Lemon & Ice

Rising rates are beginning to pinch

Inflation in India has been hovering around 5.5% to 6% mark for a couple of years and it's been giving Mr Y.V. Reddy (RBI Governor) some very sleepless nights. While we have been crowing about our amazing 9.5% GDP growth rate in recent months, the flip side has been rising inflation, which can become chronic if not attacked vigorously. Mr Reddy has been raising interest rates steadily over the last year and half, and now they have reached levels that are beginning to hurt the common man. The RBI is pursuing a medium term inflationary target of 4% to 4.5% and a sustainable GDP growth rate of 7% to 7.5%.Somehow, this reality has not registered with investors and corporates alike who still religiously believe we will continue to grow at 8.5-10% for the next few decades. Let me share a sampling of borrowing rates in India to drive home my point.

When I arrived here last year, I looked at financing options for buying a home and a car. I found that the rates were a bit rich at 8.5% for a home loan and 10.5% for a car. Since then, rates have gone up by almost 25%-30%! The cost of home loans in India has shot up from a low of 7.5% in Sep 2004 to 11.5%-12% now (on 20 year loans). Car loans now cost 15% (for 5 year loans).

Delhi expat Blogger on Lemon & Ice

Lemon & Ice recently completed it's first year of existence. During this time, I have used this blog as a sounding board to express the highs and lows of my life in Mumbai. The feedback from the readers have been very encouraging and the blog's traffic has been rising primarily through word of mouth. I also noticed that the most popular posts have been those pertaining to my experiences in 'Moving to India'.Many of you have written to me with queries about kid's schooling, healthcare, as well as moving to cities like Delhi and Bangalore. As a single person, I am not qualified to answer family related queries. Hence, I have been decided to add a co-blogger who can add a family perspective on moving to a major city in India.Her name is Geet and she has recently re-located from Australia with her family. Geet and I are high school friends and we have stayed in touch over the years, often exchanging notes on how our lives had changed since our carefree teenage years. According to her, mine hasn't changed much as I am mentally stuck at 19! Geet has evolved from high-school rebel to an accomplished home-maker, wife and mother. I must admit she has done a far better job in adapting to Gurgaon than I have done with my move to Mumbai. I feel she can add a lot of value to this blog by sharing her thoughts here. After some persuasion, Geet agreed to join me as a co-blogger and she will start posting here soon.

Moving to India: Long Term Pay-Off vs. Current Reality

'As much as I can psyche myself into relocating after reading progress reports in the popular press, every monthly trip is consistently a buzz-killer when I'm physically there'. Writes Jay Gupta, a Lemon & Ice reader, who is seriously contemplating a move to India from the US to start a new venture. His position perfectly describes the dilemma faced by many overseas Indians seduced by the tantalizing opportunities in India's growth story. Today, a senior level posting in India is a 'no-brainer' for any aspiring corporate chieftain (especially those of Indian origin). The salaries in India at senior levels are just as good, the opportunity to spend time with family is a great sweetener and the chance to be in a position of influence in an emerging super-power (and one's homeland), all add up to an irresistible package. During exploratory trips to India, many expats stay in five star hotels where it's impossible to develop a sense of daily life in India as a resident. Besides, the perpetual self-congratulatory prose adopted by the Indian media can be quite misleading. When I moved here initially, I was staying at a five stat hotel in Mumbai and partying every night like a rock star. I'd wake up happily hung-over after a night of revelry and the first channel I'd hit on TV was CNBC. The anchorman was a sunny young fellow with a perpetually upbeat tone on the economy. He's what I would call a 'bull market broadcaster'. According to CNBC, every new days heralded a day of new milestones and possibilities that brought India closer to super-powerdom.

Is India's Property Market in Trouble?

The Finance Ministry and the RBI (India's Central Bank) have been on a war path against inflation here, with specific focus on the real estate market. Interest rates have shot up by over 25% in the last one year. Home loans now cost an average of 11%-11.5% on 20 year mortgages, up from 7.5% a couple of years ago. Car loans are at 15% and the auto sector is crying for mercy as vehicle sales are at their lowest in the last 12 months. Till just a few weeks ago, the real estate market was headed north with a teflon like quality. It continued to shrug off the impact of rising rates, even as genuine buyers continues to shake their heads in disbelief. Just two weeks ago, I sold off an apartment I owned in Pune as soon as I received delivery from the builder. I managed the sale without lifting a finger to look for a buyer. However, when I put my second investment in a pre-construction apartment in Pune up for sale last week, there were no buyers at all. All the brokers tell me the local real estate market seems to have suddenly rolled over and died overnight!

All the bids seem to have disappeared overnight. Welcome to real estate investing in India!

Moving to India: Reflections on my first year

I just finished my first year back in the motherland. Looking back, it feels like I have been back forever now. In fact, it feels I have been here so long that I may be ready to leave already! Just kidding!! It's too premature to take any firm conclusion about living here for good. I am still discovering India in bits and pieces by traveling to new locations on my free weekends.

