By: Simon Reid, Chairman, Anglo Indian Group of Companies
Amidst the turbulence of many of the world’s largest economies, particularly in western markets such as the US and European economies, the broader macro economic outlook in Asia is encouraging.
Domestically driven growth is one of the key drivers for sustainable growth within a country, as opposed to a heavy reliance on export driven growth, and in this regard both China and India are prime examples of key Asia economies that have sustained growth during the extraordinary global crisis that has been witnessed since 2008.
Domestic consumption in India is perhaps both a positive force as well as a negative force. Spending power of the increasingly well off middle class within India is driving continued increased demand (and hence revenues) in retail, travel, luxury goods, fitness clubs and health and beauty segments, to name a few. Continued spending is great for the business owner that is selling more goods and services, but will inevitably lead to the inflationary pressures that have been occupying the Indian Central Government and Reserve Bank of India throughout 2011.
The real estate sector in India is a prime example of a sector that has benefited from the growth in the above mentioned sectors, all being activities that require real estate in the form of shops, fitness club facilities etc. Hence, demand for property in these sectors has remained on a growth trajectory. However, with broader inflation driving a steady and continued upward trend in interest rates this is now having a negative effect on property demand and prices due to higher costs of borrowing.
Residential and commercial borrowers are now faced with extremely high costs of mortgages and home improvement loans, and more stringent terms offered by lenders. This in turn will put pressure on developers who rely on pre-sales to execute development projects and ensure that they can deliver to customers.
