to the market to be sold.

Instead, an estimated 34,000 homes were sold for the 12 months ending May 2009. And property prices had fallen by 20-30%.

What would happen to real estate prices if banks had NOT given these loans (from your deposit money) and if 1,61,605 homes had to be sold in the year ending May 2009?

The 1,61,605 homes that did not come to the market are 4.8 times the homes that were sold in the 5 cities in that same time period.

You saw what happened when foreign investors sold Rs 70,000 crore of stocks?

The Sensex collapsed from 20,500 to a level of 8,000. A decline of 69%.

But real estate developers have a friendly banker. That is why property prices have fallen “only” by 20% and are now heading up again!

So, why this sudden friendship? Well, we had a national election coming up. Politicians possibly need money to fight elections. Though this may be a coincidence.

And then many politicians — across political parties — possibly have someone they know from their family in the real estate business.

And they needed to rescue them.

The foreign banks stepped out, the Indian banks stepped in. The governments control the PSU banks. A suggestion, a nudge, a wink, or a phone call is all it takes.

And a little bit of your money. Just a little bit.

The Rs 32,331 crore of extra money that went to the real estate developers is only 1% of the total bank deposits in the country.

What’s a little 1% between friends?

But it is sufficient to ensure that real estate prices may not fall to levels that are affordable for you.

For the aam aadmi that every finance minister and every government and every politician is so worried about.

Mahatma Gandhi walked to the sea and made his own salt. The politicians were all there to pay homage to the great soul on October 2. Dressed in their white khadi and solemn faces. Like the Mahatma, you can protest, too.

Walk up to your neighbourhood bank branch manager and ask him, “How much of my bank deposit in your bank is going to fund real estate developers who then keep prices so high that I cannot afford to buy real estate?”

Maybe, you wish to give your deposit to a bank that only gives real estate loans to individuals who buy homes or offices or shops?

You can deal with banks that refuse to give money to real estate developers.

This small act will force the real estate developers to sell those 1,61,605 homes that they would need to sell to pay back the loans from your bank deposits. And then you can buy your real estate at a more “real” price.

Finance remains a very corrupt business, in my humble opinion. As does real estate.
So, where does that leave the financing of real estate in the ranking tables of corrupt businesses?

I wonder, I really do.

The writer is a director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company. Views are personal