Impact of global slowdown on real estate market of Mumbai, India

Thursday, August 18, 2011 ·

Today all global and Indian stock markets hit new yearly low. All market whether New York Stock Exchange's Dow Jones , NASDAQ,FTSE of London Stock Exchange and European and Asian markets   CAC, SEC, KOSPI , Nikkei and here in India, Bombay Stock Exchange's Sensex were down in the range of 2.5% to 5%.
We at will try to analyze impact of global slowdown on real estate market of India in particularly Mumbai.
As we all know for general public real estate has became safe haven in India. Now day's people stop allocating their money to any other investment class.They think it is best bet which gives better return then bank deposit and difficult capital market.In last decade they were right also, as they say that yesterday's winner might not be tomorrow's winner.Whether investors, speculators even builders were buying any form of real estate whether flats, offices, apartments or land at any prices like there is no tomorrow. This has created  a bubble in the sector, which got bigger because hype created by builders financed media. Builders are putting advertisements with lot of false promises like new international air port will be realty in Mumbai very soon same what they did for Noida in national capital region.

Now as we see global economy is heading towards  recession there is no new demand is coming. Due to volatile political environment and  global recession new companies is not coming to India.There was good demand from IT sector due to BPO boom but that sector is also losing cost advantage because of high salaries and real estate cost.Now companies managing their staff at 40% less space to control cost.This will hamper expected new demand form this sector.

Salaried class also leveraged and now going to have additional high EMI ( equally monthly installment) because of high interest so it can't expect new demand form this class also.

In 2008 people were talking that Indian market is decouple from rest of the world and they had it. 
This time no one is talking about decoupling theory.In flow will be muted due to high interest rates and vary global private equity investors. Banks is almost black listed real estate sector, so there is no way from where it can have money supply to sustain itself.

 In India quality of builders is also an issue. The way Competition Commission of India ( CCI ) slapped the 630 Cr. penalty it shows that builders can go any extant to take consumer for ride.
Corporate governance is also big issue which makes foreign investors wary.If slow down remain longer then if Indian living abroad  get affected by this slowdown by this that will make things worse.

There are few technical signs which shows that long rally in this sector is on its last legs.Like builders is organizing property fair in UK, US and Gulf countries to attract NRI's with not much success.When every one is buying and prices doesn't go up then it show that market is making it top. People are buying on bigger fool theory means they will get buyer at higher then their buying prices irrespective of their buying price but these things doesn't last forever.
All this will to lead to slow down in real estate sector, which will last longest in real estate sector history.


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