1997 Worst Property Crash of India

1997 saw the worst ever property crash in India with all the major markets suffered 30-50% correction. Here is how the Residential and Commercial Prices Dropped across Mumbai, Bangalore, Delhi, Chennai, Pune and Ahmedabad.

Why the Residential Property Demand Will Not Come Soon?

All the major markets we visited are showing stress with sales stalling whereas unsold inventory buildup at life time high. All major market developers except Delhi NCR are offering discounts to the tune of 5-15% in garb of lot of freebies whereas Delhi NCR is witnessing explicit price cuts. As prices have gone up too high too quickly, we expect this segment to undergo significant price correction for ticket size of Rs10mn+ and time correction expected for ticket size of below Rs10mn. Demand will remain tepid till FY19 due to oversupply prevalent in all the major markets.

Semi Luxury and Luxury segments are hit the most
Lot of launches in semi luxury and luxury segment in last few years across India. As these luxury segments are more aspirational than need based, these have been hit the worst due to sentiments hitting new lows. Most of the developers agreed that this segment is seeing the maximum discounts and explicit price cuts in the range of 10-15% and expect the demand to remain tepid for couple of years.


Benign Inflation will boost the flow to Financial Savings. Job cuts in mid-management layer and falling wage hikes for new entrants should hurt.

Either price or time correction required for income to catch up the high property prices
Property prices have gone up too high too quickly vis –a-vis income levels. Differential in median property prices and median income has expanded. Monthly EMI to income ratio of 40 is the most comfortable ratio. Individuals with 5-10 years of experience and earning between Rs 1-1.5 mn can only afford a property ticket size of Rs 6mn. Time and price correction in property price levels along with lower HF loan rates seems inevitable.

Noida Green Ruling - Good News for NCR Developers

In a major relief for NCR developers / home buyers, the Environment Ministry has approved the draft notification of an eco-sensitive zone around Okhla Bird Sanctuary. As a quick recap: In 2013, the National Green Tribunal had halted construction activity within the vicinity of 10km around this bird sanctuary thus affecting real estate and urban infrastructure projects in Noida and NCR. As a result a lot of the completed apartments (almost 30,000) and other projects could not be handed over to customers. Sales too had declined as customers weren’t sure about the timing of the final approval – if at all. This notification should allow project handovers to commence and will likely result in improved sales traction in NCR – one of the slowest property markets in India.

We note that in Gurgaon, Dwarka Expressway construction also recently got the green light thus allowing for project construction to resume likely allowing for some improvement over time in the secondary market. We note that the market is down 20-25% in terms of pricing and volumes are almost 70-80% below 2010 levels, thus making it one of the most affordable markets in the country. As the secondary market improves, we think it will be reflected over time in the primary sales of developers.

We note that the ruling will essentially allow developers to handover existing projects to customers and likely improve secondary market sales between investors and end users. However, primary sales will take time to pick up as the market will first work through the absorption of these completed units. Nonetheless, in the medium term, this is positive for pricing as eventually when customers start taking possession of projects, prices in the surrounding vicinity will start to rise given improved economic activity and thus eventually incentivize developers to launch new projects.

Moody's Say Developers face Uphill Task

Largest property developers will continue to face a challenging operating environment over the next 12 months including weak cash flows, flat sales and stagnant prices; * expect solid economic growth in India in 2014-15 to provide some support to housing sales, while the likely gradual easing of lending rates will also boost investor confidence and investment activity; * high home prices and declines in savings rates will outweigh these factors, particularly in Mumbai and Delhi

Rising inventory levels in Bengaluru has been highlighted before. While job market has been robust in the region, improvement in IT hiring and continuation of E-commerce led job market boom will remain key monitorables for the region’s performance going forward.

Strapped for cash and struggling to find buyers, developers are offloading apartments in scores. And taking advantage of the situation, private equity (PE) funds and even high networth individuals are driving a hard bargain. Real estate firms, sitting on large inventories, find they have little choice but to offer deep discounts — anywhere between 20% and 40% — as they need cash to complete projects. Gaurav Gupta, director, Omkar Realtors and Developers, confirms he is offering discounts for bulk deals explaining that off-loading apartments. Kolkata’s Forum Project Holdings too has done a bulk sale to Piramal at its BKC project.