Deepak Shenoy

Why the U.S. Credit Crunch Will Not Affect India

I live in Navi Mumbai and travel a lot to Gurgaon and Bangalore, and keep tabs on real estate in both places (relatives and friends are investors here). Prices are coming down and supply is at phenomenal levels. Ghost buildings (complete but zero occupancy) are the norm here in Navi Mumbai and gurgaon and outer bangalore head that way. CBD in Bangalore is starting to crap out - deals are just not happening.

Even in Mumbai deals have fallen though, auctions have failed and prices are dropping fast despite builder cartels vowing to keep them stable.

Gurgaon and Dwarka have a massive oversupply coming up and you can see this happening as builders delay possession (lack of final payments because investors aren't finding buyers).

Real estate loans are comign down - growth slowed to 20% last quarter, and with a CRR hike, rates stay high, andloan offtake slows.

We have our own version of subprime - if people default here, banks have a long long foreclosure process, and recovery can take years.

It may not be US Subprime that affects India - it was never that, we had our own bubble - but the bust will typically take 5 years before growth starts again. Cycles in India have been 10 years long - the last highs were 1985-87, then 1994-96, and then 2005-07. I expect the bubble to have bust completely by 2011.

But it's a non transparent market, so we will only know much after the fact.