Sunday, February 21, 2010

Balancing act

The nagging inflation could negate the returns offered on your investments
Getting out of an expansionary monetary policy is incredibly more difficult than getting in. It is like the Chakravyuh in the Mahabharata—you know how to get in, but not many people know how to get out,” said Reserve Bank Governor Duvvuri Subbarao on January 29. Subbarao, however, seems equipped and set to do the task.

As the first line of attack, he increased the cash reserve ratio (the amount of deposits banks are required to keep with the apex bank) by 75 basis points to 5.75 per cent. But his warning of unleashing more weapons to contain inflation, expected to be at 8.5 per cent by end-March, has left retail investors, too, with the complex task of beating inflation as they invest in the India growth story.

Real Estate:

Anita Sharma, a media professional, is scampering to complete her property buyout in Mumbai’s Kharghar in February itself. “I decided to hurry up so that I get a home loan before interest rates go up. Also, with the economy expected to grow at a high rate, the increase in salaries will lead to higher demand, pushing up prices further,” she said.

According to the RBI, real estate prices have gone up because of the increasing optimism about the recovery and high levels of liquidity. “In the medium-long-term horizon (4-7 years), real estate will beat inflation. The key is to buy the property at an early stage in the project to cash-in on the capital appreciation,” said Kaustav Roy, executive director, Cushman and Wakefield.

The demand now is high for affordable homes (up to Rs 40 lakh). The RBI has upped its growth forecast indicating that the economy will grow at 7.5 per cent. This would fuel demand for both residential and commercial property. The commercial rental business, which has been slow of late, is expected to gather steam over the next year. “Historically, when growth has been over 7 per cent, the real estate sector has done well,” said Sunil Malhotra, vice-president, finance, Omaxe Builders. To read more, please, visit the week

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