More money down the drain?

As GIC and Temasek pump money into India, the country’s property market is in a crisis. The Economic Times says that Singapore is the second largest investor in India surpassing even the US and UK. In July and August this year alone, the Government pumped in $1 billion in investments. At the same time, housing prices in India are in a freefall, reports Asia Sentinel. Is more of our hard-earned money going down the drain?

Singapore second largest FDI source
The Economic Times

Singapore has become the second largest source of foreign direct investment (FDI) into India, surpassing the US and the UK. Tax-haven Mauritius continues to lead the charts. Until FDI from Singapore soared by $1 billion in July and August this year whereas long-term investment flow from the US and the UK was $300 million and $50 million, respectively.

In the FY 2006-07, FDI from Singapore was $570 million, mch below the US and the UK, as FDI from these two countries were $856 million and $1,878 million, respectively.

One of the reasons for the surge in foreign investment from Singapore could be linked to inflows from the two sovereign wealth funds, GIC and Temasek. The duo have been active private equity (PE) investors in the country in the recent past, with Temasek emerging as one of the top PE firms.

For instance, Temasek and GIC together announced deals worth $3.4 billion in India during calendar year 2007. This was about 18% of the total PE deals struck last year.

Cumulative FDI inflow between April 2000-01 and August 2008-09 is recored at $6.07 billion from Singapore, second to Mauritius ($31 billion), according to a data compiled by the department of industrial policy and promotion (Dipp). FDI inflows from the US and the UK for the period is $5.68 billion and $4.84 billion, respectively.

Up to June, Singapore, as a FDI source country, constituted 7.8% of cumulative FDI inflows since 2000. Now, according to the latest data, Singapore has contributed 8.3% of the cumulative inflows. In the first half of the fiscal, FDI grew to $17.21 billion against $7.25 billion a year ago.



The Froth Recedes on India’s Housing Market

Asia Sentinel

A once-vibrant property market goes into free fall

India’s prospective homebuyers recently woke up to a tsunami of offers from real estate developers during the Dussehra and Diwali holidays, including astonishing perks such as Mercedes-Benz, BMW and Toyota cars, gold nuggets and foreign vacations. The Mumbai-based Cosmos Group offered a free one-bedroom home with every bungalow and premium flat at four upcoming projects.

The unprecedented offers have astonished prospective buyers. But the desperation moves are little more than a disguise for the current crisis engulfing India’s real estate sector. With profits eroding, a liquidity crunch and dwindling demand, property developers are facing their worst downturn since the turn of the century.

Seven major Indian cities face dying demand after the quarter that ended in September, according to a recent report on the office market by the global real estate consultant CB Richard Ellis. Leasing also has slowed significantly, the report says. Sales in all three major sectors – residential, office and retail – have declined. According to Richard Ellis, the Indian real estate investment market continues “to remain subdued amid economic worries.” High interest rates and inflation, the agency says, have negatively impacted investor demand.

“The situation is terrible at present and is only expected to grow worse,” says Kamal Morarka of New Delhi-based Ashiana Developers. “The impact of the global meltdown has dealt a sharp blow to the real estate sector which was already going through a turbulent patch.”

In view of the crisis gripping the real estate sector, harried members of the Confederation of Real Estate Developers Association of India recently met Finance Minster P. Chidambaram to ask for governmental intervention. The minister assured them that the government would urge banks to speed up lending as the sector is an “engine of growth” and corrective measures would be put in place.

India’s housing market — worth US$12 billion in 2005 – was forecast to grow exponentially to US$90 billion by 2015, but it has been sliding since summer. With interest spiraling on home loans and the severe liquidity crunch in the banking sector, banks are unwilling to lend. Further, with the Reserve Bank of India (RBI) tightening money supply and increasing interest rates to fight inflation, developers are being whipsawed. Banks too, are insecure about loan disbursals to real estate developers.

This has pushed up monthly home loan payments by nearly 50 per cent which has hit investors and pushed demand down to abysmal levels. Home loan interest rates have risen from 7.75 percent in 2004 to 12 percent plus now, cutting into the disposable income of the 90 percent of homeowners who opt for bank loans to buy.

Those still buying are on tight budgets. “The Rs4.5-7 million (US$90,000-120,000) housing segment which was once the most sought after, is a thing of the past,” says Pradeep Mittal of Mittal Property Associates. “We’re only getting enquiries in the Rp2.5-3.5 million bracket. This development has severely eroded our profits.”

The slump in the real estate sector is also trickling down to upcoming projects. Big-ticket infrastructure projects in India – glitzy malls, multiplexes, multi-million rupee residential dwellings that were all the rage in even tier 2 and tier 3 cities till last year – are now few and far between.

Most developers have deferred new projects till further correction takes place. Hindustan Construction Company, one of India’s largest builders, for instance, has stalled three of its planned townships till interest rates start to fall. The global credit crunch has taken the sheen off large property firms like DLF and Unitech, whose market capitalization has eroded almost completely. DLF has lost four fifths of its market in the slump.

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