NEW DELHI — Property prices in Indian cities might crash in the near future, in part because of the government's crackdown on black money in the sector, says a report by brokerage firm Ambit Capital.
In Mumbai, India's most expensive property market, prices might plunge as much as fifty percent.
"Our visits to five property registration offices in Mumbai suggest a sharp drop in the registration of new residential properties. Also, new launch volumes are down 40-80 percent on a pan-India level," said Ambit's Saurabh Mukherjea and Sumit Shekhar in the report.
Property prices in metro and smaller cities have fallen between 7-18 percent from April last year. The report said that new launches in the last quarter of 2014-15 were down by a massive 40-80 percent.
A major reason is that 30 percent of percent of real estate development is financed by black money, the report said. And the government's move to curb it through legislation has slowed investment by high net-worth individuals, many of whom are even seeking tax residency in Dubai and Singapore.
In addition, banks have curtailed lending to developers.“The Reserve Bank of India data suggests that the banking system seems to have turned the tap off for property developers over the past year. This has, in turn, made developers either stop construction or cut prices,” the report said.
Demand for new houses has been sluggish at current prices, and inventory is piling up. Mumbai and Delhi will take 11-14 quarters to clear existing property that is available for sale. That's a long delay compared with a healthy real estate market that would need 4-6 quarters.