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Another crack in the wall

Another crack in the wall
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First Published: Mon, Jun 09 2008. 06 34 PM IST
Updated: Tue, Jun 10 2008. 12 04 AM IST
Since the beginning of this year, the share prices of India’s leading real estate developers have been dropping like a brick. Many of these developers are now trading at or near annual lows.
Mint reported in its Monday edition that developers such as Omaxe Ltd, Sobha Developers Ltd, Nitesh Estates and Alliance Group are delaying work at their construction sites, citing shortage of funds. Meanwhile, there are other warning signs that less money is available to this once lavishly funded sector. A real estate investment trust (Reit) floated by the Indiabulls group has run into trouble in Singapore, where the money was being raised. Domestic banks, too, have been less keen to lend to the real estate sector, be it developers or homebuyers. ICICI Bank had said last month that?it planned to refocus on industrial loans.
There is very little data about whether all this is pulling down real estate prices across the country. India has seen some very preliminary attempts to build indexes of real estate prices. What analysts have to work with are either anecdotal evidence or scraps of data from real estate brokers. These indicate that the prices of houses are dropping in several cities.
The recent events are a cause for worry. The real estate boom that started at the beginning of this decade was fuelled by rising incomes, tax breaks, low interest rates and the growing numbers of nuclear families. The spending unleashed by this wave of homebuying lifted not just land prices, but also the demand for everything from cement to construction labour.
Houses are still far more affordable than they were in the 1990s, thanks to rising incomes. The ratio of house prices to average urban incomes is still far lower than what it was a decade ago, when the previous real estate boom ran out of steam.
India is not yet hostage to the vagaries of house prices, unlike economies such as Hong Kong and the US. But as inflation bites, interest rates inch up and economic growth slows down, real estate prices are likely to remain in check. Perhaps, they will decline further. The rough times in the construction and real estate development industries could mean further bad news for the Indian economy.
Is this the end of the real estate boom? Write to us at views@livemint.com
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First Published: Mon, Jun 09 2008. 06 34 PM IST