India’s once soaring demand for high-end apartments and offices has slumped, leading to falling profits for large property developers and a shift in focus towards affordable housing for middle-class families.

DLF, India’s largest property developer, warned yesterday of more downward pressure on margins in the coming months, after reporting a 69 per cent drop in profits during the last three months of 2008.

Rajiv Singh, the company’s vice-chairman, said it expected a 10 to 15 per cent drop in property prices in the next three months as it adjusted its product mixture to reflect changing demand.

DLF is the main developer of Gurgaon, New Delhi’s glitzy satellite town.

Indian sentiment has soured as a result of higher interest rates and worsening global conditions.

DLF’s net profits from October to December fell to Rs6.7bn ($136m), down from Rs21.3bn in the same quarter the previous year. Sales fell 62 per cent to Rs13.6bn, down from Rs35.9bn.

“This quarter, we witnessed shutdown of all forms of economic activity,” Mr Singh said yesterday. “Real estate is a business which is driven a lot by sentiments as well as availability of money . . . We got a double-whammy.”

However, Mr Singh said DLF aimed to raise up to Rs25bn from private equity players in the coming months.

The company was talking to banks to refinance up to Rs40bn of short-term loans with less expensive long-term loans to reduce finance costs, he said.

DLF’s bleak forecast follows last week’s report from Unitech, another large Indian developer, that its third quarter profits had fallen 74 per cent.

Indian property prices had surged in recent years. Prices in some urban centres were up as much as 100 per cent in the two years from 2005 to 2007.

The large price rise was driven by speculative buying amid easily available home mortgages, strong demand for high-quality office space, an inflow of foreign funds, and general exuberance about India’s prospects.

“The speculators are the ones who really fuelled the market,” said Anshuman Magazine, the chairman and managing director for south Asia of CB Richard Ellis, the real estate consulting firm.

“In the residential segment, you could put a down payment of 10 to 20 per cent, then, three months down the line, sell for a premium. There was euphoria in the market.”

Government moves to rein in inflation – resulting in higher interest rates – and the global economic slowdown have since caused the positive sentiment to evaporate.

Mr Magazine said developers could still get new projects off the ground if they got the pricing right, however.

“Transaction volumes have dropped and prices have dropped, but there are still end users buying residential apartments where the price point is right,” he said.

“The inherent demand is there.”

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