Business | Property
Terrorist attacks kill demand in Mumbai
India's worst terrorist attack in 15 years has caused Mumbai's property market, already faltering in a slowing economy, to grind to a halt.
- Bloomberg
- Published: 23:35 December 4, 2008
Mumbai: India's worst terrorist attack in 15 years has caused Mumbai's property market, already faltering in a slowing economy, to grind to a halt.
"The market's gone completely quiet," said Shiv Kumar Dembla, a property broker who owns Shiv Real Estate Consultants in Mumbai. "The future doesn't look bright either. The last six months were quiet, but now it could get worse."
The city's home sales dropped 21 per cent in the seven months to October 31, according to estimates from UBS. That was before terrorists held south Mumbai under siege for almost 60 hours, with attacks on luxury hotels, a railway station and a Jewish centre leaving more than 195 people dead last week.
Terrorists targeted the foreigners who helped make Mumbai the world's second-most expensive city for offices last year, as companies including Macquarie Group and Barclays sought space in India's financial capital. Now, apartment buyers are walking away and developers may be forced to shelve projects as companies rethink the risks of doing business in India, brokers and analysts said.
Mumbai, which accounts for a third of India's taxes, is home to the nation's central bank and primary stock and commodity exchanges, as well as its largest companies and the local headquarters of overseas firms such as Citigroup and Barclays.
The city is the world's sixth most-expensive in terms of apartment rentals, and ranks second in Asia behind Hong Kong, according to a survey released by ECA International in April.
Correction likely
"Rentals in Mumbai have climbed up steeply over the past few years," Mridul Upreti, joint managing director for capital markets at commercial property broker Jones Lang LaSalle's local unit, said in New Delhi on December 2. "In the short term, residential prices are going to correct."
Registrations of new homes in Mumbai dropped 35 per cent in October from a year earlier as a slump in demand gathered pace, according to UBS analyst Suhas Harinarayanan. November sales data could be worse, he wrote in a note to clients on December 2, without commenting on the terrorist attacks.
"Several non-resident Indians who were planning to come later this month to purchase properties have postponed their trips" following the attacks, said Ashwin Mehta, who runs real estate brokerage Astute Acres in Mumbai. "We've gotten hardly any inquiries since last week."
Demand for housing in south Mumbai was already under pressure because of high borrowing costs and developers' reluctance to cut prices, Macquarie Research analyst Unmesh Sharma wrote in a note to clients December 1.
An October auction for land near Mumbai's emerging financial district of Bandra-Kurla Complex, home to Citigroup, ICICI Bank and the National Stock Exchange, lured just one bidder. Mumbai officials also had to twice defer plans to lease two plots of land for offices in a north-central suburb because of slack demand.
Harder hit
Mumbai, along with New Delhi, will continue to be harder hit by the economic slowdown partly because of their dependence on the banking and financial services industry, Sandeep Mathew, an analyst at BNP Paribas, wrote in a note to clients yesterday.
An index tracking 14 Indian real estate stocks has slumped 87 per cent as a five-year rally in property prices ended and the global financial crisis choked off funding for developers. The nation's economy grew last quarter at the slowest pace since 2004, fueling expectations that property costs will decline further.
DLF, the nation's biggest real estate company, and Emaar MGF Land, the Indian unit of the Middle East's largest developer, have been cutting prices or offering cheaper homes to revive demand. Yet sales will rebound only if home prices in the nation decline by 25 per cent to 30 per cent, or borrowing costs drop, UBS's Harinarayanan estimated.
If the government's response to the terror attack fails to restore confidence among overseas investors, demand for office and retail space may drop further, Macquarie's Sharma said.
"Investors will start seeking a high risk premium for investing in real estate in India," Upreti said. "So instead of 20 per cent to 23 per cent returns, you will start seeking 25 per cent to 26 per cent returns because country risk-premium will go up."
Nowhere is the fallout more keenly felt than in Colaba, the upscale neighbourhood in south Mumbai where gunmen stormed into the Taj Mahal Palace & Tower hotel and a Jewish centre, took hostages and fought running battles with Indian special forces.
"People who were earlier planning to buy in Colaba now want to cancel the plans," said Narender Bhagwanani, who runs Om Sai Estate Property Consultants. "They are too scared to live around Colaba."
Business Editor's choice
-
‘Wrong Way' Krugman
The source of our economic malfunction lies with government-mandated bank regulations
-
Greek exit could make Eurozone stronger
Departure will show limits of bailouts and allow remaining members to act much more like a unit
-
UAE upholds values of free trade
Recently released statistics confirm an established fact, namely that of the UAE embracing the free trade principle in general and imports in particular
