Economy @ Glance

Dec-08

HOME LOAN RATES

Economic outlook
14%
Financial sector shocks, slowing consumption demand and depressed business confidence have dented the country’s
12%
growth. The GDP growth for the second quarter of FY 09 declined to 7.6% compared to 9.3% recorded in the same
period last year. The growth forecast for FY 09 has been revised downward to 7.5% – 8% by the RBI. 10%
8%
6%
The Central Bank tightened monetary policy in the first two quarters with the aim of taming inflation, which touched a 4%
high of 12.63% in the second week of August. The curb on money supply showed its impact on inflation, which has now 2%
declined to 8.8% in the third week of November. 0%

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The dismal IIP growth of 1.42% in August improved to 4.8% in September mainly because of better performance of
manufacturing and electricity. The RBI’s concerted efforts resulted in a decline in year-on-year money supply growth
from a high of 23.9% in January to 19.5% in September. However, this still remains above the RBI target of 16%-17%,
and hence will limit the scope for further interest rate cuts. The recent round of reduction in key policy rates to loosen the INFLATION
shackles on liquidity led to incremental lending of Rs.1,027,600 Mn. to the non-food sector in October.
14%
12%
The Equity markets continued to dive further and have been hitting multi-year lows. The benchmark Sensex and Nifty
10%
have lost about 58% each during the current year. The BSE Realty index performed even worse, and is down by 88%
8%
since the start of the year. Major developers' stock prices plummeted, as is evidenced by the decline in DLF's stock price
6%
by 84%, Unitech's by 91% and Indiabulls Real Estate' by 89% as of 3rd December.
4%
2%
The steep fall in stock prices can be attributed to large FII selling in the secondary markets. FIIs remained net sellers of 0%
shares worth Rs.153,473 Mn. in October, the highest during the current year. Mutual Funds remained net buyers of a Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08
minuscule Rs.14,316 Mn. during this period. Redemption pressure on Mutual Funds made them net sellers of a massive
Rs.260,818 Mn. worth of debt instruments in October, the highest for the current year. This pressure continued in WPI CPI -IW
November, resulting in these funds being net sellers of debt securities worth Rs.35,985 Mn. Many MFs had been
subscribing to short-term papers of real estate developers under their FMP schemes, which have now disappeared. IIP
Hence, a significant short-term finance window is closed for now. In November, the battering of equities continued with
FIIs and Mutual Funds both remaining net sellers of Rs.25,983 Mn. and Rs.3,726 Mn. respectively.
12%
10%
Owing to its relatively greater sensitivity to the overall economic condition, the real estate sector has witnessed 8%
drastically declining transaction volumes. There has been a depression in demand mainly because of high home loan
6%
rates and anticipation of a further decline in property prices. The RBI has urged banks to reduce lending rates to the
housing sector even while deposit rates continue to remain at a high of 10.5% – 11%. Although many developers have 4%
demanded reducing mortgage rates to 7%-8%, any cut beyond 100-150 bps from the current levels of 11.75%- 12.5% is 2%
not expected in the short-term. Inflation is not yet dead and hence will prevent relentless rate cuts. Further, easing of 0%
monetary policy will lead to further weakening of the Rupee, which has already touched a low of Rs.50 per USD. At the Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
same time, ongoing employee lay-offs across industries has adversely impacted the willingness of the potential home
buyer to borrow and create a fixed financial obligation in these uncertain economic conditions. All the above factors have IIP Index Mining Mfg Electricity
resulted in a slump in real estate activity.
EXCHANGE RATE & CRUDE

Residential Outlook 60.00 140

Knight Frank Research has recorded a decline in residential prices across certain cities in India during the July to 50.00 120
September quarter. Residential capital values in Mumbai have declined by 5% to 15% across the various micro markets. 100

USD/ Barrel
40.00
INR/USD

The suburban micro markets of Vashi and Andheri, exhibiting declines of 15% and 9% respectively, appear worst hit by
80
the market slump. Recently, certain high-end apartments in the Napean Sea Road/Malabar Hill area of South Mumbai 30.00
have witnessed price depreciation of upto 20%. In Kolkata, prices have remained stagnant with the exception of the New 60
20.00
Town Rajarhat micro market, which witnessed a 17% decline in capital values. Across Hyderabad micro markets, prices 40
exhibited an upward trend in the range of 5% to 7%, with the exception of Banjara Hills, which recorded a 4% decline. In 10.00 20
Bangalore, prices across most micro-markets have fallen by 4%-7%, with Sadashiv Nagar and J.P.Nagar exhibiting 0.00 0
declines of 7%, 6% respectively. Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08

