Mumbai's Property Market Goes `Completely Quiet' After Attacks

By Sumit Sharma

Dec. 4 (Bloomberg) -- India's worst terrorist attack in 15 years has caused Mumbai's property market, already faltering in a slowing economy, to grind to a halt.

``The market's gone completely quiet,'' said Shiv Kumar Dembla, a property broker who owns Shiv Real Estate Consultants in Mumbai. ``The future doesn't look bright either. The last six months were quiet, but now it could get worse.''

The city's home sales dropped 21 percent in the seven months to Oct. 31, according to estimates from UBS AG. That was before terrorists held south Mumbai under siege for almost 60 hours, with attacks on luxury hotels, a railway station and a Jewish center leaving more than 195 people dead last week.

Terrorists targeted the foreigners who helped make Mumbai the world's second-most expensive city for offices last year, as companies including Macquarie Group Ltd. and Barclays Plc sought space in India's financial capital. Now, apartment buyers are walking away and developers may be forced to shelve projects as companies rethink the risks of doing business in India, brokers and analysts said.

Mumbai, which accounts for a third of India's taxes, is home to the nation's central bank and primary stock and commodity exchanges, as well as its largest companies and the local headquarters of overseas firms such as Citigroup Inc. and Barclays.

The city is the world's sixth most-expensive in terms of apartment rentals, and ranks second in Asia behind Hong Kong, according to a survey released by ECA International in April.

Dearth of Inquiries

``Rentals in Mumbai have climbed up steeply over the past few years,'' Mridul Upreti, joint managing director for capital markets at commercial property broker Jones Lang LaSalle Inc.'s local unit, said in an interview in New Delhi on Dec. 2. ``In the short term, residential prices are going to correct.''

Registrations of new homes in Mumbai dropped 35 percent in October from a year earlier as a slump in demand gathered pace, according to UBS analyst Suhas Harinarayanan. November sales data could be worse, he wrote in a note to clients on Dec. 2, without commenting on the terrorist attacks.

``Several non-resident Indians who were planning to come later this month to purchase properties have postponed their trips'' following the attacks, said Ashwin Mehta, who runs real estate brokerage Astute Acres Pvt. in Mumbai. ``We've gotten hardly any inquiries since last week.''

Demand for housing in south Mumbai was already under pressure because of high borrowing costs and developers' reluctance to cut prices, Macquarie Research analyst Unmesh Sharma wrote in a note to clients Dec. 1.

Dud Auction

An auction for land near Mumbai's emerging financial district of Bandra-Kurla Complex, home to Citigroup, ICICI Bank Ltd. and the National Stock Exchange, in October lured just one bidder. Mumbai officials also had to twice defer plans to lease two plots of land for offices in a north-central suburb because of slack demand.

An index tracking 14 Indian real estate stocks has slumped 88 percent as a five-year rally in property prices ended and the global financial crisis choked off funding for developers. The nation's economy grew last quarter at the slowest pace since 2004, fueling expectations that property costs will decline further.

DLF Ltd., India's biggest real estate company, and Emaar MGF Land Pvt., the Indian unit of the Middle East's largest developer, have been cutting prices to revive demand. Yet sales will rebound only if home prices in the nation decline by 25 percent to 30 percent, or borrowing costs drop, UBS's Harinarayanan estimated.

Colaba Shunned

If the government's response to the terror attack fails to restore confidence among overseas investors, demand for office and retail space may drop further, Macquarie's Sharma said.

An added danger comes from private equity firms and overseas developers demanding higher risk premiums for investing in India, said Upreti of Jones Lang LaSalle.

``Investors will start seeking a high risk premium for investing in real estate in India,'' Upreti said. ``So instead of 20 percent to 23 percent returns, you will start seeking 25 percent to 26 percent returns because country risk-premium will go up.''

Nowhere is the fallout more keenly felt than in Colaba, the upscale neighborhood in south Mumbai where gunmen stormed into the Taj Mahal Palace & Tower hotel and a Jewish center, took hostages and fought running battles with Indian special forces.

``People who were earlier planning to buy in Colaba now want to cancel the plans,'' said Narender Bhagwanani, who runs Om Sai Estate Property Consultants. ``They are too scared to live around Colaba.''

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net