The real estate boom is officially over in Hyderabad and many other
cities. The prices of real estate land have fallen in the outskirts
and the price of apartments per sq ft has crashed in the past year.
A key reason could be the sub-prime real-estate crisis and its impact
on real estate abroad has led to several NRI's burning their hands in
real estate. Their appetite for real estate investment in India is probably
low now. Plus, with the developed nations moving into recession NRI's
might be concerned about maintaining their current income levels. Local
businessmen and investors are also stuck with their "investments".
The lands that they had originally planned to buy and sell in a few
months at good appreciation - actually depreciated and most of them
could not dispose of their land for nearly a year. Many have forfeited
the initial payment on the agreement for sale. Today, this segment of
buyers has no appetite for real estate investments.
With stock markets falling from 21K to 15K levels, one of the pillars
of wealth creation for the real estate buyers is destroyed. This pillar
enabled a number of real estate investors to fund the margin money for
buying the properties. This source of wealth may not be available for
many years to come. Currently, some financial institutions are in fact
advising investors not to invest in stock market for at least 6 months.
The current situation will not get any better with a weakening in the
earning capacities as well as the sentiment of all types of real estate
buyers - NRI's, highly paid employees and domestic businessmen. The
future does not seem to be any better with spiraling inflation, lowering
growth rate for economy and increasing interest rates. In the early
to mid nineties Mumbai (then Bombay) went with a similar boom to a negative
correction and the prices took over a decade to come back. It will be
interesting to see how the other markets behave with the falling NRI
investment.
