Thus Spake Rajan: Quotable Quotes Of Outgoing RBI Governor On Housing

Outgoing Reserve Bank of India (RBI) governor Raghuram Rajan's interesting quotes on real estate can be a great guiding light for the Indian economy in general and the real estate sector in particular. A former International Monetary Fund (IMF) economist, Raghuram Rajan had famously predicted the 2008 financial crisis. Rajan has a huge fan following: People in the world of economics were floored by Raghuram Rajan's ideas, and others by his speech, grace and style.

In fact, Raghuram Rajan brought some charm and panache to an office that was traditionally known for having only serious faces. No wonder, the media dubbed him as 'Rockstar Rajan' and the 'James Bond' of the financial world.

A day after the 53-year-old completed his term as the RBI governor on September 4, having decided to resume teaching at the University of Chicago, PropGuide recalls some of Raghuram Rajan's quotes on real estate over the years.

2007

Central bankers know that the line between illiquidity and insolvency is an extremely fuzzy one, made more so with the developments in the financial markets. Take, for instance, a mortgage loan made against a house. If the housing market is liquid, loans are easier to come by. The reason is obvious. One of the biggest costs to a lender is that if the borrower defaults, the house has to be repossessed and resold with substantial costs. If, however, houses are selling like hot cakes, the cost of repossession and resale is likely to be small. Housing loans will appear low-risk, the risk premium lenders will charge will be small and housing credit will be plentiful. In turn, this will increase the volume of house sales, thereby increasing liquidity in housing markets. Liquidity, thus, tends to be self-fulfilling.

2011

Democracy tends to institutionalise moral hazard in sectors that are economically or politically important, such as finance or real estate, allowing them to privatise gains and socialise losses.

2015

I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don't want to create a situation where prices stay high at the level which means demand can't pick up. 

2016

I am hopeful that as interest rates come down, there will be more credit and buying. I am also hopeful that prices will adjust in a way that will encourage people to buy... We need action on real side (as) also on transparency, on land acquisition, construction and sales.

A banker who lends with the intent of never experiencing a default is probably over-conservative and will lend to too few projects, thus hurting growth. But sensible lending means a careful assessment of project prospects.