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By:

Correspondent

23 August 2024 at 4:29:04 pm

Chaos Diplomacy

Donald Trump has always understood one thing better than most modern politicians that markets respond to perception. In the grinding drama over Iran, the American president appears to have weaponised uncertainty itself. One day he hints at a diplomatic breakthrough with Tehran and signals the reopening of the Strait of Hormuz which causes investors to breathe a sigh of relief. However, hours later, he reverses course by declaring there is “no rush” for a deal and that restrictions will remain...

Chaos Diplomacy

Donald Trump has always understood one thing better than most modern politicians that markets respond to perception. In the grinding drama over Iran, the American president appears to have weaponised uncertainty itself. One day he hints at a diplomatic breakthrough with Tehran and signals the reopening of the Strait of Hormuz which causes investors to breathe a sigh of relief. However, hours later, he reverses course by declaring there is “no rush” for a deal and that restrictions will remain until Iran bends fully to American conditions. The markets wobble again Trump’s defenders may argue that unpredictability is a negotiating tactic. Henry Kissinger once cultivated strategic ambiguity during the Cold War. Richard Nixon perfected the so-called ‘madman theory’ to keep adversaries guessing. Yet Trump’s oscillations differ in both scale and intent. In recent weeks, analysts and ethics experts in the United States have raised uncomfortable questions about whether political messaging is increasingly shaping market volatility in ways that benefit insiders, speculators and politically connected traders. When geopolitical brinkmanship begins to resemble a financial instrument, public trust in democratic institutions erodes. Nearly a fifth of the world’s oil passes through Hormuz. A closure or blockade affects fuel prices in Mumbai as much as manufacturing costs in Shanghai or inflation in Berlin. Trump’s repeated shifts between escalation and reconciliation have had grave implications for India, which imports more than 80 percent of its crude oil requirements. Any prolonged instability in Hormuz translates directly into higher import bills, inflationary pressures and stress on the rupee while ratcheting prices of essentials. India has spent years carefully balancing its ties between Iran, the Gulf monarchies and the United States. Tehran remains important for connectivity projects such as Chabahar Port and for India’s access to Central Asia. But allies and adversaries alike are forced into a perpetual state of recalibration because American policy itself appears unstable. Trump’s Iran manoeuvring reflects a dangerous transformation in global politics, which is the merger of geopolitics with spectacle capitalism. International crises are increasingly consumed like market-moving entertainment. This may generate short-term leverage for him or even produce tactical victories at the negotiating table. Iran, under immense economic strain, reportedly agreeing in principle to surrender its highly enriched uranium stockpile is no small development. Yet diplomacy built on volatility carries long-term costs and lead to the weakening of institutions. Markets become addicted to chaos and chaos, once normalised, rarely remains controllable. The world’s largest economy cannot afford to conduct foreign policy like a reality television script, with cliffhangers designed to manipulate sentiment every news cycle. Great powers are supposed to provide stability, not amplify uncertainty for strategic theatrics. Trump may believe that time is on America’s side. But for an anxious global economy already strained by wars, inflation and fragmentation, time spent trapped in manufactured uncertainty is becoming increasingly expensive.

Price Check

Maharashtra’s decision to keep ready reckoner (RR) rates unchanged for 2026–27 is a rare moment of restraint in a property market accustomed to incremental inflation. The move, justified by the government on grounds of the ongoing US–Iran conflict and a visible cooling in parts of the real estate sector, offers immediate, if modest, relief. In cities like Mumbai, where even marginal policy shifts can swell transaction costs, the freeze is sensible. But it is not sufficient. If affordability is the goal, prices themselves must fall by at least 10–15 percent in order to offer relief to customers.


RR rates, which determine stamp duty and registration values, effectively set a floor for property transactions. In a high-cost market, even a 3–4 percent annual increase as seen in recent years can translate into a meaningful rise in upfront costs for buyers. Last year’s hikes - 3.39 percent in Mumbai and 4.39 percent across the state - came after a two-year hiatus, itself preceded by modest increases during the pandemic years. By holding rates steady now, the state is acknowledging both the resilience and the limits of housing demand.


The post-pandemic surge in real estate fuelled by low interest rates, pent-up demand and a rush for larger homes, has begun to taper. Luxury housing has remained buoyant, but the mid-income segment, particularly in Mumbai, is showing signs of strain. Developers, through their industry bodies such as CREDAI, have flagged a market that is increasingly sensitive to price.


Freezing RR rates removes one source of upward pressure. It ensures no additional burden via stamp duty-linked costs, introduces a degree of predictability in pricing, and offers a marginal improvement in affordability. For homebuyers, that is no small comfort. For developers, it provides clarity in an uncertain environment.


But a freeze is not a correction. It is, at best, a holding operation. The deeper problem lies in the widening gap between property prices and household incomes. In many urban pockets, particularly in Mumbai and its extended metropolitan region, valuations remain elevated relative to what most buyers can realistically afford.


Developers fear that overt price cuts could erode margins and unsettle investor sentiment. But a stagnant market carries its own risks.  


Housing markets function best when they are credible. That credibility depends on a shared understanding between buyers, sellers and the state of what constitutes fair value.


The state’s parallel efforts of refining valuation tables, updating land records, and incorporating new survey data are steps in the right direction. They promise greater accuracy without altering headline pricing. But better data cannot substitute for better alignment between prices and purchasing power.


By freezing RR rates, the Maharashtra government has avoided adding friction to an already delicate market. But prudence must now extend beyond policy into pricing. For now, the government has pressed pause. The market must press reset. 


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