September, 2008

This has been a miserable year for Indian Property stocks. As rising interest rates & spiraling construction costs price out many aspiring homebuyers, real estate developers are changing strategy to keep their business going. They are increasingly switching either to so-called affordable housing projects or high-end customers, who mostly buy cash down with limited amount of borrowing.

Property companies have been hit hard because they are vulnerable to a downturn from two directions. Borrowing is becoming more expensive as interest rates rises. At the same time, raising fresh funds in equity markets is not easy either. India’s market for initial public offerings is lackluster and both Unitech & DLF have delayed plans to raise money through Real Estate investment trust issues in Singapore.

More expensive credit can be a particular problem for property companies because they often borrow a large portion of their land development outlays up front and depend on advance sales to repay loans. “The company has not stopped the construction because of our commitment and a penalty clause in our policy. However, we have closed our booking till the date, rates will show some good sing”, asserts Mr. Parveen Jain CMD of Tulip Infratech Pvt. Ltd., who are into residential projects is Gurgaon and Sonepat.

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