Saturday, May 15, 2010

Would the housing build up in India's capital Delhi sustain?

I'm afraid not.

If you live in Delhi and read Times of India or Hindustan Times, you cannot miss the huge one-page advertisements for property units: apartments, golf course plots and luxury condominiums. The advertisements usually line the front and back pages, and show an architect or better, an artist's impression of the buildings to come up.

Several developers are selling affordable houses in integrated townships like Kundli, Sonepat, Gurgoan, Faridabad and Noida, while others are focussing on the high-end condominiums in the heart of the city and Noida.

1. High end condominiums start at Rs. 1.5 crore onwards and are going to be bought by people who already own a house. If they propose to move into their condominium after allotment ( I'm guessing a few years from now) they would sell their present house. This gives us a problem of today's demand of condominiums and the eventual demand for the buyer's homes in the futures.

2. Affordable houses are not so affordable that the average buyer will give a whole cash down for the entire amount. In fact such buyers are in a large minority. Most of the buyers will be young, first time buyers and will be taking 10-20 year loans for buying the apartments. Their repayment of principal and interest in turn, depends on their incremental salary, which depends on the economy as a whole.  

What if the default?
A similar situation prevailed in the US, but in that scenario, the majority of the owners were sub-prime borrowers, who had adjustable rate mortgages. After US house prices peaked, and started their downward movement, mortgage defaults started. Refinancing became tough, and mortgage backed securities lost most of their value.

The Indian borrowers are not sub-prime, but even them satisfying their repayment obligation isn't sure.

My above fears may be far fetched, but the immediate one is that of today's demand. Will Delhi and its surrounding population's financial capital soar up to buy one of the above property units? Will they shift? And what about the perennial problem of car parking, sealed shops, traffic, overcrowded buses and Metro in the metropolitan city?

1 comment:

  1. I remember that twin towers of Malaysia brought its economy down that time. Dubai Burj towers brought the economy of Dubai to its knees. I only hope Delhi property boom does not bring Indian economy down as India is a genuine growing story where even a lot of foreigners are coming to work in India.