1996-97: When Property Prices Went Crashing

It's been 20 years when the real estate market in India crashed, with prices falling up to 50 per cent within a matter of months. There were multiple reasons that led up to that situation, bankrupting scores of investors who had parked their money in property markets.

Here are some facts about the era when property prices in major cities of India actually fell:

It was in 1991 when the economy was liberalized, and foreign investment poured into Indian markets. The property market was thrown open for NRI (non-resident Indian) investments. As a result, a lot of liquid money flowed into the real estate sector, causing speculations and artificial price rise. Even corporate houses were flushed with funds. In order to reap the benefits of the available funds, business houses invested in real estate.

As growth slowed due to a fall in industrial production, businesses which had previously parked their money in real estate ran out of funds and ultimately stopped investing. This ultimately resulted in a lot of supply and minimalistic demand. Several housing projects were stalled as there were no takers. There were too many sellers in the market while the choosers have too many options. There were panic sales all around, reported India Today in one of the articles in 1998.

A similar situation was seen in case of commercial projects. According to the media reports, a medium-sized company that bought an office at Nariman Point's Mittal Towers for Rs 16,771 per square foot in 1996 was unable to sell the premises at the same cost. In national capital Delhi, office space at the under-construction Statesman House at the Barakhambha Road cost Rs 10,000 per sqft in 1994, and peaked to Rs 21,000 a sqft by 1995-end. By 1998, prices had come down to Rs 15,000 a sqft.

This was the time when big corporate houses moved to city suburbs for cheaper spaces. In Mumbai, Andheri, the Bandra-Kurla Complex and Goregaon were chosen as secondary business hubs.  

Several multi-national companies entered the Indian real estate arena at this point of time when the property prices were at the lowest and quality office spaces were lying vacant. The economy was liberalised to welcome foreign investors and international corporate houses made the most out of it.

The crashing was visible across India. Be it Mumbai's Nariman Point, the most expensive stretch of real estate in the world, or Somajiguda in Hyderabad. Delhi's Connaught Place, Pune's Koregaon Park Bengaluru's MG Road and Chennai's T Nagar, none of the markets remained unaffected.

Will the crises return? With the recent currency ban, the real estate market faced a liquidity crunch. Home sales plummeted after the demonetisation, resulting in a swell in unsold inventory. The supply was more than the demand and the end-users, as well as investors, were in a wait-and-watch mode.

This made many experts think that India's real estate market might be headed towards a similar situation as witnessed 20 years back. However, these fears may be ill founded.

Today, we have stringent laws such as the Real Estate (Regulation & Development) Act, 2016, in place that will keep a check on the financial backing of real estate developers.

Though the economic growth remained sluggish due to demonetised currency and its impact on the informal sector resulting in job losses, the remonetisation in next few quarters might stabilise the market in near future. As property prices have remained flat in past two years in major cities, it might be good news for end-users looking to make a purchase as defying returns would keep investors away from the property market.