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Interest rates force Mumbai home sales to 23-month low

The Wires: Rising interest rates in India have forced home sales in Mubai to their lowest point in almost two years.

MUMBAI // Mumbai home sale registrations fell 30 per cent in April from a year earlier, dropping to a 23-month low, as higher interest rates and home prices hit demand, according to brokerage Prabhudas Lilladher.

Registered sales declined to 4,917 units in April, the lowest since June 2009, when adjusted for the fewer days in February, according to a report to clients yesterday. Sales in Mumbai's suburbs dropped 32 per cent last month, while city sales slid 23 per cent, Kejal Mehta, an analyst at Prabhudas said.

"With the recent sharp increase in interest rates by the Reserve Bank of India, it is possible that the downtrend in sales accelerates, especially in the current scenario of worsening affordability and the absence of meaningful price corrections," Ms Mehta said.

India's central bank increased interest rates by a more- than-estimated 0.5 percentage point this month after forecasting inflation will stay at an "elevated level" until at least September. The Reserve Bank of India raised the repurchase rate to 7.25 per cent from 6.75 per cent.

The central bank is tightening monetary policy further after a 2 percentage-point increase in the repurchase rate since mid-March 2010 failed to damp India's benchmark wholesale-price inflation, which accelerated to 8.98 per cent in March and exceeded the central bank's 8 per cent estimate.

Higher interest rates and prices are prompting more people to defer purchases and opt for renting apartments, the brokerage said. Lease volumes remained above 9,000 units for the past few months, indicating pent-up demand, Mehta said. Lease registrations in April were at 9,499 units, slightly below the record 9,603 units in March, according to the note.

Registration data is a lagging indicator of demand as properties are registered two to three months after the actual purchase.

Bloomberg News