The entire world’s economy is on a sugar high which is great for property in Hyderabad as well as other parts of the country. For the first time in history, interest rates are near zero across the globe and capital is cheap due to quantitative easing by many large central banks. As a matter of fact, many important economies such as Japan, Switzerland, and the EU today have negative rates. What this essentially means is that there are very few instruments through which banks and other investors can gain yield except the stock market. In many instances, the inflow of money into Indian capital markets is the result of easy lending practices by major central banks across the globe. Global investors with capital invest in India to take advantage of higher interest rates in the country as they have few available options to earn yields within their own economies.
Most likely there has never been a better time to acquire funding for large infrastructure projects within India than today. There is so much capital across the globe that the most opportune time to undertake large development projects in India is right now. Plans by the government to build smart cities across India likely reflect this new paradigm. Those who wish to purchase residential apartments in Hyderabad may never find a time as opportune as today and for a few more years ahead, interest rates are likely to remain low across the globe leading to a free for all for those willing to take on debt to purchase the property. This is, however, a brave new world for monetary policy, never has such a scenario been visible across the globe and how it will end and what is likely to happen if and when interest rates across the globe normalize is an open question.
Even highly respected and informed oracles of capital markets such as Warren Buffet tend to stutter and run for cover when asked if they believe interest rates will ever normalize. The Federal Reserve has today supplanted other central banks to become the central bank for the entire world. Interest rates in India shall likely head south as the new RBI Governor takes charge, perhaps one of the reasons the change at the Reserve Bank of India was to have a governor who was willing to be more accommodative and push interest rates lower to spur economic growth. In the future, it may become even more affordable to take a home loan to purchase affordable or luxury apartments in Hyderabad as a result of lower interest rates. Lower interest rates, however, are not a panacea to spur economic growth, lower interest rates result in inflation as banks readily lend capital to borrowers since they receive a lower rate of return if they park their money with the RBI.
The government’s plan built nearly one million affordable homes across the country over the next few years shall receive an impetus if the RBI lowers interest rates making it easier to purchase affordable housing in Hyderabad and in other regions of the country. For real estate developers in Hyderabad, lower interest rates are a blessing in the short run as they may borrow more easily due to lower cost of capital. So why don’t banks continuously keep interest rates low? The biggest reason is that doing so causes inflation to rise which eats up the savings of citizens, another important reason is that perpetually low-interest rates lead to bubbles which cause distortions in prices and a sharp drop in sectors of the economy when the bubble bursts. Interest rates, if they are kept too low for a prolonged time, may also deter foreign investors to invest in India as they may seek higher returns elsewhere.