Will It Burst or Flatten Out in India?

It has become well nigh impossible for those who invested in real estate last year to exit the scene as the downturn has deepened and the prices being quoted do not even cover the purchase costs and interest expenses. Moreover, the negative global news flow has set off a panic reaction, inducing investors to close deals at losses.

Early last year a flat in Greater Noida or Gurgaon, bought with a bank loan to finance 80 – 85% of the cost would have the EMIs continuously go up since the purchase, thanks to a series of rate hikes by the RBI. The flat may have been purchased for a pure investment decision after hearing stories of skyrocketing returns made on property investments. However, the prices haven't climbed as expected and the interest outgo has made the property expensive. The owner is now left with the only option of selling at a loss. And given the global economic gloom, he is willing to take a hit. Several investors are stuck simply because there hasn't been enough price appreciation in the past one year.

Several young investors invested in property at the peak of the property cycle last year. Many purchased two apartments simultaneously, assuming that they would finance one by selling off the other at a premium. They are now caught in a difficult situation as they bought at a higher market rate and are compelled to service two EMIs.

Some investors have started defaulting and there is a significant rise in the number of people who are approaching the realty developers to cancel their bookings and return the money. I feel that investors will have to bear huge losses if the markets do not improve during the festive season. Home buyers in the country are staying away due to the high interest rate regime and expectations of a correction following the realty crash worldwide.