Tuesday's Indian central bank took very hawkish step
which stunned all industries veterans and bankers by raising key
interest rates by 50 basis points. RBI has done this to moderate inflation and
check inflationary expectations, but this will be have huge impact on very
leveraged real estate industry.
Real EstateDealStreet thinks that this will create panic like
situation which Indian real estate industry has never faced some thing similar
to US
sub-prime bust.
As you read our
previous blog posts we always mentioned that now real estate in India is over
owned and over hyped it has now day’s by replaced stock market. Every one thinks
that this is only investment class, where one can make good amount of money
with out not having financial expertise and domain knowledge. This caused a
bubble which is now it seems at its peek. Builders and speculators through
media, bureaucrats and politician trying their best to take market to new high
but from last few months they haven’t been successful.
Now almost all the
builders have spread themselves very thin and now burden of interest taken by
them is becoming heavier day by day. Last few quarters they are shun by banks
and forced to go to private lenders. These lenders charge heavy interest which
now making things worse when there very few or no sale. It seems time has come
for builders to blink and reduce the prices. This will start to take market
downward but now it is double whammy for them due to interest rate only people
won’t come forward to buy because almost all of them is also grappling with
their current EMI’s ( Equally Monthly Installment). They also have to pay
higher not only on their home loans but also for auto loans and personal loans.
Mumbai real estate
market is most vulnerable to this hike. Builders is not only to sale but they
are buying land at astronomically high price that will make things worse. After
these terror attacks and bomb blasts now people will spread to low density area’s
or small city which are now providing good lifestyle also. Apartments, flats
are unaffordable to even upper middle class. Due to new technology one not need
to at one particular location. Now one can work from any where and deliver to
his or her organization is also will start internal BPO that also working
against Mumbai and its real estate market. Small example of that is Worde Trade
Center at Cuffe Parade
which is vacant more then 50%.
What we thinks is now; real-estate sector is entering secular
beer market. It will take years to come out of this. Only good take away from
this is that it will remove froth from this sector and people will able to own
house at reasonable price. For that is what RealEstateDealStreet.com is aiming.
What do you think?
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