- POSTED: 19 Sep 2013 16:18
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The crumbling Indian economy is shaking the very foundations of the real estate market in light of the sliding rupee.
MUMBAI: The crumbling Indian economy is shaking the very foundations of the real estate market in light of the sliding rupee.
Property companies are actually facing a double edged challenge. The resultant prices have taken their toll on the demand for housing while developers struggle to fight high debt and rising construction costs.
With construction almost at a standstill, construction sites in India's financial capital Mumbai will probably be there for quite some time - evidence that property dealers and proprietors are facing a serious crunch in an economy that was once touted as the most promising in Asia.
The real estate market across India is crumbling as the country's economy slows and scares foreign investors away.
Sanjay Bawra, chief financial officer of Mantri Realty, said: "We have increased our efforts to focus on the NRI (non-resident Indian) segment in our markets. We have our people visiting Delhi and arranging broker meets, and director-customer initiatives, and we are trying to get some orders from there."
The construction sector was already in a slump before the recent spate of economic problems aggravated its problems.
Since 2012, residential property launches in seven cities plunged by 37 per cent.
A drive though the stalled projects in New Delhi's satellite towns is all it takes to see the depth of the problems now facing the sector.
It's not just developers who are feeling the heat of unsold inventories. Home buyers like Sherebanu Kesury, who opted for flexible payments, are finding that their dreams of owning a home are now running into trouble.
"We had booked a flat in suburb and we had taken a loan against it. But due to the decreasing value of the rupee, continuously, we are not being able to match up with other things, other costs of the houses also. Hence, we have not been able to pay the loan amount in proper time to the builder.
"The builder has completely stopped work because we have come to know, many of the others have also stopped paying him the amount, loan amount," said Sherebanu.
While the banks have been quick to provide large amounts of monetary assistance to the developers, they seldom take swift action against defaulters but they are now taking steps to address the current challenging situation.
In the Indian property market, developers, real estate agencies and others involved in selling properties are collectively known as promoters
And India's central bank is now increasing the promoters' minimum stake in building projects to 20 per cent to reduce banking industry vulnerability. That increased stake must come with personal guarantees.
Raghuram Rajan, governor of India’s central bank, said: "Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalize their failed ventures."
While some home allotters fear that the developers might compromise on the construction quality and foreign investors are taking their money elsewhere, there is one consolation.
The longstanding space shortage issue may now translate into high occupancy rates and steady rental incomes for commercial and residential properties at least in rupee terms.