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In Denial of Depression

The realty sector still hasn’t accepted that there is a depression, at least not in public, writes Dhirendra Kumar

Denial, Anger, Bargaining, Depression, and Acceptance. Forty years ago, psychologist Elisabeth Kübler-Ross first wrote about these five stages of grief in her book 'On Death and Dying'. The book described how people dealt with the impending death of someone close to them. Over the years, Kübler-Ross' five stages have seen to be applicable to many milder calamities that befall people. Many have noticed that these five emotional stages are a particularly good fit to how investors react to investment losses, as well as to other financial calamities.

Equity investors in India have mostly gone through the entire process, but the real estate sector seems stuck at various stages short of acceptance. How exactly do investors pass through the various stages of grief? Here's how equity investors' emotions have evolved over the past year.

Denial: It's just a correction. All bull markets have corrections—this will be over in no time.

Anger: The bear cartels are rigging the markets. Why don't the stock exchange authorities do something about it? Why doesn't SEBI ban short-selling? It's a conspiracy!

Bargaining: If I just get back my investment I promise never to speculate again. Promise! I'll even shave off my head if the Sensex gets back to just 18,000.

Depression: It's no use. My money is gone forever. I'll never get rich in stocks. Whenever I look at the broker's statement I can feel a pain in my chest.

Acceptance: OK, what's done is done. Now let's sell the duds at whatever loss and then work on a sensible savings plan.

For some reason, the real estate sector—individual investors as well as real estate companies—is having a lot of trouble in reaching the last stage. Here's what's been going on:

Denial: Realty prices haven't fallen. It's just that there are no transactions. Anyway, realty prices can't fall because no new land is being made.

Anger: Home loans are too expensive—that's the problem. Why are rates so high? What's wrong with a little inflation?

Bargaining: If the government doesn't do anything to help the real estate sector soon, then crores of jobs could be lost. The government should buy unsold flats and distribute them to the poor.

That's all. There's no depression, and there's no acceptance, at least not in public. Actually, in the last few days, there has perhaps been the beginning of acceptance. DLF has become the first real estate company to openly say that prices will have to come down. Along with the announcement of the company's disastrous quarterly results, senior executives of the company have said that prices will have come down. This acceptance should trigger similar statements from smaller companies. After all, now that the big boy has confessed to problems, the smaller ones won't be able to keep denying the reality.

However, despite the new vocabulary of products and discounts, real estate is not quite a productised and branded space. A developer can stick a high MRP label on an apartment and then write 20% Off! next to it. But at the end of the day, no pricing level has any legitimacy unless underwritten by good volumes of actual transactions.

Whether prices have fallen enough or not won't be decided by the developers writing press releases but by buyers (and their lenders) writing cheques. And that hasn't quite started happening yet.