Indian real estate sector rocked by loans-for-bribes scam

November 26, 2010 | 15:25

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Shares in Indian real estate companies fell sharply on Friday amid worries about the impact of an alleged loans-for-bribes scandal on the sector.

Indian police arrested the chairman and two employees of a leading Mumbai-based financial services company on Wednesday over alleged bribes paid to state bankers to secure loans for major companies, including builders.

Analysts said they feared a cash crunch in the construction sector could occur as banks tighten their rules on lending to real estate companies.

In morning trade, the 13-stock BSE Realty index was down 7.3 per cent at 2,667.37 points, underperforming the leading 30-stock Sensex index, which was 1.3 per cent weaker.

Among the worst-hit companies were Jaiprakash Associates, which fell nearly 11 per cent to 102.45 rupees, DLF, which slid 5.0 per cent to 278.50 rupees and Unitech, which dropped almost 7.0 per cent to 58.6 rupees.

The real-estate index fell 2.9 per cent on Wednesday and 5.4 per cent on Thursday.

Indian police arrested a total of eight people on Wednesday -- four from state-controlled lenders, three from a financial services group Money Matters and one from India's largest insurer.

"The outlook remains pretty bleak," said an analyst, who did not wish to be named. "There are fears that real-estate companies may soon face a liquidity crunch as banks shun the sector."

India has experienced a real estate boom in recent years despite the dampening effects of the global financial crisis, with high-rise modern apartment blocks sprouting in suburbs of cities across the country.

Among other stocks, Hindustan Construction plunged more than 10.6 per cent, DB Realty slid 10 per cent and Orbit Corp dropped over 14.5 per cent.

AFP

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