Will India have a sub-prime crisis ?

Many social discussions center around whether the sub prime crisis will affect the Indian economy. Very  likely India will have a sub-prime crisis of it’s own. Many argue the Indian economy is decoupled and  not linked to the sub-prime crisis in the U.S. Over the last 2-3 years, there has been over investment, in the areas of commercial and residential construction. Asset values have soared, disrupting many business models and making an equal number irrelevant. The city of Pune, will  have 50,000 apartments entering the market in the next year, at an average selling price of Rs 40 lakhs. This will create an inventory worth 20,000 crores or 5 Billion dollars. Similar inventories have been created in many cities across India. We all know a family that has bought or invested in a house in the last 3 years.  Many have actually invested in more than one. Who will buy these apartments ? one can only guess.

Land prices have appreciated 3-4 times in the last 2-3 years. Question, what has changed for this kind of jump in asset value ? A short term shortage, created massive speculation and a spiral to grab a piece of a notional appreciating market. Has the infrastructure improved ? Has the power situation improved ? Has productivity improved ?

India is on the brink of  a real estate crisis, to the tune of approximately 240,000 crores approximately 60 Billion dollars. I have taken the city of Pune and multiplied it by 12 for an overall India number. In due course, many small time builders will be wiped out and many middle class families will have negative equity. The real estate industry is already hurting, rising steel and cement prices, high transportation costs, a conservative credit market, an overbought market, all have started converging. The result of this  convergence, will be a surprise to many, a farewell present from the UPA government as it ends the current 5 year term.

Nobody believed that one day the Indian rupee will become so strong, we will have the next surprise, 30-40% discounts on apartments or even better, buy one get one free.

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