Great news for India. Morgan Stanley has invested Rs 675 crore ($ 152 million) in Mumbai’s construction firm – Oberoi Construction. It is “the single largest direct investment in India’s booming real estate sector,” reported the Times of India today.
The real estate market in India is on the upswing (Hindu article) , but this particular investment by Morgan Stanley is significant as it demonstrates the faith that foreign investors have in India.
There have been some pessimistic predictions from some foreign correspondents. This is only one example from Peter Foster of the Telegraph, U.K.
London prices, as any recent first-time buyer will tell you, are mad but Delhi’s are in many respects madder still. The price of good residential property in Delhi has more than doubled in the last couple of years and continues to sky-rocket as lots of money chases too little property -the builders at the bottom of my garden notwithstanding.
The result is a micro-bubble which is pushing prices into the la-la land. Another Indian friend reports looking at a house in the West End suburb of Delhi recently priced at 8 crore (80m) rupees, or nearly one million pounds. Now we’re not talking about a classic Lutyens Bungalow here but a normal, Indian concrete box with all attendant problems of intermittent electricity, dripping plumbing and fizzing electrics.
He concludes: “In fact, on the contrary. I’m sure some economist will explain, and I’m sure that people felt the same way in London a few years back when they paid £100,000 for flats in Notting Hill now worth a million, but for now I still don’t quite buy into the Indian economic miracle – nor, if I were advising my friends, would I.
There are some here in India who also strike a cautious note. (Indian Express article)
But if the Indian real estate market is going haywire, there are explainations. The intense and rising demand for housing and for commercial complexes coupled with the high buying power of NRI’s and those with fat salaries in India, is pushing up prices beyond reasonable limits. Also, real estate is where those with black money often park their funds.
The supply situation is so bad in fact that today the salaried Joe in India cannot afford decent apartments even in the distant suburbs in cities like Mumbai and Delhi. Nauzer Bharucha writes about this in today’s TOI, Mumbai:
Ketan Vadalia, a property developer in the eastern suburbs, says 70% of the buyers in locations like Ghatkopar and Mulund are traders from the metals and textiles market. The other 30% are salaried people, mainly from IT companies…
And Ghatkopar and Mulund are far-flung suburbs of Mumbai!
Another excerpt from the article:
Haresh Mehta, one of south Mumbai’s largest property redevelopers of dilapidated chawls and buildings, says that 80% of his clients are diamond merchants and traders from the metal market….market sources reveal that customers buying flats in redeveloped cessed properties in South Mumbai have to pay as much as 40% of the amount in hard cash.
Well, with the likes of Morgan Stanley investing in real estate in India, the gap between supply and demand is bound to decrease…but I don’t think the prices will come crashing down. I think the demand is going to continue to grow and there will be a gradual levelling off. In fact, more investment will help in providing affordable housing for the middle-class as well.