Any investor who has tracked Mumbai's residential property market in the past five years could be forgiven a bout of motion sickness.
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Housing prices in India's seaside commercial capital climbed new vertiginous heights and plumbed steep lows during this period. From 7.52 million rupees (Dh613,000) in October 2006, the average price for a flat in Mumbai more than doubled to 15.8m rupees in June 2008.
Then it fell like a rock to 12.8m rupees at the peak of the global economic downturn in March 2009, only to soar to a record high of 21.8m rupees this March.
But housing prices in Mumbai, the world's tenth most expensive property market, have risen despite falling demand in recent months, creating what analysts say is an unsustainable bubble-like scenario in the sector.
Housing prices have soared with India's economic fortunes, rising by about 30 per cent to an average of 9,235 rupees per square foot in March from 7,129 rupees per sq ft in the same month last year, according to the Mumbai property research company Liases Foras.
But sales dipped by 24 per cent in this period.
Liases Foras estimates that 107 million sq ft of residential property space in Mumbai - about 92,300 housing units that have been constructed or are nearing completion - remains unsold because of unsustainably high prices.
At current prices and the sluggish pace of sales, clearing this backlog of unsold inventory will take about 35 months to clear.
Mumbai is pocked with signs of the city's giddy construction excesses: rows and rows of empty apartments and unmanned cranes and scaffolding at stalled construction sites.
It is a trend that is mirrored across many of India's large metropolitan cities, including New Delhi, Bangalore, Chennai and Kolkata.
PropEquity Research, a realty data and analytics company based in New Delhi, says housing sales tumbled this year across Gurgaon, Greater Noida and Faridabad - satellite towns around the national capital - by 15 per cent, 25 per cent and 40 per cent, respectively.
A drop in sales has led to an increase of inventory across India. In six major cities - New Delhi, Mumbai and surrounding areas, Hyderabad, Bangalore, Chennai and Pune - 471 million sq ft of property space, or more than 406,000 housing units, remains unsold, according to Liases Foras.
The debacle of India's once-thriving property sector, the country's second-largest employer after agriculture and a major contributor to GDP growth, worries developers.
"The current real estate ecosystem is highly unsustainable," says Pankaj Kapoor, the founder and managing director of Liases Foras. "The housing bubble could spell doom for real estate developers."
Negligible sales amid tightened bank lending and growing debt have compounded their trouble.
The global financial services group Credit Suisse says outstanding bank loans to property companies shot up by 33 per cent in the past two years to more than 1 trillion rupees.
In November, the Reserve Bank of India (RBI) asked banks to refrain from lending more than 80 per cent of the value of a property priced above 5m rupees. The decision came after two major property companies - DB Realty and Unitech - were linked with an ongoing federal investigation into alleged irregularities in the sale of second-generation telecommunications spectrum licences. The irregularities are believed to have cost the exchequer about US$39 billion (Dh143.2bn). The RBI has also tightened money flows by raising interest rates. As banks curb lending, many developers reeling under a cash-crunch face the spectre of loan defaults. To make matters worse, falling stock prices have made it difficult to raise capital from equity markets.
The Bombay Stock Exchange realty index, a measure of 15 realty stocks, fell by about 30 per cent this year amid a 17 per cent rise in the overall index, reflecting a lack of investor confidence in the property market.
In a report released in February, Angel Broking, a Mumbai company, projected that DLF, India's largest property developer, would not meet its sales forecast of 12 million sq ft this year as six of its projects faced delays because of price rises.
The developer recently said it was banking on a slew of new projects to generate enough cash to pay its debt of 206.94bn rupees this year.
"Timely completion of ongoing projects is going to be a concern for many property developers this year," says Anuj Puri, the head of the property services company Jones Lang LaSallein India. "Developers are increasingly being prevailed upon to turn to alternative sources of capital such as private equity."
But even that source of capital remains doubtful. During the property boom, which began two years ago, the market attracted a large number of private-equity investors. Since March 2006, private-equity funds poured investments worth $10.2bn into the industrythrough projects and companies such as DLF and Unitech. Of that amount, $8.2bn was invested during the boom years. The Japanese investment bank Nomura Holdings estimates that in the next two or three years, as the property sector declines, private-equity investors will withdraw $5bn worth of investments.
"This will increase pressure on developers to generate cash flows through affordable pricing and better execution," Aatash Shah, an analyst at Nomura Holdings, wrote in a recent note seen by Reuters. "The fact that a large section of those investments are actually quasi-debt in nature and the projects in which investments have been made are significantly delayed is a cause for concern as far as the cash flows of developers are concerned."
"Developers are exploring alternate routes for fund-raising apart for reworking new projects," says Rajiv Sahni, who heads property investments at Ernst & Young in New Delhi. "Funding is still happening in the sector, although the profile of the lenders might have changed based on the merits of the projects."
Mr Kapoor says the housing bubble is a monumental travesty for the middle class and the poor, who find themselves priced out of the market amid the ongoing crisis.
Some estimates say a middle-class Indian earning an annual salary of 125,000 rupees would have to wait 369 years without spending on anything else to afford a 75-sq-metre apartment worth $1m in the high-priced neighbourhoods of south Mumbai.
At least 23 million urban families from India's middle and lower middle-income groups - whose earnings range between 60,000 rupees and 130,000 rupees - live in slums and low-income neighbourhoods. Many of them strongly aspire to live in homes of between 250 and 600 sq ft in the suburbs, according to Monitor India, a research company in Mumbai.
India's cities need at least 25 million more homes to satisfy current demand, according to a report released last year by the consultancy McKinsey & Company.
Credit Suisse expects property prices in major cities, including Mumbai, to slump by 30 per cent in the next six months.
Mr Kapoor estimates prices will fall by 35 per cent, but he says the decline could take two years. Those who invested in property during the sector's boom - equity companies and retail investors - will continue to exert pressure on developers to offer the returns promised in good times, compelling them to keep prices high, he says.
