Facets of India’s Housing Slump Scenario

The year 2013 has seen a crumbling real estate industry in India with the slowing down of economy. The continuous falling rupee value has added fuel to fire for the crumbling industry. Real estate projects which were once considered a symbol of the growing real estate market in India have now become an indicator of the falling economy due to heavy stagnation.

Reasons for the bearish movement

There are different reasons for the bearish nature of the housing industry.

1. The rupee has been almost under a free fall since July. It has dropped approximately 20% against the US dollar since May scaring away many foreign investors. The Reserve Bank of India (RBI) has taken some steps to stop the further falling of rupee. In order to stop the outflow of Indian money into foreign countries it also passed a regulation banning Indians from making real estate purchases overseas by transferring money.

2. Rising costs is another pain. Real estate projects take a long time for their development in India due to various problems. Real estate investment groups are in debt and trying their best to avoid loan defaults by paying the interests. Very few of them are in a position to start further projects. The Orbit Group is one such example which recently defaulted its loans.

The combination of these two has created sluggishness in the short-term prospects of commercial and residential real estate prices in the country.

Developers refuse to reduce prices

Industry experts say that there may be a sharp correction by March owing to market sentiment. However, most developers are refusing to offer discounts fearing a market rout. Dropping real estate prices will create panic and will lead to further decline in prices. With developers refusing to provide price discounts, prospective buyers are losing interest. This has created further market slump. There are also very few people who are willing to buy property from the point of investment. Most potential customers are found to be actual users.

Banks not much affected

Housing finance has played just a small role in the Indian banking system when compared to the banking system in the west. Hence, downturns in real estate won’t affect the banking system much in India. Moreover, with constant regulatory obstacles, the pace of construction has slowed down. There are also fewer buildings to finance. The broader Indian economy too will escape harm despite downturns in real estate as India has a low rate of home ownership and fall in home prices are less likely to cause serious worries.

Silver lining for foreign investors

While the fall in rupee value has created concerns for foreign investors, there may be a silver lining for them. There are high occupancy rates and steady income in terms of rentals for residential and commercial real estate. While the overall supply has gone down due to limited construction, the tenant demand has been mostly good.

While there is some hope for rentals in real estate, majority of Indian economy is going through a tough financial crisis and people are still struggling. The economy has not only affected people in the service class or lower-income group, but also business people.