Column: Shades of grey

Jul 07 2011, 00:54 IST
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SummaryWhat do the barrage of real estate messages that clog your mobile’s inbox each day signal?

What do the barrage of real estate messages that clog your mobile’s inbox each day signal? Well, apart from the obvious, and abysmal, failure of the do-not-call-registry, does it not tell you something about the warped demand-supply equation in the country’s housing sector? Surely, inventories are piling up and there aren’t enough buyers, or why else would developers, and some relatively decent names here, hound consumers day and night to hawk that “dream house”?

And wherever you choose to look, consumers are becoming cautious in their spends, if not penny pinching as yet. Car sales growth has moderated sharply to single digits in April-June after a heady 30% growth just three months ago. Sales growth has moderated across categories—from cars and property to consumer expendables, skin creams, electronics and apparel.

According to Residex, the National Housing Bank’s residential housing price index, for the three months ending March, home prices have come down in seven of the 15 tracked cities, with IT city Bangalore correcting the most, down almost a fifth compared to October-December 2010. Others that have witnessed a fall are Kochi, Faridabad, Hyderabad, Surat, Bhopal and Jaipur. Only three cities—Pune, Lucknow and Delhi—have seen a marginal uptick, with price stabilising in the rest five.

According to market researcher IMRB International data, sales growth in consumer expendables like soaps and detergents for the first four months of 2011 moderated to 5%, from 8% for the corresponding period of last year, with growth much more tardy in personal care items like skin creams and shampoos, down to just a fifth (8%) compared to a high of 40% in 2010. And apparel makers have been reporting demand contraction, by almost a fifth, due to soaring cotton prices and duty hikes in the last two months.

Do all these numbers mean that high inflation and high interest rates have started impacting household consumption, a big contributor to economic growth? Is a demand slowdown already on us? After all, in the last 15 months, RBI has gone hammer-and-repo; after taming inflation—with policy rate up 2.75% since March 2010—moderation in growth was an expected, and intended, collateral damage. With growth in capital investments—the economy’s growth engine for the past few years—already grinding to a halt, is private household consumption that makes for almost 57% of GDP too headed for a quarter or two of slow growth?

The opinion here, on consumer slowdown or not, seems to be sharply divided. The

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