Over the last two years, India has been battling various economic issues such as rising fiscal deficit, a falling rupee and increasing food inflation. No, nothing new there. And what does this have to do with real estate? Quite a lot.
A country’s economic performance has direct repercussions on how its real estate market behaves. This is especially true for the residential property segment. More prosperity means higher financial confidence among home buyers, and this leads to a greater demand for homes. The opposite is, of course, equally true.
We have already seen that overall sales of residential real estate in India have gone down rather markedly in major cities like Mumbai, Delhi and Chennai in the first half of 2013. The market was far more encouraging in the same period last year. Bangalore and Pune performed a little better but not by much.
There are various reasons for this slowdown in the sale of homes in India. One of them is that prices have kept rising in the bigger cities, despite actual sales decreasing. Also, home loans have got more expensive because of increased interest rates. Many Indians just aren’t earning as much this year as they did before.
Residential property prices have gone through the roof in cities like Mumbai, making homes in the city more or less unaffordable to all but the ‘creamy layer’. The hue and cry over Mumbai’s developers refusing to lower prices is understandable, but there are also some ground realities of the real estate business that cannot be overlooked. Read More
The Reserve Bank should give preference to the non-corporate sector for new bank licences, Prime Minister’s Economic Advisory Council ChairmanC Rangarajan said.
“It is possible for the Reserve Bank to start with initially non-corporate business and find out whether there are suitable applicants and thereafter proceed to look at the other applicants,” he said in an interview.
The RBI is in the process of finalising the guidelines for giving new bank licences after Parliament approved Banking Laws (Amendment) Bill last month.
The central bank, Rangarajan said, “should look at various types of financial institutions that are available currently and decide”.
“…. many of the strong private sector banks today have been at one time or other in the financial system. They can look at it first and look at the other later on,” he said. Read More
When the board of Commerzbank met last Tuesday, Stefan Otto was supposed to make an appearance. The chairman of Deutsche Schiffsbank, a Commerzbank subsidiary based in Hamburg and focused on the shipping industry, had been summoned to Frankfurt to present the bank’s financial results. But the presentation was cancelled; Commerzbank had no need for the numbers, having previously decided it no longer wanted anything to do with German shipping.
The executive board of Deutsche Schiffsbank was not notified in advance of the parent company’s reversal. The supervisory board was also taken by surprise. Only three months earlier, Commerzbank CEO Martin Blessing had declared the financing of ships and commercial real estate to be part of the bank’s core business. And although it was expected to shrink, Germany’s second-largest bank intended to create a separate segment for the business.
But the executives had underestimated the risks that the European sovereign debt crisis presents to Commerzbank, and how much capital the ship and commercial real estate business ties up. Now Blessing has slammed on the brakes. Deutsche Schiffsbank Chairman Otto characterized the parent company’s about-face as the “decision of a cautious businessman and not of a skydiver.”
Commerzbank has recently made a huge effort to satisfy and even exceed the capital requirements set by the European Banking Authority (EBA). But if the euro crisis worsens, new gaps could soon open up, say banking industry insiders.
In Spain alone, Commerzbank is exposed to the tune of €14.2 billion ($17.9 billion) via investments in banks, companies and the government. The lower the rating agencies assess the creditworthiness of these borrowers, the more capital the bank will have to place in reserve for these investments in the future — to say nothing of potential defaults.
Commerzbank isn’t alone with such problems. The euro crisis and the higher capital requirements being imposed by regulators have adversely affected almost all European banks. And because of growing fears within the banks of a collapse of the euro zone, they are preparing for the worst by withdrawing to their home markets and winding down many investments. Read More
Something curious was noted this morning on CNBC Europe: namely a reference to an article in the Shanghai Financial News, according to which China is quietly (or not so quietly) trying to orchestrate a 30% drop in real estate prices, in the form of a “Thunder attack” which combines increased purchase costs, property taxes as well as the rise in interest rates. If proven true, this is a major flashing red sign of just how out of control inflation, especially property and real estate, is in China, and that future CPI readings (not the official Politburo number, but that which people actually have to live with) will be getting progressively worse. Also, for the government to step in with such a drastic measure, it must mean that the discontent on the ground must be approaching a fever pitch.
