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Chanda Kochhar

(MUMBAI, INDIA) — After nearly four years of aggressive growth, India’s once-booming real estate market is in a freefall.

In an eye-opening analysis, Business Monitor International of Blackfriars, London, and Fast Market Research of Williamstown, MA are reporting:

• Prices have dropped 20-40% since their peak.
• Property sales have fallen over 50% year-on-year.
• Developers are burdened with many unsold and unfinished projects.
• Bank lending has tightened.
• REITs have lost 80% of their value.

The economic recession has taken hold, states Bill Thompson of Fast Market Research. He authored the report.

Many projects have been stalled by their inability to raise finance. Office rents have fallen, especially in Mumbai and New Delhi, where they have declined considerably since their peak.

There are many office projects in the pipeline, and this will exert further downward pressure on rents in the near term.

The analyst anticipates that due to the economic downturn, some major companies may relocate to less expensive office space, or renegotiate existing leases to drive down rents. In the residential market, prices are falling.

Potential buyers are delaying purchases in the hope that prices will go down further, according to the report. First-home buyers are seen as a major driver for the residential segment. Luxury residential prices fell dramatically in early 2009.

Demand is sharply down. Affordability is now one of the main drivers in the residential market, the report notes. There has been resurgent interest by developers in affordable housing schemes, especially as the market has stalled for luxury houses and apartments.

The report cites Chanda Kochhar, the incoming chief executive of the ICICI Bank India’s largest private bank, who said in February 2009 that real estate prices still need to fall by at least 20% if the market is to pick up.

The share prices of Real Estate Investment Trusts have fallen in value by up to 80% since their peak.

Foreigners cannot invest directly in the real estate market, so they have been investing through REITs, the report states. They have largely exited these now.

India’s organized retail sector is still expecting further rental falls, especially with many new developments that had been scheduled for completion in 2009 and 2010.

The office rental market is set to continue its fall — not helped by an oversupply, as well as the many new developments already in the pipeline, according to the report.

House prices have softened, and will likely stay this way — at least until there is an economic turnaround, not expected before (some time in) 2010, the report states.