The Reserve Bank of India increased interest rates last week and surprised the property market in so doing - because while an increase was expected it was not expected so soon. Looking forward, the majority of economists polled by Reuters in a recent survey relating to interest rates in India fear that further increases are imminent and that sharp reactions from the Reserve Bank could undermine the Indian economy.
The rises come as India attempts to rein in its economic advancement to remain within sustainable levels. So how will the interest rate rise affect property in India? Well, the answer seems to depend on who’s buying what and why…let’s take a closer look at the situation.
When buying property abroad there are often differences in the legal system to that which we may be used to back home. Sometimes there are quirks and anomalies and sometimes one is advised that the law as it is written is never upheld and that there are ways round certain obstacles etc. We often feel happy to take the advice of local legal or property professional experts and feel that they are doing us a good service helping us to avoid seemingly endless reams of paperwork and bureaucracy.
The future direction of the Indian property market is far from assured; on the one hand the real estate market in India is thriving with big name players such as Morgan Stanley committing substantial funds to the marketplace, but on the other hand ‘property India’ is an unattractive commodity for the smaller investor who has to wade through excessive and tiresome regulation and control and who is now faced with an increasing tax bill thanks to a government crackdown.
The Indian Government has been guarding its emerging property market carefully in a bid to protect the country’s economy and prevent property in India from overheating, achieving unsustainable highs and suffering from subsequent profit taking. As a result the government has restricted foreign access to the market and concentrated on giving constructors permission to only build to meet demand in both the commercial and residential property sectors.
With news out this week that prices for investment property in India have hit record highs in cities like Mumbai there’s talk of a housing price bubble looming in India and the Asia Pacific property markets.
In the past week there has been a great deal of speculation in the press about various changes taking place at Citigroup. In particular reports have been coming out about how the US banking giant has identified the real estate sector in India as a significant target market for both their investment banking division and their real estate division.
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