Shares of Unitech, India's largest real estate developer by market value, soared 24,516 percent during the past three years. Anant Raj Industries, a competitor, leapt 34,089 percent.
RBI is moving to cool the market. The Reserve Bank of India on Jan. 31 raised its overnight lending rate for the fifth time in a year to 7.5 percent
Both have dropped at least 6 percent from peaks in November and December and further losses may lie ahead. The highest interest rates in four years, tighter lending requirements and seven share sales this year are hurting real estate stocks. Those companies had rallied as a property boom pushed apartment prices in southern Mumbai to near- Manhattan levels.Real estate-related stocks last year accounted for six of the top 10 performers in the BSE-500 index, the broadest measure of India's stock market. This year, none is among the top 10. Two, Mahindra Gesco Developers and D.S. Kulkarni Developers, are in the 10 worst. Five of the six are down this year.
Prices rose 50 percent to 100 percent over the past year in cities such as Delhi, Bangalore and Hyderabad, the property consultant CB Richard Ellis said in a report for the quarter ended in December. Colliers International India Property Services says average property prices across the nation may drop as much as 20 percent over the next two years as more homes are built.
A six-bedroom duplex apartment in the Malabar Hill area in South Mumbai, where the Bollywood actor Vinod Khanna and Citigroup's India head, Sanjay Nayar, reside, sold for about 250 million rupees, or $5.7 million, according to the buyer, Rakesh Jhunjhunwala. Jhunjhunwala, a Mumbai-based private investor with about $250 million in Indian equities, bought the property last June. A comparable apartment on the Upper East Side of Manhattan would cost between $6.5 million and $8 million, said Jonathan Miller, president of Miller Samuel, a real-estate appraisal firm in New York.
Rising incomes and easy financing have driven demand for housing among India's 1.1 billion people. Average salaries in India rose 13.8 percent last year, the fastest growth in the Asia-Pacific region. They may rise as much as 15 percent this year, according to Hewitt Associates, a human resources company based in Lincolnshire, Illinois.
India's developers also look expensive when their share prices are measured against the value of the land they own for construction, Jhunjhunwala says. Though he bought $5.7 million apartment in Mumbai, he is avoiding real estate stocks.
Demand for office space is expanding in downtown Mumbai and other cities in India as banks such as Lehman Brothers and Credit Suisse set up shop.Mumbai's office rentals are now the third highest in the Asia-Pacific region after Hong Kong and Tokyo, a survey by the property adviser DTZ Debenham Tie Leung showed. It costs $88.2 per square foot to rent office space in Mumbai, compared with Tokyo's $97 and Hong Kong's $141.
The central bank is moving to cool the market. The Reserve Bank of India on Jan. 31 raised its overnight lending rate for the fifth time in a year to 7.5 percent and asked lenders to double provisions for commercial real estate loans to 2 percent in an attempt to curb defaults.
Housing Development Finance, the country's second-largest mortgage lender, raised its rates four times over the past year to 9.5 percent.
Source: Bloomberg
