Archive for December 24th, 2007

What do you prefer- malls or homes?

December 24, 2007

Navi Mumbai(earlier known as New Bombay) was built to ease the population pressures in Mumbai. Navi Mumbai took time to pick-up but is now a 1.6 million city. While building Navi Mumbai, an effort was made to do some planning before the construction (I am told it is the second planned town in India after Chandigarh, it is funny  how we built towns in the country without any planning).

Within Navi Mumbai, Vashi has emerged as a major township and most people living in Navi Mumbai flock to Vashi over the weekends. The township was quite pleasant till a while back but it seems planning has been sent for a toss now.

Mumbai has developed around its local train network and as a result maximum crowding is around the stations. Also, you would find the local market, bus stand, residential apartments etc all around the railway station. The local train is the best way to commute in Mumbai and all this means stations are always crowded and messy.

So, in Navi Mumbai an effort was made to have minimal construction around the stations. A lot of open space was preserved around the railway stations in an effort to keep the stations efficient. The concept was pretty revolutionary to begin with and the railway stations became a hit. People came from Mumbai to see the stations and quite a few movies were shot around the area.

It was also planned to make Vashi’s railway station an information technology hub. There are a few companies housed there but I am told the concept did not take-off as expected.

However, the area around the station is seeing huge activity these days. There are a number of shopping malls being set up. At present there are 2 malls around the station (one is not fully functional) and about 4 more are coming up. Inside the township, there are 2 malls and couple of more coming up.

I keep wondering do we need these malls? That too at a time when housing prices in Mumbai and Navi Mumbai are zooming through the roof. (Economist even says don’t buy any property in Mumbai). The analysts often quip that it is a demand-supply issue and as demand is continued to be more in Mumbai, the prices continue to rise. But how would supply problems be eased if already scarce land is given for shopping malls. (Again, I do not say malls are not needed. They are needed as they provide huge benefits to consumers, but there has to be a balance)

Another problem is the nature of housing market in Navi Mumbai (In Mumbai it is slightly better because of some reputed builders). It is just too opaque and information asymmetry is at its highest. The transcation costs are extremely high and one is continuously scared about the quality of the product (the house that is).

There is an urgent need to regulate the housing markets especially in metros. There is a feeling that housing prices are artificially jacked up in these town as no one knows the correct price. Finding a decent place to live in Mumbai is a real nightmare. Most have no options but go through it, pay the brokers through their nose as it seems there is always a shortage of homes.

Mumbai has always been famous for its shortage of space and as a result the homes you find here are much smaller than available elsewhere for a similar price. However, now even finding those small homes is becoming a problem. As migration continues (every aspiring model, actor, finance professional etc wants to come to the city), the problem is only getting bigger.

The house is a basic need and when you add the infrastructure problems, the problem is extremely complex. The day there is a problem in the local trains and if it is a working day, only a miracle can help you reach home (for which you have already paid a fortune) at the right time.  Hats off to the management of local trains who work day in day out trying to minimise the problems, but the problems are quite common.

Lot needs to be done, before attempting to make Mumbai an IFC. It is too far fetched an idea.

Bill Poole defends Fed move

December 24, 2007

William Poole (President St Louis Fed) defends the Fed’s moves to cut rates in his speech. The speech is quite dated (30th Nov., 2007) but is a good read.

His basic idea is similar to many in the Fed who believe that it is Fed’s responsibility is also to ensure that the economy doesn’t slip into a recession and the rate cuts were precisely for the same reason. The economy cannot be left stranded because of few wrong decisions.

All these points are well taken. But the way Fed handled the crisis is a complete no-no. It just waited for too long for the crisis to take shape and intervened when most FOMC members said they would not. This subprime crisis is a lesson for central bankers.

It is important they take on the role of financial supervisors asap. They do follow developments in financial markets which has not been enough. There is a need to expand the role of Central Banks.

Assorted Links

December 24, 2007

1. Ajay Shah has done a good analysis of equity markets using IFCI issue. He also points to importance of weather derivatives.

2. WSJ Blog points to an interesting discussion on housing. It also points to an economist’s view saying US economy to face stagflation lite situation. Read this poetry on CDOs as well.

3. Time for Mankiw’s advice on recession. He points to this interesting analysis showing incumbent party’s voting share increases if the economy is doing well.

4. PSD Blog points to a paer showing creative destruction working in banking sector.

5. EPSA Blog reflects on salt workers in Gujarat.

6. Econbrowser points to 4 reasons why recession may be averted.


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