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KEY TRENDS & DRIVERS

REAL ESTATE • October 2007

The Impact of Macroeconomic Factors on Demand & Supply of Real Estate

Economic Growth

- Broad based GDP growth rate of 8-9 % per annum forecast - Demand driven by the growth in services sector - Growth expected to fuel demand across all the asset classes

Inflation

- Has significant role in supply-demand of real estate - Continues to remain a major concern - Inflation is at its lowest since last year

Money Supply

- Growth is higher than RBI estimates - Liquidity is key to inflation and over-heating - Restricted availability to reduce options for builders/developers

Interest Rates

- Higher rates lead to higher cost of borrowing - Developers seeking other options, consumers are re-evaluating options - Investors are revaluing returns from the sector

Credit Take-off

- Easy availability of capital has led to growth in valuations - Concern over exposure of Banks towards the sector - Restrictions have increased the cost leading to alternate sources like PE/VC

Economic Growth

- Liberalization of FDI has led to an interest from new players - Valuation standards and greater transparency - Service tax on commercial rental to affect retail space

Source: RBI, E&Y Analysis

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