The party's over for Indian real estate investors

By Sumit Sharma  |   2008-6-27  |     NEWSPAPER EDITION

INDIA'S five-year property boom is coming to an end as the supply of housing increases, borrowing costs rise and a stock market rout erodes buying power, according to two mortgage lenders.

Prices across India may drop as much as 15 percent in the coming months, said Keki Mistry, vice chairman of Housing Development Finance Corp, India's largest provider of home loans. Gagan Banga, chief executive of Indiabulls Financial Services Ltd, said prices may fall as much as 20 percent.

India's central bank signaled it will raise borrowing costs further after increasing rates this week to the highest in more than six years, curbing demand for loans. The nation's property market may avoid the meltdown seen in Spain, Britain and the United States because of lower indebtedness and a housing shortage estimated by the government at 24.7 million units, the executives said.

"Due to the state of the equity markets, many investors who would have bought a second or a third house are abstaining from doing so," Mistry told Bloomberg News in Mumbai. "Genuine home buyers who are looking to buy a house for self occupation will continue to buy."

Mistry was speaking hours before the Reserve Bank raised its repurchase rate by as much as 0.5 percentage point to 8.5 percent.