Impact of Interest rate hike on Mumbai Real Estate

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?