Text size:

  • Small
  • Normal
  • Large
Newly constructed residential apartments lie vacant on the outskirts of Hyderabad. Noah Seelam / AFP
Newly constructed residential apartments lie vacant on the outskirts of Hyderabad. Noah Seelam / AFP

Indian property market hits a brick wall

India Dispatch: Rising construction costs, falling demand and other factors have knocked India's residential property market on its heels.

Two years ago, India's residential property market provided a lucrative investment opportunity amid a shortage of 26 million housing units across the country. Developers minted profits from top-end condominiums and shiny high-rises that were in big demand as the economy grew rapidly.

The shortage still persists, but several new headwinds - rising construction costs, falling demand for high-priced properties, labour scarcity and tightening liquidity - have knocked this once-booming industry back on its heels.

According to the Mumbai property research company Liases Foras,across six major cities - New Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Pune - 471 million square feet of property space, or more than 406,000 housing units, remain unsold. In Mumbai alone, buyers have not been found for 107 million sq ft of residential property space - about 92,300 housing units that have been constructed or are nearing completion.

"Abnormally high" property prices - that have not dropped despite a precipitous slowdown in sales - could spell doom for developers, says Pankaj Kapoor, the founder and managing director of Liases Foras.

The average price of a flat in Mumbai rose from 7.5 million rupees (Dh619,516) in October 2006 to 21.8 million rupees this March. At the current price level and sluggish pace of sales, Liases Foras estimates that clearing the backlog of unsold inventory will take about 35 months.

The signs of debacle in this once-prosperous industry are everywhere: rows and rows of empty apartments, unmanned cranes and quiet machines at stalled construction sites.

For property developers, losses are mounting and debts are piling up - outstanding bank loans to property companies shot up by 33 per cent in the past two years to more than 1 trillion rupees, according to the global financial services group Credit Suisse.

PropEquity Research, a property data and analytics company based in New Delhi, says that the delivery of 480,000 of the 930,000 residential units already sold but currently under construction could be delayed by up to 18 months because of a shortage of funds. Construction delays are rapidly eroding investor confidence, analysts say.

PropEquity's research covered more than 10,000 residential property projects being executed in 11 cities by about 1,500 developers.

The Bombay Stock Exchange real estate index - a measure of 15 property stocks - has fallen by more than 50 per cent since November, while the broader market has fallen by about 14 per cent.

Between January 2008 and last month, stocks of the top 10 listed property companies have destroyed investor wealth by up to 2.67tn rupees, according to research by the media web portal FirstPost. DLF, India's largest property company, leads the pack with its investors losing 1.45tn rupees.

The shortage and rising costs of labour are adding to the problems of developers.

The World Bank says the construction industry faces a labour shortfall of between 18 per cent and 28 per cent, even though daily wages have shot up to 325 rupees per day from 250 rupees two years ago. The shortage is attributed primarily to the national rural employment guarantee programme - a landmark anti-poverty scheme launched in 2005, which promises 100 days of employment per year to one member of every rural family. "Taking into account price increases of the four key construction components - steel, cement, labour and bricks - there is an 18 per cent gross rise in construction cost over the last two years," PropEquity recently reported.

These four components generally constitute almost 75 per cent of the overall cost of an apartment.

"This escalation will corrode the profit margins significantly," the research report said.


Back to the top

More articles

Editor's Picks

 Would you like it in blue? An Afghan shopkeeper shows a burqa to a customer at a bazaar in Herat. (Aref Karimi / AFP /  April 13, 2014)

In pictures: Best business images for the week to April 24, 2014

Here are some of the best business images for the week to April 24, 2014.

 That's asking a lot: this four-bedroom duplex penthouse apartment  at Marina Residence in Dubai is for sale with an asking price of Dh15.7 million. (Courtesy Better Homes / April 2014)

In pictures: Palm Jumeirah penthouse listed for Dh15.7 million

A four-bedroom duplex penthouse in Marina Residence 3 on Dubai's Palm Jumeirah is on the market for Dh15.7 million.

 Room with a view from one of the 21 duplex penthouses located in the Gate Towers sky-bridge. The sports courts and swimming pools can be seen below. Courtesy Alda

In pictures: Aldar’s Gate Towers Penthouse Collection on Reem Island

Aldar launched its Gate Towers Penthouse Collection at Cityscape Abu Dhabi. The launch features 21 penthouses spanning the skybridge, with each having a private indoor pool and incredible views.

 Marina Square apartments Reem Island: Q1 2% rise. Studio - Dh65-68,000. 1BR - Dh75-95,000. 2BR - Dh110-145,000. 3BR - Dh170-190,000. Q1 2013-Q1 2014 no change. Sammy Dallal / The National

In pictures: Where Abu Dhabi rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Abu Dhabi have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National