India Investment Property » Liquidity

Indian economy may grow 6.7%

Tue, 13 Jan 2009 10:35:12 +0000

According to Morgan Stanley, Indian economy may grow 6.7% in current fiscal.

According to Chetan Ahya and Tanvee Gupta, economists at Morgan Stanley, “Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates, and strong domestic demand growth”. Further they said that however, capital inflows will remain slow for some more period due to continued risk aversion, resulting from slow global environment and rising credit defaults.

Morgan Stanley looks forward to credit growth to down to ten percent over about next half year compared with 4-year average of 28.3% as rising bad loans may make banks risk-averse.

Home loan sales reviving

Tue, 11 Nov 2008 07:44:05 +0000

Bankers believe their strained home loan portfolios will see relief in the coming quarters, with interest rate cuts coming into force.
“We expect our home loan offtake to increase by 22 per cent y-o-y next quarter with the fall in interest rates,” said B.R. Pai, General Manager, Syndicate Bank. The bank, which has sixty-five hundred crore rupees home loan portfolio, saw a slower 18% y-o-y growth in home loans disbursed last quarter, as compared to a 30% growth for the same quarter last year.
Home loans will become cheaper as most public sector banks, including State Bank of India, Canara Bank and Syndicate Bank among others, have cut their benchmark prime lending rates (BPLR) by 75 basis points. Bankers are betting on buyers who had earlier postponed their purchases owing to a high interest rates to come on board.
Kumar Gera, chairman of the Confederation of Real Estate Developers’ Associations of India (Credai), said there is a pent up demand for residential property that will lead to a demand uptake once liquidity returns.

Borrowers will have to wait for lower lending rates

Wed, 22 Oct 2008 11:16:36 +0000

According to HDFC chairman Deepak Parekh, lending rates would ease only after deposit rates come down, which will take some time to happen. The statement comes at a time when most people hoped that banks would start lowering their lending rates, following the recent repo cut by the Reserve Bank of India (RBI).

Welcoming the liquidity infusion steps taken by the central bank, Mr Parekh said, “RBI has taken all possible steps to infuse liquidity and in the past 10 days. This will help the growth of the economy as well.”

He added that cash conditions were comfortable at the moment, and that he didn’t expect any further moves in the upcoming half-yearly monetary policy. “We might have to wait for the next credit policy for further moves,” said Mr Parekh, speaking on the sidelines of a conference on Tuesday.

He indicated that the central bank had taken a number of liquidity-infusing steps in the past two weeks, including cutting the repo rate by a percentage point and slashing cash reserve requirements for banks by 250 basis points. Though he refused to comment on interest rates with respect to HDFC, Mr Parekh added, “Lending rates can not come down unless deposit rates come down. At present, deposit rates across banks are pretty high.” He also said that real estate sales had come down.

“Real estate sales are dull at the moment. Prices need to come down for sales to rise again,” he added. Mr Parekh added that he saw the economy growing at 7% this year. “Though it is considerably below projections of 9%, it is still a strong rate of growth for any country,” he added.

RBI cuts repo rate might be good news for realtors

Tue, 21 Oct 2008 08:11:24 +0000

RBI has cut the repo rate by 100 bps to 8%. This is effective immediately. The Finance Minister, P Chidambaram said that the repo rate cut will help in moderating inflation. This is a positive move which will enthuse both borrowers and investors, Mr. Chidambaram added. The RBI’s move is consistent with the government’s aim of maintaining high growth, he added.
This news may come as a boon for the realty companies as it may help bring down loan rates. This is the first repo cut since 2003.
We feel that a lot of liquidity is already infused in the past ten days. The move may not have an immediate impact on stock prices. Confidence will not come just because of a CRR cut or a repo rate cut. But once global markets recover, this will give a further boost to stock markets.

