Summary: The Indian real estate market is going towards a slowdown due to the US market crisis. There is a reduction in total FDI and private equity.

The turmoil from the wall street crash is going to be a high pitched one for the Indian real estate market. All the demons are now shaking there hands to create barricades in front of the never ending parade of the India inc. And, the realty is going to be the worst sufferers. The reasons are simple. The market demand and supply forces are now at their lowest ebb. No outsourcing company is now planning to expand in India. The IT giant has cut short its Rs. 5 lakhs sq Ft expansion plan to 3 lakhs. There is an overall 30% deduction in the demand for official space. The residential space has already faced a hibernating demand graph. The rise in home loan rate is forcing many prospective buyers to stop their purchase.

In the supply side of the real estate story, there is a gloomy tale to be told. The major chunk of the inflow of money into the Indian real estate market comes through FDI and private equity. The RBI has given strict instruction to the Banks in the Indian banking system not to invest in real estate. In such a scenario, the FDI and private equity hole to be pivotal for the growth of Indian real estate market. But the FDI in real estate segment is now destined to decline. The real estate prices almost crashed in the United States and other developed markets. So precarious is the condition of the real estate investors active in those economies are that they are filing for bankruptcy. So, where is India in this perplexed situation which has a nascent and yet to be organised real estate market!

Both Lehman and Merrill Lynch have a significant stake in a number of Indian companies. As they are facing a financial catastrophe even remaining afloat, they are offloading their stakes in the Indian companies. This has affected share prices of those companies and also caused a real estate slow down. The FIIs in Indian real estate have pulled out a net $8.01 billion since the beginning of 2008, with over $900 million of this outflow having taken place in the first half of September alone. According to the available data, Merrill has invested in more than 200 companies, out of which in 177 companies, it owns more than one per cent of the paid up capital as on June 30, 2008. The Lehman Brothers has also invested in more than two dozens companies and in some real estate projects.

The US major Lehman Brothers has alone invested 700 crores in the Indian real estate market. keeping the current situation of Lehman, anybody can predict the future of that investment. In such a case, the ball is now at the Government of India's court. The Government needs to cut down the home loan interest rate to boost up the residential property market at least.

As has been observed that real estate prices and stock markets are highly correlated. The reason being that in a rising stock-market, real estate becomes a hot spot avenue for high net worth individuals to park surplus funds. This leads to an escalation in immovable property prices. In a falling market, however, they tend to cover losses in one market by selling off their investment in the realty segment. Any decrease in investor wealth means that the market gains and this is converted to cash for re-investment in property, have been sucked out of the system, thereby reducing the total demand in the realty market. This leads to a continuously accelerating change in the economy of price correction feeding from one asset class to the other. And there are fears that Indian real estate trend may follow the stock market.
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