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Global property Bust Hurts India
The panic is over, but the worry has just begun. Desperate measures by central banks and governments have hopefully saved us from a complete collapse of the global financial system, yet markets remain unimpressed, managing only a brief relief rally on Monday. It’s easy to understand why. There’s precious little good news anywhere. Take US retail sales for September: they were frankly terrible, down 1.2% on the month. It looks as if the redoubtable US shopper is finally tapped out, with all the consequences that implies for the global economy.
But beyond the recession fears, there’s a second reason for the turmoil. Increasingly, it looks like the financial world has changed. An enormous deleveraging is underway as investors from hedge funds to Russian oligarchs are forced to dump assets bought with borrowed money, sparking huge sell-offs in virtually every market.
If this change sticks, then the world will be a better place. We’d prefer to see an investment climate founded on solid companies and real growth, rather than financial chicanery. But the adjustment will create a lot of pain – and Asia won’t be spared all of it. By and large, Asia is much less leveraged than the West – including both consumers and companies. But there are sectors that depend on cheap, readily-available debt, such as the real estate business. While we tend to think of America and Britain when it comes to real estate excesses, the real estate bubble was a global one. Asia was not immune, although it was probably more of a frothy boom than a real bubble there. Prices never became as insane nor was leverage as high as in the West.
Nonetheless, half the wealth of India, Malaysia, Singapore and South Korea is now tied to property, according to brokers CLSA. And most countries are seeing their once-buoyant markets sink. Prices in some Indian cities are reported to be down by 15% or more and it’s no surprise that DLF, the country’s largest property firm, has significantly underperformed the Sensex benchmark since the market peaked in January.
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