My advice to anyone moving to India from the first world is to try and move to Singapore or Hong Kong on a Pan-Asia role first. Moving to India full time is a big transition and you may be under-estimating your tolerance for ambiguity and inefficiency if you have been away for a while. Singapore and HK are both a few hours away from India and you will have the opportunity to be close to the family and India geographically. If you have already made up your mind to move to India, try and avoid Mumbai if you can. Mumbai is the worst big city in India to live in. It's filthy, smelly, over-crowded and over-priced. In my book, Mumbai has a huge 'sell' rating! Delhi is better but you may find the locals a bit provincial unless you are a hard core North Indian.

I have found the best quality of life in India is in the smaller towns like Cochin and Jamshedpur, not in the big cities. The big cities are bursting at the seams and the infrastructure is just not able to cope up with the relentless expansion and population growth. There are millions of poor people in Mumbai who literally eat, sleep and live on pavements all over the city. As the big cities get saturated, high growth sectors like the IT and BPO sectors are migrating to smaller towns, triggering localized real estate bubbles in their wake. It's only a matter of time before the infrastructure in many small towns gets over-burdened as the government is not investing enough in power, water and transport sectors.

No matter where you go, I believe that the quality of life in India (from an infrastructure perspective) is going to get worse before it gets better.

My two pence on moving to India: Invest aggressively in India, but live elsewhere for the next decade. You should move here only if you are going to have an incredible opportunity to grow personally or career wise. Many Indians are returning home due to loneliness, isolation and other emotional reasons, which are all important but could potentially be mitigated by a few months sabbatical in the homeland.

Doing Business in India: Dealing with the inertia of the legal system

In my years as a deal maker, I have developed some simple rules in business that have served me well no matter which part of the world I am conducting my business:

1. Do business with people who have a reputation of honoring their commitments.

2. Don't skimp on a good lawyer.

3. There is no permanent arbitrage, i.e. there is no sustainable unfair advantage that you can bank on in a business relationship, even if you have a contract that says you have the right to do so.

Finally, pick business partners you like and trust so can resolve your disagreements without legal recourse. However, we are all human and susceptible to making errors in judgment and that's where a good contract comes in handy. However, the legal system can protect your rights only if it works like it's supposed to. This is a fact that is often lost on the majority of western investors who are piling into emerging market assets these days. While the citizens of developed economies have grown to expect fair and speedy justice as a basic right, they err in extending that assumption to emerging economies. India inherited a legal framework based on British common law so it's largely predictable. However, we cannot say the same about it's reliability. Legal cases in India can easily get stuck for more than a decade! Indian civil lawyers are cheap and even the common man can afford to appeal for justice here. The flip side of this commendable aspect of our democracy is that we have become a notoriously litigious society.

Moving to India: Cost of Living

'How much will it cost me to live well in Mumbai or Delhi?' This was the question I posed to many of my friends in India prior to my move. Since the definition of 'living well' varies from person to person, the range of numbers I received was fairly wide. My dear old mother who lives in Jamshedpur was not of much help either as she's still living in the seventies as far as the price index is concerned. Just ask the local vegetable grocer who has to haggle with her to recover his cost price. If you are a native of India returning home after a while, you are going to face some sticker shock till you convert back into your home currency for reference. Here's a quick primer to help you with your budgeting:

1. Cost of Real Estate: This is likely to be the biggest cost factor in your cost of living in India. I will cite price points for the two cities I am familiar with-Mumbai and Delhi/Gurgaon.

Mumbai is one of the most over-priced cities in the world in terms of value for money. South Mumbai real estate costs about $500-$700 per sq ft in a high rise condo building and about $250-$300 per sq ft in crappy buildings that would qualify as a ghettos anywhere else. When you think ghetto quality, keep in mind that even the good quality condo buildings in South Mumbai are so bad that you would find dirty staircases, crumbling exteriors, leaky windows (rainwater floods in) and poor plumbing when you pay $500 per sq ft. Prices in upcoming areas like Parel and Bandra are about $250-$300 for new construction which is superior to anything you will find in South Mumbai. However, living in a Parel condo building is like living in an oasis in the middle of a giant smelly slum. Also, the streets in Bandra and Parel get flooded with knee deep water paralysing traffic in the area during the monsoons. It becomes a nightmare to enter or leave home. Bandra prices are somewhere between Parel and South Mumbai and the location is popular with yuppies due to its nightlife and shopping choices. However, it takes more than an hour to enter and exit Bandra due to horrendous traffic conditions on the main artery linking Bandra to the rest of Mumbai. The rental yield in Mumbai is about 5-6% and landlords here try to push up rents in tandem with rising prices. Mumbai landlords insist on a 12 month advance rent and a large security deposit unless the renter has a large well known corporation's name on the lease. As a rule of thumb, expect to pay Rs 100,000 per month for a 2 BR apartment (about 1000 sq ft) and Rs 150,000 per month for a 3 BR apartment. If you choose to buy instead on renting, expect your monthly loan repayment to be about 2 X your rent in Mumbai and about 3 X the rent in Delhi/Gurgaon. The cost of home loans in India is fairly high at the current rate of 10.5%. The rule of the thumb to calculate your monthly loan installment would be Rs 1000 ($22) for every Rs 100k ($2200) you borrow, on a 20 year loan. If you choose to finance a $500k house with a 10% deposit, expect to pay about Rs 200k ($4350) per month.