How will India Survive In Global Financial Crisis

Wed, 15 Oct 2008 07:36:46 +0000

The significance of the financial crisis that has hit the US economy can be measured from the fact that the cost of the rescue of these financial giants to the Federal Reserve and Treasury Department has been estimated at close to a trillion dollars.
According to some analysts, the total cost on this count could go up to $2 trillion since the financial turmoil is not likely to end anytime soon. Most of these banks had created debts to the tune of 30-40 times their equity against the prudential norm of not exceeding ten times.
In India, the Reserve Bank of India has been pumping in liquidity into the system and local banks have been borrowing at least Rs 70,000 crore on an average over the past three weeks under its liquidity adjustment facility. Even so, liquidity has been drying up.
Recently, the Asian Development Bank down-scaled the growth expectations of many Asian economies, including India’s, in its half yearly report: Asian Development Outlook 2008.
The ADB attributes this to the worsening conditions in major industrial economies that will weaken demand for goods and services. “The myth of uncoupling has been exploded”, the report says.
India’s GDP growth estimate for the current financial year has been downgraded from 8% to 7.4% and, for the next financial year, from 8.5% to 7%.
ADB bluntly states that “very large fiscal imbalance created by the current level of subsidization of oil, fertilizer and food, as well as other off-budget items, sets a daunting task for economic management.”
With the financial turmoil in the US and Europe showing signs of worsening since the publication of Asian Development Bank’s half-yearly report, one need not be surprised if GDP growth in India turns out to be even lower than that projected by Asian Development Bank — just around 7% or so for the current fiscal. In line with the falling capital markets across the world, which have already wiped out investor wealth of over ten trillion dollars this year so far, the Indian stock market has witnessed an unprecedented fall over the past few weeks. Not surprisingly, FIIs have been pulling out from the stock market in a big way, corporate borrowings from the global markets are becoming increasingly difficult, raising money for new investments through public issues is on hold, and liquidity in the economy is fast drying up.

Market slowdown Affects Hotel Development

Mon, 21 Jul 2008 10:58:55 +0000

With real estate stocks being hit adversely by the market slowdown, the phenomenon is expected to have a spiraling effect on hospitality development in India. Most real estate majors with a series of hospitality developments in their portfolio are affected by this trend. This may lead to a stall or delay in the completion of projects as well as a revision of the project expenditure. Over the past few months, real estate stocks have seen a major downfall, with an average of 60 to 65% drop in the share prices during 2007-08.

Prem Subramaniam, Head, Infrastructure Development Finance Company (IDFC) said, “There is not only a slowdown in the market, but also an alteration in project costs with the configuration of interest rates”.

While financial market analysts expect the decline in real estate stocks to continue in coming months, they also speculate that hotel projects will be stalled due to lack of liquidity and equity funding in the markets. On the contrary, hospitality consultants feel that projects that are already secured with funds will not be affected.

Property Investment Check List

admin — Fri, 25 Apr 2008 11:14:26 +0000

Money invested in real estate, for income and capital growth, grants stable and expected returns, parallel to bonds. Like other investment option, this too, has certain threats attached to it. Following are the elementary factors affecting the value of a particular property.

Location: The location of a building is a important factor in determining its market price. A property investment is likely to be held for some years and the attractiveness of a given location may change over the holding period. As such, part of a city may be undergoing regeneration, in this case the perception of the location is likely to improve. In contrast, a shopping center development may affect the appeal of an existing residential property.

Physical characteristics: The type and utility of the building will affect its value. Utility refers to the benefits an occupier gets from using the building. The risk factor is depreciation.

Tenant credit risk: The value of a building is a function of the rental income that you can expect to receive from owning it. If the tenant defaults, the owner loses the rental income. However, it is not just the risk of outright default that matters.

Lease length : The length of lease is an important consideration. If a building is let to a good tenant for a long period then the rental income is assured. This is one of the attractive features of property investment. It is important to consider the length of lease.
Liquidity: All property investment is relatively illiquid to most bonds and equities. Property is slow to transact in normal market conditions. In poor market conditions, it will take even longer to find a buyer. There is a high cost of error involved.

Tax implications: Apart from income tax, which is to be paid on rental income and capital gains, there are two more levies to be borne by the investor — property tax and stamp duty. These levies vary from state to state and can effect on investment returns.

High cost of investment: Real estate values are high with respect to other forms of investment. This puts it out of reach of the common people.

Risk of single property : Purchasing a single property exposes the investor to definite risks related with the property and does not provide any profit of diversification.

Official issues: While stock exchanges promise to a certain extent, the legitimacy of a trade in equities or bonds and thus protect against bad delivery or fake and forged shares, no parallel safety net is offered here.