Last August, Gurgaon real-estate broker S Karan was planning to move out of his tiny basement office in a small building to a fancy new one in one of the tall steel-and-glass buildings that have become the signature of this booming Delhi suburb.
Then, Lehman Brothers, one of the Big Four investment banks in the US, collapsed on September 15, sparking off a global recession, an Indian economic slowdown, and a slump in the once booming real-estate sector.
Karan (34) then thought his dreams would remain still-born — till the first signs of a recovery in the first quarter of 2009-10. “Usually, we seal 70 per cent of our deals around Diwali. Last year, that figure dropped to 30 per cent.”
There were many reasons for the death of his dream.
The global recession took the Indian stock markets down with it. The BSE Sensex fell from 14,001 on September 12, the last trading day before the Lehman collapse, to a low of 8,198 on March 5, this year.
So, the supply of speculative money that had mainly fuelled the 2005-08 real estate boom, in which house prices doubled and rentals soared more than 75 per cent, stopped.
Rising inflation also forced the Reserve Bank of India to hike interest rates. Result: interest rates on housing loans rose from 7-8 per cent levels at the end of 2007 to 12 per cent a year later.
Housing was no longer attractive for speculators, and out of reach of the middle class.
The bubble had burst.
Between October last year and March this year, housing sales dropped from 10,000-12,000 units per month in the National Capital Region to less than a third of that number.
“Earlier (prior to the Lehman collapse), I used to conduct two to three transactions in the resale category and three to four original bookings every month. After October, that number fell by half,” says Karan.
Transaction values also fell as realtors, who had got used to net profit margins of more than 50 per cent, cut prices to lure buyers back.
But the double whammy of lower prices and plunging sales took its toll. DLF, India’s largest real estate company, saw its January-March 2009 sales and profits plunge 96.6 per cent and 95.3 per cent, respectively, to Rs 55.5 crore and Rs 29.8 crore.
Unitech, India’s second-largest real estate developer, and a host of other biggies like Omaxe, Parasvnath, Prestige, Puravankara, etc., also suffered similar setbacks.
Then the tide began to turn in the first quarter of 2009-10. The global recession brought down crude oil and commodity prices worldwide.
The wholesale price-based inflation rate began to ease – and even entered negative territory for a while. Interest rates started falling once again.
Realtors cut prices, by up to 30 per cent, and launched a slew of affordable housing projects (priced at Rs 15-50 lakh per apartment).
And the release of arrears to government employees, following the Sixth Pay Commission Report, thus, putting massive sums of money in the hands of government employees, provided the icing on the cake.
Buyers returned to the market.
Unitech Managing Director Sanjay Chandra says the company booked nearly 4,000 housing units in the first two-and-a-half months of 2009-10.
The number of registration agreements signed has also seen a healthy improvement. In Mumbai and Pune, registrations increased 24 per cent and 21 per cent month on month, respectively, said a June 2009 report, On the road to recovery, by Religare, Hitchens Harrison.
“The residential property market has been driving this recovery,” says Aditi Vijayakar, director, residential services, Cushman & Wakefield India, a large real estate consultant. The commercial and retail segments, though, have not yet picked up.
“The worst is over,” says Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India, the apex body of realtors in India.
So, Karan can probably breathe easier now, even though his dream office may still be out of reach.