2. Cost of Domestic Staff: Domestic help is cheap. A full time maid in Mumbai who cooks and cleans costs about Rs 2500 ($55) a month and a good driver costs around Rs 5k-7k ($110-$155) a month. For Delhi, you can assume approximately 60% of Mumbai salaries, however, I may be slightly off the mark here.

Mumbai Diwali: My Bang is bigger than yours!

I celebrated my first Diwali in India after a long time. I was planning to be home in Jamshedpur with my folks but I busted my knee last week so I was grounded in Mumbai. Luckily, I recovered enough by Diwali to step out into the streets and enjoy the festivities. I drove through Marine Drive where local Mumbaikars had taken their Diwali celebrations to the streets. The entire length of Marine Drive had turned into a street party with fireworks going off everywhere amidst loud bangs and explosions. The skyline was lit with spectacular fireworks funded with millions of hoarded rupees normally lying hidden under the mattress in rich Mumbai homes. Diwali is a competitive celebration amongst the rich in Mumbai where the message to the joneses is clearly 'My bang is bigger than yours'!

Moving to India: Things to consider

Many overseas Indians are considering a move back to the homeland at this time. While the professional reasons appear attractive, the desire to return home can be compelling. For me, a key driver to re-locate to India was my India focused venture, which requires me to be here. Also, I was responding to an urge to re-connect with the motherland, friends and family.

Whatever be your reasons for packing your bags and heading to India, I hope you find the following advice useful:

1. When to move: If you plan to move here and then find your home, avoid the monsoon season at any cost if you are looking to move to Mumbai, Kolkata, Hyderabad or any other city city that experiences heavy rainfall. The drainage systems in most major Indian cities are woefully inadequate and the streets get heavily flooded after heavy rains. Your house hunt will easily get delayed by a couple of months, especially in Mumbai.

2. What to move: Your relatives in India will tell you that you get 'everything' here in India. They are right. You will be able to replace everything you owned in your home overseas, however, you should be prepared for living with lower quality stuff. I am not much of a domestic person and shopping is one of my least favorite activities. However, I like to cook and prefer high quality kitchenware and fine china, both of which are highly scarce commodities here. In general, you are well advised to re-locate your kitchen, linen, children's toys at the very least. If you like antique furniture, then dump your old couch before you come. There are plenty of lovely antiques to be found here in the chor bazaars.

3. Where to move: I can only comment for New Delhi and Mumbai.

Moving to India- The thrill is gone

I wanted to write this post in September to coincide with the date I completed my six month anniversary in India. However, I was in an exceptionally dark mood at the time and deemed it unwise to put my vitriolic thoughts into the written word. My giddy romance with India ended like a deflating balloon as I began to encounter the 'hidden inertia' of daily life in India. In a previous post, I wrote that it's essential to create BUFUs (Back up for F***k up) while operating in India. Unfortunately, I did not choose to practice what I preached before I moved into my rental apartment, otherwise I would have gone over every aspect of the property in great detail before signing the lease.

In the last  month and a half, I have experienced a seemingly endless series of 'mishaps' with the infrastructure in my house (plumbing, electricals, appliances, water leaks). I feel like I have bought the proverbial used car that falls apart soon after you pull out of the used car lot! Things had gotten so bad at a point that I had taken to referring my apartment as 'Ground Zero' in a fit of dark humor. I have managed to fix most of the problems in my apartment over the last month but it's been a painful experience as the repairmen in India are typically under skilled and underpaid and can often mess up more than they can fix. This was the case with my plumber who is now AWOL with the hot water boiler!! Yes, it is funny now that I write about it. If I wasn't the affected party, I would be laughing too. 

Barring the mishaps, life in Mumbai hasn't been too exciting. I feel very much the outsider who really doesn't want to be an insider either. I find it hard to identify with the folks I bump into at parties here, with the exception of old college and high school friends. This is highly unusual for me since I usually befriend people quite easily no matter which part of the world I am. There have been obvious changes in society here, yet they are not so deep that I should feel so alienated. I am slowly realizing that I have changed much more so than my homeland and now I find it hard to fit back in.

I am now in the second stage of cultural adjustment in India. The first being a euphoric stage where I found everything to be exotic and heartwarming. Now, I tend to pay more attention to the aspects of life that don't live up to my pre-set expectations. The final stage will be mixed bag of adjusted expectations, depending on how empty or full I see my glass.

In my next post, I will be sharing the lessons I have learnt about moving to India and how I could have it planned it better.