From a sleepy fishing village, Dubai has grown to be a large metropolis comparable to any western capital city
In the next few days, the Bureau International des Expositions, is holding its 154th General Assembly meet in Paris to vote to select the city that will be given the honour to host Expo 2020. In the 153rd meeting, which was also held in Paris, some six months ago in June, it had accepted the candidacy of Dubai (UAE), Izmir (Turkey), Sao Paulo (Brazil) and Yekaterinburg (Russia), after Thailand had withdrawn its offer to host.
All the candidates mentioned above have their own individual themes that they wish to project and expect the Expo 2020, if it was nominated in their city. This event would invite international interest, whereby millions of visitors would come to see what the Expo 2020 offers.
According to the information available, Izmir, in Turkey, has a lot of international fair experience and hopes to attract about 30 million visitors. They expect that their theme: "new routes to a better world: health for all" will attract visitors to Izmir, which is said to be the birthplace of western medicine. It is also where Hippocrates and Galen of Pergamon have lived and studied. Izmir's Expo2020 plan covers some 400 hectares to house health campuses, universities, research centres, new hospitals and rehabilitation centres. They hope to create a world health hub in Izmir.
In the case of Sao Paulo, Brazil, which has a multi-racial cultural background, the city is already the host to FIFA World Cup scheduled for 2014 and the Summer Olympics in 2016. They have ear marked 502 hectares for Expo 2020 and their theme is: "power of diversity: harmony for growth". In order to be able to conduct the above two great international events, work is already in full swing and Sao Paulo expects no hurdles in being able to do well if they have the opportunity to host Expo 2020. Though they have not indicated the number of visitors they expect to host for this event, it would still be substantial considering the past and immediate future plans for this great city.
It will be the first time for Russia to host Expo 2020, if Yekaterinburg is selected. They expect to attract 12 million visitors to the show. According to the information available, this will be held between 1st May 2014 and 31st October 2014, and it is expected to be the second largest after Expo 2015 in Shanghai, China. They plan to survey world opinion through seven universal questions and the theme: "global mind - how we can imagine the world of tomorow.” To carry this study, they have already embarked on a tour by a group of students to bring connectivity to distant areas and introduce their children to advanced technology and equip schools with internet access.
Set against all these three competitors, Dubai city plans to host Expo 2020 in a grand manner. They plan to cover, naturally, the whole of the Arab world, covering the Middle East, North Africa and southern part of Asia. They expect, apart from many advanced western nations, countries like India, China, Japan, Australia will wholeheartedly support and participate in the Expo 2020 when it is held in Dubai, city of joy!
Their theme is to bring about a platform for connectivity to help, pioneer new partnership for growth and sustainability. In other words, "creating the minds, creating the future."
From a sleepy fishing village, Dubai has grown to be a large metropolis comparable to any western capital city. Its infrastructure is as well built as one can see and enjoy in Europe, America or elsewhere. Well laid out roads, monorail and metro in full operation, public transport at extremely competitive price, medical facility free to residents, but for nominal registration charges, Dubai can boast of being the modern Utopia for most.
In the past traders from other gulf countries came to secure their needs from Dubai and today, this city is the epicentre of business activity for the whole region. With a strong currency, business has always been brisk with a teeming expatriate population from several neighbouring countries such as India, Pakistan, Bangladesh and Sri Lanka. The working population from other countries like Philippines, Indonesia and Thailand have also found a heaven on earth in the hospitable soil of Dubai and the federation of seven emirates of UAE has gone up by leaps and bounds in every endeavour they have undertaken.
Dubai was the first emirate to set up a wonderful Golf course, right in the middle of desert. Its ruler, late Shaikh Rashid paved the way for what Dubai is today; he envisioned the need to build the world's largest man made port so that the largest of oil tankers can easily berth there; his thought and foresight has been carried to this day and Dubai is the only desert city in the world where one can swim in the beach, go for a skiing and return to the cool air-conditioned comfort of a home! Visitors who frequent Dubai for business, have adequate entertainment and amusements available if and when they are accompanied by their family.
