Realty Crash Shuts Exit Options For Investors

It has become well nigh impossible for those who invested in real estate last year to exit the scene as the downturn has deepened and the prices being quoted do not even cover the purchase costs and interest expenses.

Moreover, the negative global news flow has set off a panic reaction, inducing investors to close deals at losses.

The 35-year-old Rahul Verma, who works with a Noida-based IT company, exemplifies the experiences of late entrants into the property market. He bought a Rs 50-lakh flat in Greater Noida early last year by arranging for a bank loan to finance 85% of the cost.

His EMIs have continuously gone up since the purchase, thanks to a series of rate hikes by the RBI. The flat purchase was a pure investment decision. Rahul had jumped onto the bandwagon after hearing stories of skyrocketing returns made on property investments.

However, the prices haven’t climbed as expected and the interest outgo has made the property expensive. Rahul is now left with the only option of selling at a loss. And given the global economic gloom, he is willing to take a hit.

“Several investors are stuck simply because there hasn’t been enough price appreciation in the past one year,” says Raheja Developers Chairman Navin Raheja.

Several young investors invested in property at the peak of the property cycle last year. Many purchased two apartments simultaneously, assuming that they would finance one by selling off the other at a premium. They are now caught in a difficult situation as they bought at a higher market rate and are compelled to service two EMIs.

Some investors have started defaulting, according to a senior Parsvnath executive. “There is a significant rise in the number of people who are approaching us to cancel their bookings and return the money,” he says.

Property consultants feel that investors will have to bear huge losses if the markets do not improve during the festive season. Home buyers in the country are staying away due to the high interest rate regime and expectations of a correction following the realty crash worldwide.

2 Comments

  1. Atul
    Posted September 23, 2008 at 2:11 am | Permalink

    This was obviouse and very visible since October-2007. Unfortunately, we were too over-confident to pay attention to what we are getting into.

    Young blood of India had never seen the downtrend. They are given an impression that Property prices only rise. It can never go down. They earned huge money but did not have brains for investment. They believed what was published in Media.

    Unfortunately, we are still far away from being realistic intelligent and are still trying to keep our OverConfidence up. Every country in the world is showcasing caution while setting expectations, where as, we in India, still keep saying:
    – We will not have any problem
    – Growth rate of 8% is achievable
    – ‘Growth story’ remains intact

  2. Posted September 23, 2008 at 5:24 am | Permalink

    The collapse of the Lehman Brothers and the buyout of Merill Lynch have not become a reason to frown for Indian realtors, as they are putting up a brave front and maintaining that there will be no impact on the real estate sector of the country. Lehman Brothers filing for bankruptcy will impact those Indian realty operators who have not structured their agreement carefully, according to Mr. Sanjay Dutt, joint Managing Director, Cushman & Wakefield. He does not foresee a situation where projects would get shelved. “Most of the funds that were committed have been delivered.” Mr. Dutt is of the opinion that if projects get shelved it is mostly because of changing market dynamics and not because of a lack of liquidity. Experts think that in a bid to de-risk, these investment bankers would trade their private equity placements. India is still a growth story and as far as the real estate investment is concerned it is very attractive from a long-term perspective.For more view- realtydigest.blogspot.com

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