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Indian property industry facing crisis as large developers face even worse profit figures

Such has been the impact of the downturn that the realty index of the Bombay Stock Exchange, regarded as an indicator of investor mood for the industry, has fallen more than 25% in the past month and over 75% in the past year.

'It's just an indicator of a long-term crisis. Developers went overboard on land acquisition without paying attention to the delivery of projects. Now their money is blocked in lands,' said Santosh Kumar, chief operating officer and director of Jones Lang Lasalle Meghra.

The trouble faced by the real estate developers was also reflected in their second-quarter results reported last week, where company after company had to contend with a drop in profits.

Major developer DLF, which raised over $2 billion in what was then the largest-ever initial public offering in India, suffered a 4% drop in consolidated net profits for the July to September quarter last year.

Others suffered the same fate. Unitech saw a 12% decline in net profit, while for Parsvnath Developers, it was the second straight quarter of decline, with a dip of 78.6% and Delhi based, Omaxe, which is also facing turbulent times for the second straight quarter, reported an 87.3% decline.

'Real estate continues to face tight monetary conditions that have had an impact on the sector. If restrictive conditions continue, we expect the industry outlook to weaken further,' a spokesman for DLF said in a statement.

The developers are hoping that a reduction in construction costs because of falling raw material prices will them maintain product margins in challenging times.

According to analysts it is a sign of desperation that these large companies are now acknowledging the impact of the economic downturn. 'These companies were in denial mode. Now, they have started to acknowledge it probably because the next round of figures will be even worse,' said Anil Chawla of DE Shaw, leading private equity investors in the real estate sector.

Experts do not foresee any upturn in the immediate future, though the government and the central bank have been taking steps to infuse additional liquidity into the system, especially for sectors like housing.

'The realty sector needs a reality check for itself. I feel that the realty sector will go for price cut up to 30 to 40%. Prices must match market demand and developers cannot just blindly quote prices,' said Chawla.

'This situation seems likely to persist for another 8 to10 months at least. Most of the projects are getting delayed and buyers are not showing interest,' said Sanjay Verma of Cushman and Wakefield.