The prolonged slump in the Indian housing market is causing market players to scramble for solutions.

“Oversupply in the sector has been growing since 2013, and conditions worsened following the government’s 2016 demonetisation campaign, together with tighter regulation of the industry.”

In July 2019, a report by investment bank Goldman Sachs predicted that 70 per cent of Indian developers could go out of business within the next two years.

“These are painful times,” one Delhi-based consultant interviewed by the Urban Land Institute (ULI) and PwC for their annual report, Emerging Trends in Real Estate Asia Pacific 2020, a real estate forecast jointly published by them, said.

“The whole game is going to become redefined; only people with access to a credible capital partner will survive. Developers are struggling for survival.”

As a result, distress plays are becoming a major opportunity. A newly introduced bankruptcy code means that more assets are being auctioned off by banks at a discount.

In December 2019, Abhishek Lodha, managing director at Lodha Group, reportedly told Bloomberg: “When demand is as tepid as it is right now in certain parts of the economy and sentiment is negative, we need a bazooka to come out and change sentiment.”

“We have a lot of liquidity, but it’s trapped liquidity in the banking system,” Lodha reportedly said. According to Bloomberg, India’s central bank has struggled to revive economic growth despite being the most aggressive slasher of rates among failed to spur growth.

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India’s property market has been facing a slump in demand in the last few years after the government withdrew 500 and 1,000 rupee notes overnight in 2016. Many buyers and sellers depend on cash transactions for evading taxes while purchasing property.

A prolonged cash squeeze in the shadow banking sector, a key source of funds for developers, has also dented property-market sentiment.

Lodha group is the country’s largest residential real estate developer with sales of about 119 billion rupees (US$1.7 billion) in the twelve months ended March, according to the Grohe Hurun report. The company has about 40 ongoing property projects including Trump Tower in Mumbai.

In all, about 576,000 home property projects worth some 4.6 trillion rupees are running behind schedule across seven big Indian cities, Anarock data show.

Emerging Trends in Real Estate Asia Pacific® 2020 meanwhile reports the following:

“New Delhi has traditionally been focused more on residential development, so the downturn in the residential market nationally is probably felt more keenly here than in other parts of the country. Oversupply in the sector has been growing since 2013, and conditions worsened following the government’s 2016 demonetisation campaign, together with tighter regulation of the industry. Now that both the banking and the nonbank finance sectors in India have dried up as a source of capital, many developers – especially in the mid-tier – are starving for cash. Defaults have become commonplace and many more developers are likely to fail over the next 12 months, according to one interviewee.

At the same time, on the commercial side, the market can do no wrong. Take-up of new office space is rising by around 30 per cent annually, according to one Delhi- based advisor, and is especially strong in Noida, a satellite city to Delhi’s south east, where absorption of grade A office space shot up to some 3.5 million square feet in 2018 from a historical average of 1 million to 1.2 million square feet annually. Noida offers cheaper office facilities and has benefitted as rental costs elsewhere in Delhi have risen.

“Developers are struggling for survival.”

“The primary driver was that in Gurgaon [another subdistrict of Delhi], office rental prices have gone up to as much as $1.50 or even $2 per square foot per month, which no longer makes sense for IT occupiers.”

Another sector that is booming in Delhi is logistics. According to one interviewee, “You’ve seen properties that are 100 acres in size being committed to the extent of 60 per cent even before the properties are ready for occupation.”

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