Central bank warns on India property prices

November 15, 2006	(Be the first to rate this story!)  Loading ...
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Indian property prices are rising uncomfortably fast, according to the country’s central bank chief, who has warned financial institutions against excessive lending to the real estate sector.

Y V Reddy, Reserve Bank of India governor, told the Financial Times: “We don’t take a view as to whether there’s a bubble, but there is slight discomfort that asset prices have been moving too fast.”

Property brokers say that the price of prime real estate in Delhi and Mumbai has risen by 40-50 per cent in the past year. “It’s a very, very strong market,” said Raaj Kaanwar of Ebel Associates, a Delhi estate agent.

Mr Reddy’s comments also follow news that Indian property developers intend to raise up to $4bn in domestic and international share offerings by March next year in a flurry of listings that will effectively spawn a listed property sector. Mr Reddy said the RBI was monitoring property loans bank-by-bank and branch-by-branch, and making direct contact with those deemed to be lending too aggressively.

“On the whole, my assessment is that our warnings would have had some impact and given the exposure of the banks, I would not expect damage to our banking system in a systemic sense, assuming there is a localised bubble that bursts,” he said.

The comments point to further monetary tightening in India, where economic growth reached 8.9 per cent in the first quarter and inflation remains above 5 per cent. The RBI has raised its key reverse repo rate by 150 basis points to 7.25 per cent since October 2004.

Mr Reddy last month raised the RBI’s growth forecast for this year to 8 per cent. India’s banks have gone on a lending spree in the past year, with overall credit growth exceeding 30 per cent for more than a year.

Growth rates in loans to agriculture and industry of 27 per cent and 37 per cent have been eclipsed by loans to individuals.

Retail loans have surged 47 per cent year on year, according to figures released in October, with housing loans up 54 per cent by June and loans for commercial real estate up 104 per cent.

Analysts estimate India’s property industry will be worth $50bn in sales by 2010, from $12bn last year. Property companies are reported to have plans in the pipeline worth up to three times the value of all the projects they completed in the past five years.

Mr Reddy said in April that the RBI wanted to see banks cut overall credit growth from about 30 per cent to 20 per cent, but it has since softened its stance. “Our current assessment is that it should be less than 30 per cent but does need to go all the way down to as low 20 per cent,” he said.

Source from The Financial Times
www.ft.com

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