In NCR, most micro markets witnessed a price increase in the range of 2% to 10%. East Delhi micro markets such as INR/USD Rate Brent Crude
Mayur Vihar, Preet Vihar and IP Extension witnessed 10% capital appreciation while Janakapuri and Vasant Kunj
exhibited 7% capital appreciation. However, prices have declined markedly in a select few areas, mainly Greater Noida SENSEX, NIFTY, REALTY INDEX (YTD)
and certain pockets of Gurgaon, which witnessed capital value depreciation of 10% and 7% respectively. Residential
markets in Chennai and Pune remained relatively stable during the third quarter of 2008. Residential capital values are
25000
expected to face further downward pressure in the coming months in the face of high home loan rates and the liquidity
crunch that has gripped several developers. 20000
15000
Office Outlook
10000
Knight Frank Research has recorded a decline in commercial rentals across certain cities in India during the July to
September quarter. In Mumbai, the overriding trend in rental values was that of a decline in the range of 3%-19%. 5000
Prominent South Mumbai office markets such as Nariman Point, Lower Parel and Fort/Ballard Estate/Churchgate
0
exhibited a decline in rental values of 19%, 16% and 14% respectively. A similar trend unfolded in NCR, where
commercial rentals fell by 3%-18%. Rentals in Okhla Industrial Area, Noida, Bhikaji Camaji Place and Gurgaon declined 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
by 18%, 16%, 12% and 11% respectively. Bangalore witnessed a decline of 3% to 17% in commercial rentals across Week
micro markets. Particularly badly affected were MG Road, Indira Nagar and Electronic City, where rentals fell by 17%,
16% and 15% respectively. Sensex Nifty Realty

In Hyderabad, notable declines were witnessed in the Himayat Nagar and Begumpet markets, where rentals fell by 9% NON FOOD CREDIT OUTSTANDING
and 8% respectively. Chennai’s office market surprisingly exhibited rising rentals ranging from 4% to 7% in most micro
markets. The notable exception was the Seruseri area, where commercial rentals dipped by 11%.Office markets in Pune 30,000,000 35%
and Kolkata remained relatively stable, with the exception of Salt Lake in the latter, where commercial rentals dipped by 25,000,000 30%
20,000,000 25%
13%. Owing to slowing economic growth and declining business demand, office rentals across India are expected to
20%
experience further downward pressure in the foreseeable future. 15,000,000
15%
10,000,000 10%
5,000,000 5%
Select Real Estate News 0 0%
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08
August 1, 2008- ICICI Bank and HDFC announce 0.75% increase in lending rates Non Food Credit Outstanding (Rs.Mn) % Growth (Annual)
August 22, 2008- Mumbai Municipal Corporation announces provision of incentive FSI of upto 70% to encourage
reconstruction of old properties
September 16, 2008- Effective for all proposals submitted after May 12, 2008, builders in Maharashtra to sell based on MONEY SUPPLY (M3)
only carpet area
October 13, 2008- Government announces that FDI will be allowed only for specialty retail, and not general retail sectors
44,000,000 30%
such as fast moving consumer goods, vegetables and groceries 43,000,000
25%
October 16, 2008- Maharashtra State Government announces potential revenue of Rs.130,000 Mn generated by raising 42,000,000
FSI at Bandra Kurla Complex from 2 to 4 41,000,000 20%
40,000,000
October 21, 2008- Maharashtra State Government announces scheme to entice private property owners to build multi- 15%
39,000,000
story parking garages by granting additional FSI 38,000,000 10%
November 6, 2008- Government requests hoteliers at FHRAI meet to cut tariffs by 10%-25% 37,000,000
5%
36,000,000
November 11, 2008- Revenue Department announces plans to hike market value of residential property by 15%-20% 35,000,000 0%
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
November 12, 2008- Maharashtra State Government announces plans to alter Development Control regulations by
altering FSI limits and other regulations to encourage development of housing for lower income groups
M3 (Rs.Mn) % Growth (Annual)

General queries should be addressed to:

Samantak Das +91 (0)22 22670876 samantak.das@in.knightfrank.com
Vivek Rathi vivek.rathi@in.knightfrank.com
Kunal Sabharwal kunal.sabharwal@in.knightfrank.com