Property malaise grips India
Wednesday, 24 December 2008
It's been a bad year for property tycoon Kushal Pal Singh with shares in his firm DLF, India's largest developer, diving 80 percent since January amid global economic turmoil.
Singh, who owns 88 percent of DLF, has lost 39 billion dollars in the share rout, leaving him with 7.8 billion dollars, according to the Forbes rich list.
His woes reflect a wider malaise gripping India's once-booming real estate market that drew a host of international investors including private equity giant Blackstone, investment bank Goldman Sachs and General Electric.
"Real estate prices have reached unaffordable levels. There's going to be a correction. Properties have to be made more affordable," said Sachin Sandhir, India head of of the British-based Royal Institution of Chartered Surveyors.
During the good times which peaked last year, even Donald Trump Junior, son of the flamboyant US real estate billionaire, turned up in Mumbai on a scouting mission for his father and declared it was "time to come to India".
But the market now is reeling from double-digit borrowing costs, tighter credit and construction oversupply, especially at the high end of the market, with a slowing economy and the global crisis knocking the confidence of homebuyers.
Developers struggling to meet land payment and other debts are offering freebies to spur home sales, from four-wheel-drive vehicles to gold bars.
But the lures aren't working with residential transactions down by 50 percent from a year ago, according to industry figures.
Some construction projects are lying idle with many new residential, hotel and mall projects being put on hold, leaving thousands without work.
"Affordability is low in the residential market with a lot of supply targeting high-income households," Goldman Sachs analysts Vishnu Gopal and Shruti Gandhi said in a note to clients.
"My house has gone from 2.8 million rupees (56,000 dollars) three years ago to 10 million rupees now and it's only a small three-bedroom. It's crazy," said retired New Delhi public servant Shaila Gupta.
Analysts say India needs more 50,000-dollar homes instead of luxury million-dollar residences.
"The risks of a major correction in property prices and rentals are mounting," Goldman Sachs analysts added, estimating house prices and commercial rents in some parts of India could fall by as much 30 percent.
Singh, 77, bet decades ago that property prices would eventually rise and bought land on the far reaches of New Delhi that spawned suburban Gurgaon -- now host to a slew of corporate heavyweights and housing developments.
He says he has no doubt what must be done to revive the market.
"Unless interest rates come down, the common man will not come back to the (property) market," he said in the Indian capital, adding rates must fall to around six to seven percent to "perk up" buying.
India's key lending rate is 7.5 percent but home loan rates are still around 12-13 percent -- well above US and British levels.
The high rates are a hangover from aggressive monetary tightening by the bank when inflation was threatening to spin out of control and there were fears India's economy might overheat.
The Confederation of Real Estate Developers' Associations of India has taken the unusual step of appealing to members "to make every effort" to cut prices.
"Inherent demand is there," said RICS' Sandhir, with industry estimates showing India facing a shortage of 25 million houses.
"But developers are going to have accept lesser margins than the 50-60 percent they have been getting."
Unitech, India's second-largest property firm, is delaying new projects as its shares have slid 90 percent since January, slicing the worth of its chairman and founder Ramesh Chandra to one billion dollars from 11.6 billion dollars, according to Forbes.
DLF and Unitech's share woes are mirrored by their peers. The Realty Index of the Bombay Stock Exchange has dropped nearly 90 percent since January.
Still, longer term, analysts believe India is a good property investment bet -- one of the last few nations where there is primary demand for real estate rather than individuals trading up.
However,analysts said it may take some time for foreign investors to jump back into India's property market, where titles are unclear and transactions frequently dragged out by under-the-table-payments and red tape.
......
AFP
Singh, who owns 88 percent of DLF, has lost 39 billion dollars in the share rout, leaving him with 7.8 billion dollars, according to the Forbes rich list.
His woes reflect a wider malaise gripping India's once-booming real estate market that drew a host of international investors including private equity giant Blackstone, investment bank Goldman Sachs and General Electric.
"Real estate prices have reached unaffordable levels. There's going to be a correction. Properties have to be made more affordable," said Sachin Sandhir, India head of of the British-based Royal Institution of Chartered Surveyors.
During the good times which peaked last year, even Donald Trump Junior, son of the flamboyant US real estate billionaire, turned up in Mumbai on a scouting mission for his father and declared it was "time to come to India".
But the market now is reeling from double-digit borrowing costs, tighter credit and construction oversupply, especially at the high end of the market, with a slowing economy and the global crisis knocking the confidence of homebuyers.
Developers struggling to meet land payment and other debts are offering freebies to spur home sales, from four-wheel-drive vehicles to gold bars.
But the lures aren't working with residential transactions down by 50 percent from a year ago, according to industry figures.
Some construction projects are lying idle with many new residential, hotel and mall projects being put on hold, leaving thousands without work.
"Affordability is low in the residential market with a lot of supply targeting high-income households," Goldman Sachs analysts Vishnu Gopal and Shruti Gandhi said in a note to clients.
"My house has gone from 2.8 million rupees (56,000 dollars) three years ago to 10 million rupees now and it's only a small three-bedroom. It's crazy," said retired New Delhi public servant Shaila Gupta.
Analysts say India needs more 50,000-dollar homes instead of luxury million-dollar residences.
"The risks of a major correction in property prices and rentals are mounting," Goldman Sachs analysts added, estimating house prices and commercial rents in some parts of India could fall by as much 30 percent.
Singh, 77, bet decades ago that property prices would eventually rise and bought land on the far reaches of New Delhi that spawned suburban Gurgaon -- now host to a slew of corporate heavyweights and housing developments.
He says he has no doubt what must be done to revive the market.
"Unless interest rates come down, the common man will not come back to the (property) market," he said in the Indian capital, adding rates must fall to around six to seven percent to "perk up" buying.
India's key lending rate is 7.5 percent but home loan rates are still around 12-13 percent -- well above US and British levels.
The high rates are a hangover from aggressive monetary tightening by the bank when inflation was threatening to spin out of control and there were fears India's economy might overheat.
The Confederation of Real Estate Developers' Associations of India has taken the unusual step of appealing to members "to make every effort" to cut prices.
"Inherent demand is there," said RICS' Sandhir, with industry estimates showing India facing a shortage of 25 million houses.
"But developers are going to have accept lesser margins than the 50-60 percent they have been getting."
Unitech, India's second-largest property firm, is delaying new projects as its shares have slid 90 percent since January, slicing the worth of its chairman and founder Ramesh Chandra to one billion dollars from 11.6 billion dollars, according to Forbes.
DLF and Unitech's share woes are mirrored by their peers. The Realty Index of the Bombay Stock Exchange has dropped nearly 90 percent since January.
Still, longer term, analysts believe India is a good property investment bet -- one of the last few nations where there is primary demand for real estate rather than individuals trading up.
However,analysts said it may take some time for foreign investors to jump back into India's property market, where titles are unclear and transactions frequently dragged out by under-the-table-payments and red tape.
......
AFP