Luxury Homes in India Stop Selling

Luxury homes in India stop selling

Like much of the world, the financial crisis is hitting Indian property markets hard. Particularly high-end homes, with the problem being exacerbated by a very skewed proportion of luxury homes to starter homes. During the boom times, Indian property developers concentrated almost exclusively on building luxury apartments aimed at foreign investors or NRIs (Non Resident Indians.)

Despite offering incentives such as a four-wheel drive vehicles and gold bars as “free gifts,” for buying property, luxury home sales in India have come to a standstill and sales in the overall market are down by more than 50% compared to last year. India’s largest developer, DLF have seen their share value fall 80% this year and have canceled or deferred several large projects. Their share price is continuing to fall, with another 3.81% drop today. DLF’s chairman warned of increasing layoffs and the likelihood of developers closing down completely if the market continues to contract.The company’s owner, Kushal Pal Singh is estimated to have lost around $39 billion. Unitech, India’s second-largest property firm, is also cancelling or delaying new projects as its shares have fallen 90% this year.The Realty Index of the Bombay Stock Exchange has also dropped nearly 90%.

Land prices in many parts of the country have increased by 400% in the last three years making property increasingly unnaffordable. Sachin Sandhir, India head of of the British-based Royal Institution of Chartered Surveyors, said,  “There’s going to be a correction. Properties have to be made more affordable.”

It is estimated that India faces a shortage of 25 million homes currently, so the issue is not one of demand. But it is fair to say most of this demand is in the lower income housing bracket, with the luxury market being heavily over-supplied. Interest rates for home loans are around 12-13%, and many analysts believe this has to come down drastically before the market can begin a recovery.

Back in August, Donald Trump Junior announced a $1 billion hedge fund to invest in Indian real estate, and I suspect he may be biding his time now. At the time, he said, “We feel it is now time to invest in Indian realty projects as the quality has moved up and we see emergence of some high-end developers with a product level that will support our brand.”