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Residential demand Weakens

Tuesday, January 25, 2011

Recent data suggests absorption (demand) volume in India’s top 7 cities has either been flat or declined over the past two quarters. The Mumbai region and Pune have reported sharp drops, while Gurgaon and Bangalore have shown flat-marginally negative growth.

While developers could hold prices firm in the near term due to stable balance sheet liquidity, we think this will only hurt demand as interest rate rises and higher property prices will curtail affordability.

Likely stringent measures by RBI towards the sector could curtail credit to the sector and hurt execution. Looking ahead, the risks of sticky inflation, further rise in interest rates and more stringent RBI policies imply further downside risk to demand. However, the Job market is looking really good and hence Developers should reduce their margins a little bit which will get the consumers back to their doors.

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