Dubai is fully prepared to host Expo 2020 and plans are ready to be launched at a cost of $8.4 billion to build additional infrastructures that would be needed for this purpose. Its newly completed third terminal is awesome in design and efficient handling of thousands of visitors every day. If Dubai is rightly chosen to host this great event, it will facilitate trade and commerce in a very big way as this will bring minds of many nations together in the short space of time of six months and create an everlasting friendly future. Dubai is the fittest of the four candidates.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
The new reforms announced over the summer and at the conclusion of the Third Plenum of the 18th Party Congress are supposed to change all this. But they have a long way to go
Laws are meant to be obeyed. So when politicians, bureaucrats, and even central bankers have a problem they simply publish a law and assume that people will fall in line. This is basically what the Chinese have done for many years with interest rates. But there is something that doesn’t obey laws: markets. Now the Chinese have decided to reform their financial system by publishing a new law. They may be in for some surprises.
China’s financial system is still true to its communist roots. All property belongs to the state. This included all of the money in banks. So the state has the right and duty to decide how that money is used. As a result the government told the state owned banks what to charge borrowers and what to pay depositors.
This system has worked rather well. It is particularly useful after a recession. During the last recession about 12 years ago, the banks had huge amounts of bad debts on their books as high as 25%. These debts were never collected and basically never written off. The losses were made good over the years on the spread between the low interest rates paid depositors and the higher rate charged borrowers. Both of these were set rather low to encourage economic growth. Depositors bore much of the burden. But they had few other investment choices. They could put money in the banks for a meagre return or, if they were more fortunate, invest in real estate.
The consequence of this system was predictable. The low interest rates for borrowers spurred investment mostly in a rising property market, while depositors’ return was insufficient to increase consumption. The Chinese economy became notoriously imbalanced. It relied on export, which has been weak. It also became addicted to cheap credit which made firms especially state owned firms inefficient. So much so that it takes four yuan of debt to create one yuan of growth. The property market rose to bubble territory. Many newly constructed towns do not even have residents.
The new reforms announced over the summer and at the conclusion of the Third Plenum of the 18th Party Congress are supposed to change all this. But they have a long way to go.
In the US the central bank, the US Federal Reserve (Fed), has a number of tools it can use to set interest rates. But there is a major difference between what the Fed does and what the Chinese have done. The Fed uses its tools to manipulate the market. The Chinese have simply told the market what to do.
For example one way the Fed influences interest rates is through open market operations. Once the Fed decides on what it believes to be an appropriate interest rate, they buy US government bonds to increase the money supply to make interest rates fall or sell government bonds to decrease the money supply to make interest rates rise. They also have the power to increase or decrease the reserves that banks hold. If a bank does not have sufficient assets to meet this requirement it can borrow from the Fed at its discount window. The Fed will charge a rate appropriate to help it meet its interest targets.
This does not mean that the Fed always gets its way. Last May when the Fed announced that it was considering the famous ‘taper’ of its bond buying extravaganza known as QE, interest rates on the market shot up. The rate for 10-year US government bonds went from 1.63% on May 2nd to 2.97% almost 3% on September 5th. They have come down some to 2.75%, but nowhere near the previous low which the Fed would undoubtedly prefer. The market gets its way.
Last July, the Chinese central bank, the People’s Bank of China, decided to gradually reform its system. The PBOC said that they would no longer set a ‘floor’ or a minimum interest rate that banks could charge corporate customers. In theory this will increase competition between banks for customers. While this was interesting, what was more important is what the government didn’t do. It did not lift the cap or ceiling on what the banks can charge. It did not change the cap on what banks can pay depositors.
Recently the PBOC made another ‘reform’. It established a ‘prime rate’. It used to set a bench mark rate, but since it had already set caps and floors for borrowers, that rate was essentially meaningless. It has not been changed since last year. In contrast the new prime rate is to be set by the markets. It is to be calculated daily through an official price quotation system and be based on a weighted average of rates from nine domestic commercial banks. The old bench mark was 6%. The new prime rate was initially set at 5.71% for one year loans.
While an official ‘prime rate’ will be welcome, the market has already created SHIBOR. SHIBOR is the rate Chinese banks charge each other. It is sort of a Chinese version of LIBOR. What is interesting about SHIBOR is that it does not show a normal yield curve. Most western banks charge more for longer dated loans. For example the yields for US Bonds with three month and six months maturities are 0.05% and 0.08% respectively. The yields SHIBOR for three and six month terms are 4.71% and 4.22% respectively. In fact the highest yield is for one month at 6.37%, far higher than the one year which has been stable since June at 4.40%
The difference in rates could reflect the uncertainty surrounding the PBOC’s injections of money into the system. The PBOC requires banks to maintain reserves. In the past, if a bank ran short, the PBOC would automatically inject money into the system by buying bonds through repo agreements. However in June, the PBOC did nothing.
