Indian Property Slowdown – The Economist

Indian Property Slowdown – The Economist

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Springfield Apartments and Mantri Flora, Bangalore
Bangalore Skyline

India’s property market was on a high not so long ago. Property investors were flocking to new developments to cash in on a promising future. The new middle class had available funds to help them buy their first homes and everything seemed rosy. Even when the first sign of the global credit crunch appeared, India still powered on.

The market started to pick up back in 2005, when the Indian government eased overseas investment stipulations to make the market more friendly for all. Coupled with India’s economic boom, it made for a fantastic combination until…

… Fast forward a few years and now many Indian suburbs look like remnants from another world. Gone is the hustle and bustle of construction, gone are the promising profits and gone are the investors, especially locals.

So what happened? Besides the global credit crunch – on July 29th this year the Indian central bank raised its key lending rate for the third time within a two months period. Many home owners who up to now barely managed to keep their head over water financially are now faced with foreclosures.

Growing inflation (over 12%) has HSBC worried that Indian property could fall by 25-30%. Previous successful property companies have lost all and are now considered the big losers of the weakening Indian economy, claims the Economist. Not only that, but interest rates have increased, giving locals even less bang for their buck.

Many things such as building materials have increased in price and banks are not helping by putting the thumb screws onto those who are willing to spend. They have severely rationed credit to developers.

As with any property boom, when the lights are down and the market has turned, many houses remain empty, reminding starkly of a ghost town in a futuristic movie.

The upmarket enclave in Gurgaon boasts a nine-hole golf course and a trendy “cigar lounge” but has sold fewer than half the houses built in the first phase of development. It has been over 12 months since they first went on sale and the whole slow process would have to be a worry for the developers. This resulted in a reduction of some properties in Gurgaon by up to 70%.

Obviously where there are losers there are also always winners. The property game is no different and while many Indian’s fight for bare survival now, clever investors are snapping up bargains along the road.

Chief executive of Equity International, Gary Garrabrant, says he is looking for investment opportunities in affordable housing in India. He cautions, however, that infrastructure, especially roads, will have to improve “before record-breaking speed can be achieved.”

photocredits: deepgoswami