Glistening marble floors. Landscaped lawns. A golf course. This $1.5 million-a-pop housing development is one of the plushest yet in Gurgaon, a satellite city on New Delhi's edge that has become an icon of booming India.
But 18 months after they went on sale, half the houses in the first phase of construction stand empty and unsold, as India's once-booming housing market slows down.
A recent report by HSBC Bank predicted a "sharp slowdown" in residential demand in most Indian cities and a fall in home prices of between 25 and 30 percent.
Many fear the housing sector's woes bode ill for India's slowing economy. Rising inflation and shrinking credit look poised to slow steady growth here, and several international banks have revised their 2008 growth forecasts down to around 7 or 8 percent.
Signs of slowdown
While many countries would envy that kind of growth rate, the slowdown represents a disappointing turn for India, where only months ago there was talk of hitting double-digit growth.
At the start of the year, India was surging ahead. Gross domestic product growth hovered around 9 percent, as it had for the past three years. A surge of foreign investment boosted a buoyant stock market.
But, driven largely by soaring oil prices, India's inflation has rocketed to a 13-year high of nearly 12 percent. Last week, in an attempt to curb inflation, India's central bank raised interest rates for the third time in two months to a seven year high of 9 percent. Most analysts here believe economic growth will be sacrificed to bring down inflation.
India is also dealing with a potentially big increase in its fiscal deficit, which many expect will be higher than the current official target of 2.5 percent of GDP.
But the property sector has been the biggest loser of India's slowing economy. While India's main stock market index has had a rough year – due in part to the withdrawal of large amounts of foreign investors' cash – real estate firms have seen drops of 40 to 70 percent on year-highs.
The combination of high inflation – pushing up the cost of building materials like steel and cement – and resulting high interest rates has resulted in a "double whammy" for property developers, says Jai Mavani, executive director the Indian branch of KPMG, a financial services company. Expensive credit is deterring buyers, while property developers are finding it harder to raise funds.
Freddy Rebeiro, an architect, is among many first-time buyers who have decided to sit back and wait out the market. "It's not just high property prices. We will be dependent on loans and right now they are prohibitively expensive," says Mr. Rebeiro, adding that he has watched friends "take the plunge and regret it."
Until recently, real estate companies were the stars of India's boom as firms demanded high-quality office space, and a new breed of upwardly mobile middle-class buyers eyed plush new homes. The sector had also been boosted by a government move in 2005 to eased rules on foreign investment in the construction industry.
When India's biggest property developer, DLF Ltd, floated on India's stock exchange last summer, it became the biggest initial public offering in Indian history. The firm, little known a decade ago, had almost single-handedly transformed Gurgaon from a dusty, agricultural plain into a gleaming satellite city where international companies set up their Indian headquarters.
But in July, after seeing its share price plummet, DLF announced it would buy back a chunk of its own equity – a move construed by the market as a sign of panic on the part of controlling shareholders. DLF has, like India's second biggest real estate firm, Unitech Ltd, shelved plans to list its real estate investment trust on the Singapore Stock Exchange.
More realistic growth
When the going was good, developers piled into the high-end market, where profits were biggest. But the greatest long-term growth, say analysts, will occur in more middle class and affordable housing.
"I think everyone will now focus on property bought by actual users, rather than speculators," says Rajeev Talwar, executive director of DLF.
Gary Garrabrant, chief executive of Equity international, a US property investor who has successfully invested in mass housing projects in Brazil and Mexico, says he is looking for investment opportunities in India's affordable and middle-income housing segments. But he cautions that India needs to improve its infrastructure, especially its roads, "before record-breaking speed can be achieved on a sustainable basis."
In the shorter term, of course, the property market remains vulnerable to mounting interest rates. India's government, which won a perilously close confidence vote in parliament last month is anxious to bring down inflation before general elections early next year, and most expect interest rates to rise again.
Of crucial importance, say analysts, is the global price of oil. India imports 70 percent of its oil and heavily subsidizes domestic fuel prices. This week, subdued oil prices have lifted investor confidence ad the stock market.
But even when India's economy picks up, as most expect it to do, and property prices and interest rates have reached more sustainable levels, buyers will be slow to catch on, reckons Ashutosh Narkar, an analyst at HSBC. "It's not like buying a car. House buyers tend to wait for much longer before they think about spending so much money. Any improvement is going to take time."