Banks were so desperate for money that the overnight loan from one bank to another briefly hit 30%. On Friday November 14th it spiked again opening a full percentage point higher than its close on Thursday. Also, on Friday, the PBOC auctioned off 50-year bonds at 5.31% also over a 100 basis points higher than the last auction. In essence the PBOC is signalling tighter monetary conditions.
So far the reforms have been limited. A reform liberalising of deposit rates will have to wait for the creation of a deposit insurance system to protect depositors in case of a bank failure, a very real possibility for some smaller banks. But like SHIBOR, the market hasn’t waited. Depositors already have a choice. They can put money in the shadow banking system and get much higher rates by purchasing Wealth Management Products or WMPs. It is the source of nearly half of the credit growth this year. The higher rates for investors mean higher rates for borrowers often in double-digit interest rates, even for the highest quality borrowers. To profit from such transactions requires the borrowers to speculate on real estate transactions.
Any reform of this system by liberalising deposit rates could have a disastrous impact. It would lead to surging lending rates. It would impact not only the real estate bubble, but also the entire economy. The end of QE in the US might have a similar effect in China due to the carry trade.
The Chinese government is well aware of these risks. As part of the reform package of the Third Plenum, president Xi Jinping will set up a “national security commission” which will allow him to take direct control of domestic security. He will also tighten control over the internet.
The market originally celebrated the introduction of the reforms. But as they take shape and the market regains control, some of the distortions created by the rules could disappear in a rather violent way. Whether the equity markets will be so optimistic then will be something to seen.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)
Moneylife Foundation held yet another event for its members, where Vinod Sampat addressed queries on the vexing issues concerning Cooperative Housing Societies in Mumbai
With the recent Campa Cola episode, Moneylife Foundation has been receiving huge request from its members to conduct seminars relating to realty issues and issues relating to cooperative housing societies (CHS). After many such successful events in the past Moneylife Foundation conducted another workshop on issues related to CHS. Advocate Vinod Sampat, an expert in CHS matters, in association with Moneylife Foundation, spoke extensively on co-operative housing society issues, member’s rights & remedies available.
“Common issues in any CHS can be resolved by discussion. If this does not solve the issue, the complainant may have to raise it to appropriate authorities, like municipal corporation, deputy registrar for cooperatives, consumer court and police,” explained Mr Sampat to a packed audience. Many residents are not familiar with the workings of the CHS, and are left confused while dealing with a variety of civic and legal compliances. Mr Sampat went on to speak on several issues like when conveyance is not obtained by society, occupation certificate not handed over by the builder, building completion certificate not handed over and many such issues involving the builder and society. He specifically mentioned that affected members should approach consumer courts before the regulatory act is enacted, which is all in favour of builders. He said one should claim heavy damages and file criminal complaint against builders.
Sometimes, there are infractions between housing societies and individual apartment owners, as well as outsiders. However, many individual apartment owners are at a loss as far as grievance is concerned and do not know how to proceed with their complaint. There are several issues in a CHS, like car parking, leakages, fraudulent auditing, unauthorised construction, and many other issues. Home owners need to know the right recourse to take action to ensure that their rights are maintained and upheld.
He further spoke on conveyance and re-development. He said, “Unfortunately, the real estate sector is unregulated, and few people have knowledge about its various laws. And even fewer can stand up to the powerful builders’ lobby.” The recent Campa Cola episode shows that co-operative housing societies must exercise due caution, when it comes to maintaining and ensuring that their buildings comply with the law.
As per the provisions of section 11 of the Maharashtra Ownerships Flats Act (MOFA), the promoter is duty-bound to complete his title and convey the same to the organisation of persons who had bought the flat (i.e. cooperative society, CHS, home buyer, apartment owner, etc). The conveyance has to be executed and the promoter or builder has to deliver the title relating to the property. It is also the duty of the promoter to file a copy of the conveyance with the flat purchasers and the competent authority under section 11(2).
Mr Sampat also offered tips to the audience on selecting developers for redevelopment projects. He insisted that the process should be transparent, and advised that members should have legal and technical consultants to interact with the builder. Also, it is important to check the builder’s credentials and financial conditions.
Read more on CHS and important points to consider before buying a home:
Those seeking help or advice on CHS issues can contact Moneylife Foundation’s Legal Resource Centre (LRC) ( http://moneylife.in/lrc.html )