The Lurking Debt Disaster behind India’s Tallest Tower (FT News in Focus, 7 min listen)
Palais Royale. It was meant to be a luxury residential tower at the heart of India’s Capital. After ten years of sporadic construction, though, it has been left a decaying shell. In this short podcast, Benjamin Parkin from the FT in Mumbai discusses India’s ‘vanity’ real estate market ambitions - which were driven by a surging population - and why it all came crashing down. Financed by shadow banks that suffer from a balance sheet maturity mismatch, developers stacked up $37bn of debt and apartments that won't sell, leaving $8bn worth of vacant housing in Mumbai. Further, in September 2018, IL&FS, India’s infrastructure finance giant defaulted, sparking a liquidity crunch across the economy and hitting real estate the hardest. When the government demonetized the Rupee and reformed the tax system, real estate money laundering halted.
Why does this matter? The troubles in the shadow banking system are rippling through India’s economy. Credit has dried up and India is suffering a liquidity squeeze - GDP growth has tanked to 5.8% in Q1 2019, the slowest in four years. The Government has now taken over IL&FS and is planning new regulations and sources of lending.
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