Saturday, November 05, 2011

Is there an Indian meltdown in the making?

I had visitors today. Erstwhile neighbours who have now moved to their own house. As we sat discussing real estate prices , I realized that almost everyone I know had either bought a house or was planning to buy one. A good flat in any 'IT' city in India costs well around 5 million rupees.And everyone seems to have access to that kind of money, thanks to housing fiance companies.
What do these companies take to secure these borrowings? They ensure that that the borrower is employed and has the capability to repay. Most people working in the IT sector seem to fulfill the conditions. But the question is, will IT continue to bring in money from the west on ongoing basis? Especially given the economic conditions in America and Europe. Most of the real estate growth (at least the one around me) seems to be fuelled by IT employees. 
These people have migrated to Hyderabad, Bangalore or Pune to join some IT company. Along with a well paying job, many also spend substantial time on 'onsite' assignments. This results in earning in foreign currency and hence more savings. This surplus cash is utilised to partly fund a house.Some who have bought houses early on, have already repaid their debt and are investing in more houses by borrowing more. Today, almost everyone who has spent more than 5 years in an IT company has a housing loan on him. That should be close to a million people!
We are already seeing a trend of rejection of Visas. Onsite opportunities are becoming scarce. Business is trickling in IT and the sector is not seeing the same growth rate it enjoyed a few years ago. If the western economy does not recover soon, many of us will soon be finding it difficult to pay our mortgages. When we thought India survived the 2008 slow down well, it could hit us hard now through a domino effect.
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