India’s five-year property boom is coming to an end as the supply of housing increases, borrowing costs rise and a stock market rout erodes buying power, according to executives at two mortgage lenders.

Prices across India may drop as much as 15 percent in the coming months, said Keki Mistry, vice chairman of Housing Development Finance Corp., India’s largest mortgage lender. Gagan Banga, chief executive of Rival Indiabulls Financial Services Ltd., said prices in some cities may fall as much as 20 percent.

India’s central bank signaled it will increase borrowing costs further after raising rates this week to the highest in more than six years, curtailing demand for loans. The nation’s property market may avoid the meltdown seen in the U.S., U.K. and Spain because of lower indebtedness and a housing shortage estimated by the government at 24.7 million units, the executives said.

Due to the state of the equity markets, many investors who would have bought a second or a third house are abstaining from doing so,Mistry said in a June 24 interview in Mumbai. Genuine home buyers who are looking to buy a house for self occupation will continue to buy. Mistry was speaking hours before the central bank raised its repurchase rate by 0.5 percentage point to 8.5 percent.

Real estate stocks have led Indian equities to the worst six-month performance in at least three decades, with the Bombay Stock exchange Realty Index slumping 59 percent this year. The benchmark Sensitive Index has shed 30 percent in the same period.

The real estate sector as a whole is under pressure because of rising input costs, and the increase in interest rates,'’ said R.K. Gupta, managing director of Taurus Asset management Co. in New Delhi. Gupta manages 3.5 billion rupees and owns shares of developers DLF Ltd. and Parsvnath Developers Ltd. Higher borrowing costs ``will push the developers to cut prices in the near future, he said.

Big Developers Safe

Still, the nation’s biggest developers, most of whom raised capital from share sales in the last two years, aren’t at risk of delinquency because they haven’t borrowed from banks to purchase real estate, Banga said in Mumbai yesterday. His company’s sister firm, Indiabulls Real Estate Ltd., is the nation’s fourth -biggest developer. The company, backed by billionaire Lakshmi Mittal, sold shares in a property trust in Singapore to raise $258 million earlier this month. If you don’t have an interest meter running, and you just raised capital, where is the question of going belly up?'’ Banga said in an interview. I don’t see any systemic damage, or a large name disappearing into thin air, or going bankrupt. The momentum has slowed down.

*Source: Bloom berg.com