India’s biggest real estate developer, said a recovery in the property market in the next six months hinges on lower home-loan rates to lure first- time buyers.

“Mortgage rates in India are at 12 percent to 13 percent, about twice what they are in China. That is unrealistic,” Rajiv Singh, vice chairman of DLF, said in an interview. “If rates are cut, the domestic demand itself will carry the country through this difficult period.”

DLF lost four-fifths of its market value this year as the highest interest rates in seven years sapped demand for apartments and homes. Finance Minister Palaniappan Chidambaram said this week there is scope for lower borrowing costs after two reductions in a month failed to unblock credit markets.

“It’s tough to say if a cut in interest rates will change the sentiment,” said Hugh Young, who manages $2 billion for India Opportunities Fund as the managing director at Aberdeen Asset Management Asia Ltd., in Singapore and holds DLF shares. “In the current environment, people in India will be wary of buying property and stretching themselves.”

Real estate, automobile and steel companies have cut output and deferred projects to cope with a drop in demand in the world’s second-most populous nation. India has relaxed overseas borrowing rules and initiated a process to allow higher foreign ownership of domestic insurers to ease a credit crunch and infuse confidence.

Price Cuts

DLF and Emaar MGF Land Pvt., the Indian unit of the Middle East’s largest real-estate developer, are also cutting prices to revive demand. Goldman Sachs Group Inc. this week forecast some property prices in India will drop 30 percent. Singh said some of the fall has already taken place.

India faces a shortage of about 25 million houses, a figure that may rise to almost 27 million by 2012, Housing Development Finance Corp. estimates.

HDFC, the nation’s biggest mortgage provider, plans to increase lending more than 20 percent this fiscal year, Managing Director Keki Mistry said this week.

DLF is focused on completing projects that need to be delivered and holding back spending on those that have yet to be built, Singh said.

The company has raised 20 billion rupees ($400 million) and plans to borrow another 10 billion rupees in the year ending March 31, securing funds against lease rentals from its office and retail space, he said.

“It is a safe form of financing because you basically discount your lease rentals,” said Singh. “We have been quite successful, firstly in generating an operational surplus and raising long-term money.”

Raising Funds

Singh is following a similar strategy for DLF Assets Pvt., whose investors include D.E. Shaw & Co. and Symphony Capital Partners. DLF Assets is majority owned by Singh and his family and buys commercial space from DLF Ltd. About 37 percent of DLF’s second-quarter sales came from DLF Assets, according to India Infoline Ltd. analysts Bhaskar Chakraborty and Param Desai.

DLF Assets may raise about 40 billion rupees by July against assets that yield lease rentals, Singh said.

It is also considering selling shares through an equity placement to raise about 25 billion rupees by the middle of next year, he said. It has appointed JPMorgan Chase & Co. to advise on the sale, he said.

“DLF Assets will be in a position to meet a large portion of its commitment to DLF Ltd.,” said Singh. “Hopefully, sooner by equity placement, or by debt raising against the assets it has or against assets from which lease rental is flowing.”

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