Cash CRRunch in Hyderabad ?

Indian economy is overheated and its particularly visible in the metro's and Hyderabad. Frenzied M&A, Over valued real estate, Rising prices in commodities etc., shows why the finance ministry is worried. Inflation today at 6.75%, Recent increase in CRR and Repo rates by RBI is a very clear indication that the government is concerned about the common man not being able to afford anything anymore.

Bank lending rates have moved from a range of 8 - 10% to 10 - 14%. As banks are in a squeeze since increased CRR will drain 14000 crores out of the banking system as committments to RBI for their existing loan base. So, banks are willing to pay above 9% for deposits compared to the 5% they were paying when I landed here 6 months ago. May not be too long before it reaches the good-old 18% rate. It is not a distant possibility, considering the issues that RBI and the finance ministry are constantly warning about the over heated and overly liquid economy.

Hyderabad realestate prices according to realtors are still booming, but the reality is that they have softened more than I expected. Try to sell a plot and you will get a dose of reality. I have seen folks get offers of 50% of what the paper value was when they really wanted to get rid of it. In the recent days areas like Jubilee, Banjara, Kavuri Hills seem to have softened more than I wanted to see. 6 months ago no one was willing to even consider talking about less than 60-70K in these areas and now many options are available at 40 and above. Even gacchibowli and kondapur have pulled back considerably, and we recently took advantage of the low prices and acquired a small plot.

Coming to the builders, No doubt, there is a demand for apartments and houses, but with the interest rates inching up every day, there are very few people left with cash to invest. Anyone who has put into land is waiting for it to recover back to the 2006 levels. I dont mean any disrespect, but dont believe the realors and builders that are still looking for the 4000 - 7000 per sqft in Hyderabad. They must be really out of their mind. Recent announcement of L&T phase II at 4000/sqft and some complexes in Banjara Hills asking for 7000/sqft is way overblown. Villas are reasonably priced in the gopanpally area, but there is still room for negotiation since the area is not that close to the business areas like the builders seem to potray. Also, land around / behind chirec [ Some have clearances and some dont .. please be weary of narne and other lands with issues there.. but it may not make a difference in the long run since the govt is looking to get rid of ULC soon .. ] is available for good prices now a days if you look for bargains, you will certainly find them.

On the financing front.. I recently dealt with a large bank to get a loan to cover one of my apartment purchases from a long time ago. This was purely to get the basic deductions that I needed which I discussed in my prior post about tax deductions etc. Banks seem to readily agree to a loan of 60 times the net monthly income. Now lets take a techie who gets 50K Gross per month [ Which I feel is the median salary of some what experienced techies in hyderabad ], after taxes he/she ends up with 30K per month as net ... and that equates to a 18Lakhs of loan eligibility. How many sqft do you think they will be able to afford at the Rs4000/sqft ?.

That was a quick rant about hyderabad .. will try to blog more this week.. Keep reading..