Tough economic times hit Indian property firms

MUMBAI, August 14, 2011 (AFP) – India’s real estate sector, which soared as the country’s economy took off and higher incomes led to increased demand, is facing turbulent times as interest rates push up the cost of home loans. A succession of rate hikes has prompted prospective buyers to delay purchases, with the situation having a knock-on effect on the country’s top property firms.

Stocks of leading firms like DLF, Unitech and DB Realty hit year-lows this month, on weak earnings and amid growing concerns over the global economic recovery after the US credit downgrade and ongoing eurozone debt crisis.

The realty index on the Bombay Stock Exchange has halved in value from a year ago and many firms have seen their share price plunge after details emerged of an alleged loans-for-bribes scandal last October.

Analysts say that the immediate outlook does not look rosy for property firms, with another rate hike expected before the end of the year, spiralling fuel, labour and raw material costs, and a slowdown in economic activity.

“(Home) sales are not moving at the expected pace. On the other hand, debt and costs burdens have increased for some developers,” said Neeraj Bansal, director at global consultants KPMG