Dreambreak of building houses in India: 580000 projects shut down, about RMB 454.7 billion

category:Finance
 Dreambreak of building houses in India: 580000 projects shut down, about RMB 454.7 billion


He issued a death order to ministers and chief ministers of various states, requiring them to work hard to remove all obstacles, so as to ensure that all Indian families have to live in houses by 2022, and none of them can be left behind, that is, the so-called housing for allby2022, which means that India has to build at least 20 million houses.

However, contrary to expectations, according to media reports on December 28, 2019, India is being shaken by the turmoil in the housing market. Many Indian real estate development projects have stalled. Although the developer received the advance payment from the buyer, it was unable to hand over the house due to the stagnation of the project.

By the end of September 2019, 580000 projects in Indias seven metropolitan areas alone had been seriously delayed or shut down, selling for 4.64 trillion rupees (about 454.7 billion yuan), according to analock, a large real estate consultancy.

I have paid all the money. I hope to build my house early. A Delhi civil servant, who has paid 2 million rupees in advance for his home, complains.

As the real estate is over expanded, developers have to work hard to raise capital and acquire land. That means about $250 billion in new investment and accelerating urbanization. Andy Mukherjee, a scholar and senior economic writer at Delhi University, said.

Two reasons

There are two main reasons for the suspension of many real estate projects in India.

One is due to the real estate development Regulation Act issued by India in May 2017.

Before that, real estate development projects in India were completely in the blank of legal supervision. Generally, the developer collects the advance payment from the buyer with the aid of one advertisement, pays the material fee and engineering fee with this fund, and then constructs the house. Under the new law, advance receipts will be managed in a regulated account dedicated to each project. As a result, most of the original residential projects suddenly fall into the illegal state. The misappropriated funds could not be returned, thus the special account could not be opened, the project could not be registered, and could only be postponed or suspended one after another.

The increase of non-performing debt of non bank financial institutions leads to credit crunch in both inflow and outflow of funds, which forms a vicious circle.

Shaktikanta DAS, the Bank of Indias central bank, said the central banks supervisory team would ensure that no major non-bank financial institution would collapse, which in turn would affect the overall security of the financial system. It is reported that the market share of the 50 non-bank financial institutions reached 70%.

It is worth mentioning that since the liquidity crisis broke out in September 2018, some non bank financial companies have to raise funds through asset securitization to pay interest. This round of economic slowdown in India is mainly caused by liquidity crunch. To solve the liquidity problem of non bank financial companies has become an important means for the Central Bank of India to support economic growth.

Therefore, while strengthening regulatory measures and efforts, the Central Bank of India has relaxed the asset securitization of non bank financial companies in order to facilitate the asset securitization of these companies.

On January 3, 2020, according to the official website of the Central Bank of India, the Central Bank of India decided to extend the existing asset securitization easing measures of non bank financial companies for another six months. The new easing period will be extended to June 30.

Property bubble burst?

Perhaps since the promulgation of the India real estate development regulation act in 2017, the real estate market bubble has been gradually crushed.

According to the real estate research report released by Knight Frank, in 2017, there were 103570 new houses listed in India, down 41% year-on-year, 78% less than 480000 in the peak period of 2010.

Mumbai, Indias largest city, showed a trend of volume and price declines, with the average residential price in the city falling by 5% in 2017. This is the first time in nearly ten years. By 2018, however, this indicator has continued to decline by 6.8%. In 2019, due to the economic slowdown, the general election and the shadow banking crisis, house prices in Mumbai fell for the third year in a row, with residential property prices down more than one tenth from their peak in the second half of 2016.

Private investment in housing construction, durable goods consumption such as automobiles, and equipment investment of enterprises are all the pillars of Indias economy. And real estate accounts for 70% of Indias household assets. If its price collapses, the purchasing power and willingness of Indian households will be severely hit.

In order to restart the delayed or suspended real estate projects, the Indian government announced in November last year that it would set up a state-owned fund to provide 250 billion rupees (about 24.2 billion yuan) of loans for the restart projects through joint investment with state-owned financial institutions. However, compared with the overall scale of the problem, this amount is still a drop in the bucket.

On December 5, 2019, the Central Bank of India lowered its economic growth forecast for the 2019-2020 fiscal year (April 2019 March 2020) to 5.0% from 6.1% published in October, the lowest since 2008.

Previously, Moodys, an international credit rating agency, lowered Indias credit rating outlook from stable to negative, citing concerns about the governments inability to stimulate economic growth, including the deterioration of the shadow banking crisis, long-term economic slowdown and rising public debt.

In order to promote economic growth, the Central Bank of India cut interest rates five times in 2019, totaling 135 basis points, the largest rate cut among Asian central banks. But it has done little to boost the economy.

After repeatedly failing to cut interest rates, the Indian government has made another preparation: using infrastructure to drive investment and economic development. As early as September 2019, the Indian government announced that it would launch a series of economic stimulus policies in the areas of housing construction and foreign trade development to cope with the slowdown of national economic growth.

However, the International Monetary Fund pointed out that the Indian government should avoid fiscal stimulus measures to stimulate the economy and focus on reducing public debt so as to free up financial resources for investment.

(India) the bubble that has driven economic growth through loan based real estate development and construction industry has finally begun to shrink. Ashoka Mody, a visiting professor at Princeton University, said.

Source: time weekly editor: Wang Xiaowu NF