Sunil Jain, a partner at legal firm J Sagar Associates, did not bother too much with real estate prices and demand till about two years ago. In 2011, he purchased two apartments near Gurgaon with the intention of flipping them for a good return. The market was doing well and he never dreamed he would have a problem exiting his investments. In 2013, as the economic downturn gathered pace, he decided he had waited long enough and put the properties on the block hoping to make a tidy sum in double-quick time.
It is November 2015 and Jain is still waiting. Waiting for the right price and the right customer “I have been trying to sell my apartments for the past two years but with no success,” Jain says. To make matters worse, Jain is paying interest on the loans and the properties are not giving him any returns.
“Flipping properties was very easy when I had bought, but it has turned for the worse now,” he adds.
A top executive of a Gurgaon-based business process outsourcing unit is in a similar fix. He bought multiple apartments across the country using borrowed money.
The BPO executive had taken loans worth Rs 7-8 crore to buy the properties, hoping to sell one day when prices are higher. That day never came and the gentleman is now finding it difficult to service the loans.
Across Mumbai and Delhi, empty apartments and houses are not just a reflection of the slowdown in real estate but also the craze for purchasing multiple properties among the country’s high net worth individuals (HNIs) and top business executives.
Hundreds of senior executives and HNIs, who benefitted from the boom in property from 2004-13, thought they could ride the surge for a little longer. Many see real estate as part of their retirement planning. Flipping assets at regular intervals has been an integral part of growing their money. That ability is no longer there and they are now saddled with properties that won’t sell and prices that are too low. Many of these executives who work as partners, CXOs and finance chiefs in good companies are now saddled with dud investments and high value loans that are increasingly becoming difficult to service. It’s a logjam for many of these guys, says Samarjit Singh, managing director of an online portal.
He explains that real estate was being traded as a financial product and not as a real estate purchase for a period of four to five years. “In good times, it was the best asset class in terms of returns and people doubled their money in a year,” he says.
A senior banker in Gurgaon, who has multiple properties in the city, is in a quandary now. He bought an apartment on the Dwarka Expressway for Rs 6,500 per sq ft in 2013 and took a loan for it. He has been paying interest on the loan since then and now the price has dipped to Rs 5,500 per sq ft, prompting him to put the property on the market.
A top NBFC (non-banking financial company) executive in Mumbai bought three properties two in the suburbs and one in central Mumbai’s Worli area in 2012. While he has been paying interest on his loan, the value of the property has remained at Rs 30,000 per sq ft in Worli.
In the closed CXO network, where they hob nobbed at golf clubs, posh restaurants and clubs, the news about someone making a 100 per cent return on property investment in a year usually had a viral and domino effect. “During the peak, all surpluses in 80 per cent of the cases were driven to real estate. People make significant gains and were also sometimes leveraged 8-10 times their CTC (cost to company, or total salary package),” points out Atul Vohra, managing partner at executive search firm Transearch India. This was also the time CXO salaries were seeing a sea change. “In the past 15 years, CXO salaries would have grown 3x, which meant more opportunity for leverage. And at that time the only asset that could beat inflation was real estate. In fact, real estate replaced all other forms of retirement planning,” says Vohra.
Pavan Choudary, managing director of French multinational firm Vygon, says many CXOs made more money flipping property than their remunerations.
Ashwin Chawwla, chief executive officer of Gurgaon-based online property portal, who works with several HNIs and CXOs, says today all of them are over-leveraged. Many have been trying to dispose of assets for the past year or so but are unable to sell or even lease in this slow market.
“For some, the expectation is very high, considering they made handsome returns earlier. They are preferring to hold for now,” says Chawwla.
Property sales have slowed down dramatically over the past few quarters in markets such as Mumbai and the national capital region (NCR). This slowdown has put pressure on builders who have been forced to offer freebies as well as attractive payment options. These schemes, however, haven’t worked so far as buyers are waiting for a further correction in prices.