From Shanghai Daily News (apologies for the Google translation from simplified Han – we ask any native readers to provide a better translation):
Regulation has been to attack the third round of first-tier cities real estate prices down 30%
Thunder attack the third round of real estate regulation, the rapid combination of boxing, so property prices forced counterattack, a few days could not proud of the real estate business and speculators by surprise. This time, a property “hot pot” of the “lid” was covered up.
Increase purchase cost, the purchase of, property tax, this three-pronged approach, if implemented in place, the actual interest rate has been through administrative restrictions and basically blocked the tax price of the property market investment (speculative) demand.
That property prices continue to rise, “lid” was tightly closed out. At the same time, “further implementation of local government” and “the construction of housing projects to increase security efforts”, the attempt to increase the supply of low-rent housing on the market, “pot” to root of the problem.
After this shot of a combination of boxing, I believe that covers “lid” will directly effect. Property market turnover will be greatly reduced, as the CPI is likely to continue to promote further interest rate rise, real estate holding costs will continue to increase, investors who own multiple sets of housing will withstand the pressure to sell vacuum, once the panic selling a conservative estimate, prices have to appear about 30% pullback.
New “state of eight” and the property tax was intended to curb property speculation, if the effectiveness of control there, holding costs sharply, but more substantial price correction, then the past 10 years, the emergence of many hundreds of millions of Chinese cities, million “property rich” will be their colors.
It is true that the local government to increase efforts in building affordable housing projects, the author is not optimistic, because the event of a fall in property prices, local government finance will decrease the land, local government expenditure in the expanding case, expect them to spend more money for housing support, which is obviously unrealistic. Only a few strong ability to govern the city, it is anticipated to increase in 2011 the so-called efforts to protect the room is still on paper.
After several years of comfort, India’s external account is under pressure. Latest RBI numbers of balance of payments contain several hints of greater deterioration and increasing vulnerability. They show that merchandise imports vastly exceed exports, exports of services and inward remittances are not enough to bridge the gap, portfolio investments are dominating capital inflows and short-term debt is rising while foreign direct investment is falling.
In short, the country is living beyond its means and is increasingly relying on short-term debt and highly unstable investment flows to foot the bill. To complete the picture, for the first time in seven years India’s forex reserves have fallen below its external debt.
Preliminary data released by the Reserve Bank of India (RBI) show that India’s current account deficit (net balance of cross-border transactions of goods and services) rose by a whopping 72 per cent to $15.9 billion during July-September 2010, compared to $9.2 billion in July-September 2009. This was because imports rose more than exports and net income from services was lower during the period. There was a surplus on the capital account, implying that inflows of debt and investment were more than the outgo. However, the composition of these inflows is a serious cause of concern. Inflows under portfolio investment by foreign isntitutional investors (FIIs) doubled to $19.2 billion, external commercial borrowings more than trebled to $3.7 billion and short-term trade credit more than doubled to $2.6 billion. At the same time, FDI inflows declined to $2.5 billion from $7.5 billion a year ago, owing to lower investment in construction, real estate, business and financial services. In other words, India’s current account deficit is being financed largely by short-term credit or inflows which are notoriously foot loose and could exit at the first sign of trouble or better opportunity elsewhere, leaving India dangerously vulnerable.
Meanwhile, the surge in imports suggests that Indian manufacturing sector is losing competitiveness. Indian shops are stuffed with imported articles, electrical accessories, furniture, furnishings and toys. Even services like tourism and tailoring are becoming uncompetitive. Economic Times reported on December 22 that Indians find it cheaper to holiday abroad now. It is now much cheaper to buy a made-to-measure suit in Bangkok than in Mumbai. Philippines is becoming an increasingly strong competitor in the BPO segment, and China in IT. Read More