Further Correction
Indian Property Market May See Further Correction
Indian realty prices may show further moderation following the credit crunch in the US, according to media reports. A crash like situation is not foreseen, though analysts expect the property market to cool further due to a lack of buying from investors. Reports said that private equity players, especially the American and Western European investors are unlikely to come in and developers have to look elsewhere for funding their working capital and capex requirements. Funds to both private and public equities of developers are expected to show a decline in the short to medium term.
It was said that FIIs and venture capital funds have pumped around $4 billion in the Indian estate market, while another $12 to $14 billion was expected to flow into the country. With the collapse of Lehman Brothers and other big financial companies facing liquidity crunch, money from overseas funds could dry up for Indian companies. Amid high domestic interest rates and subdued equity markets, developers are reportedly facing fund crunch. Reports said that small developers are taking money from private moneylenders at high interest rates of 20% to 30%. Companies, which have strong internal accruals, are expected to sail through, but small developers, especially those dependent on debts and private equity could feel the pressure
Customers, meanwhile, are postponing their purchases expecting a further correction in property markets. The decision by investors is affecting consumer demand and resulting in projects being held up. Some builders are still holding on to their prices anticipating a revival in consumer demand, but it was said unless developers lower the prices, demand for flats will not open up.
Lehman Brothers and Merrill Lynch reportedly occupied commercial space in India spanning 2.5 lakh square feet. Any distress selling of these assets for funding their requirements will bring reasonable moderation in the commercial space.
Property prices in Tier 2 cities have reportedly dropped by 15% to 20% in the last few weeks, even as it was said there has been no price adjustment in metros, especially in Delhi and Mumbai. In the short to medium term, prices of commercial property are expected to take a hit further, while residential segment will show some moderation in demand. In the residential segment, analysts expect the prices of property to decline by around 15-20% across the board after Diwali. But the price fall may vary and will depend on specific location and other local factors affecting supply and demand for properties. Analysts are of the view that properties in a good location would not be significantly impacted, while those in less prime areas could feel the pinch.
Media said some thousands of employees with Lehman Brothers, other big financial institutions and BPOs may have been affected after Lehman Brothers filed for Chapter 11 bankruptcy. Many of these employees would have taken home loans and the banks may not offer them an extended buffer period to start repaying their EMIs
On the BSE, realty stocks witnessed a free fall ever since global investment bank Lehman Brothers, filed for bankruptcy. Foreign instititutional investors have significant stakes in the booming realty and development companies. Merrill Lynch and Lehman Brothers have reportedly exposures to more than a dozen realty companies, including Ansal Housing, Anant Raj Industries, Unity Infrastructure, the Puravankara group and J Kumar Infrastructure, among others. More than the actual developments, a feeling that a lot more will come out is keeping investor sentiment negative in these stocks.
The barometer for realty stocks, the realty index, has delivered a negative return of around 5% and 20% in the last one-week and one-month, while it lost around 57% in value over the last one year. Most of the stocks in this segment are trading near their 52-week lows after tumbling nearly 80% from their 52-week high.
Indian realty prices may show further moderation following the credit crunch in the US, according to media reports. A crash like situation is not foreseen, though analysts expect the property market to cool further due to a lack of buying from investors. Reports said that private equity players, especially the American and Western European investors are unlikely to come in and developers have to look elsewhere for funding their working capital and capex requirements. Funds to both private and public equities of developers are expected to show a decline in the short to medium term.
It was said that FIIs and venture capital funds have pumped around $4 billion in the Indian estate market, while another $12 to $14 billion was expected to flow into the country. With the collapse of Lehman Brothers and other big financial companies facing liquidity crunch, money from overseas funds could dry up for Indian companies. Amid high domestic interest rates and subdued equity markets, developers are reportedly facing fund crunch. Reports said that small developers are taking money from private moneylenders at high interest rates of 20% to 30%. Companies, which have strong internal accruals, are expected to sail through, but small developers, especially those dependent on debts and private equity could feel the pressure
Customers, meanwhile, are postponing their purchases expecting a further correction in property markets. The decision by investors is affecting consumer demand and resulting in projects being held up. Some builders are still holding on to their prices anticipating a revival in consumer demand, but it was said unless developers lower the prices, demand for flats will not open up.
Lehman Brothers and Merrill Lynch reportedly occupied commercial space in India spanning 2.5 lakh square feet. Any distress selling of these assets for funding their requirements will bring reasonable moderation in the commercial space.
Property prices in Tier 2 cities have reportedly dropped by 15% to 20% in the last few weeks, even as it was said there has been no price adjustment in metros, especially in Delhi and Mumbai. In the short to medium term, prices of commercial property are expected to take a hit further, while residential segment will show some moderation in demand. In the residential segment, analysts expect the prices of property to decline by around 15-20% across the board after Diwali. But the price fall may vary and will depend on specific location and other local factors affecting supply and demand for properties. Analysts are of the view that properties in a good location would not be significantly impacted, while those in less prime areas could feel the pinch.
Media said some thousands of employees with Lehman Brothers, other big financial institutions and BPOs may have been affected after Lehman Brothers filed for Chapter 11 bankruptcy. Many of these employees would have taken home loans and the banks may not offer them an extended buffer period to start repaying their EMIs
On the BSE, realty stocks witnessed a free fall ever since global investment bank Lehman Brothers, filed for bankruptcy. Foreign instititutional investors have significant stakes in the booming realty and development companies. Merrill Lynch and Lehman Brothers have reportedly exposures to more than a dozen realty companies, including Ansal Housing, Anant Raj Industries, Unity Infrastructure, the Puravankara group and J Kumar Infrastructure, among others. More than the actual developments, a feeling that a lot more will come out is keeping investor sentiment negative in these stocks.
The barometer for realty stocks, the realty index, has delivered a negative return of around 5% and 20% in the last one-week and one-month, while it lost around 57% in value over the last one year. Most of the stocks in this segment are trading near their 52-week lows after tumbling nearly 80% from their 52-week high.