Rising rates may hit Cars
Rising interest rates could take a toll on the Mumbai residential property market and also hit auto sales in India and China, two reports released by international banks said on Wednesday. In a an industry overview on the Mumbai real estate market, Bank of America Merrill Lynch (BofaML) has projected that over the next 6 months, residential property prices could fall 15-20%.
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Though there has been a slowdown in Mumbai’s real estate market, the most expensive in the country, developers have not started offloading their inventory in the market. “Our experience tells us that developers in India are very reluctant to reduce prices, unless pushed to the wall. And with banks reluctant to lend to developers and rising mortgage rates, we expect that in another six months, some of the smaller developers will be forced to sell their inventory at lower prices to generate liquidity, forcing an all-round correction in Mumbai,” a research note said. It also said that high inflation, which has translated into home loans of 12%, and a moderation in the GDP growth, could result in a sharper correction in prices.
Comparing the present scenario with the pre-crisis days of 2008, BofaML said the correction was unlikely to be as steep. A 15% correction in Mumbai will bring the rise in property prices of the last six years in line with income growth, a research note said, indicating that prices had grown faster than income levels. Satinder Sartaj Cheere Wala
In a report, Barclays Capital warned that the first signs of weakness in auto sales data may appear around April, if oil prices remain high throughout March. “The impact will be most visible in the larger economies of China and India, where tightening banking sector liquidity is likely to drive borrowing costs higher,” analysts Peter Redward and Rahul Bajoria said in a note.
So far, however, there is little evidence of that as car sales hit a record high in February, rising 22.6% to 1.89 lakh units. It scaled the January peak of 1.84 lakh units. Though industrial growth has decelerated in recent months, demand has remained robust. The government has projected that the economy would expand 9% in 2011-12, as against the estimate of 8.6% for the current financial year, based on higher industrial and services growth.
BofaML was, however, bullish on the commercial property market and said it would outperform the residential sector given the strong demand for office assets from financial, IT and IT-enabled services sectors. Besides, it said that rentals were still at the 2009 lows and fears over high supply were overdone.
The report also warned of delays in completion of some of the projects, especially those related to redevelopment, due to tighter scrutiny given the recent spate of scandals.
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