India’s realty industry is facing its worst crisis in recent years with profits of most listed companies taking a hit after riding on the boom of the last few years, a boom fired by an appetite for new investment avenues for the rich and middle classes alike.Such has been the impact of the downturn that the realty index of the Bombay Stock Exchange (BSE), an indicator of investor mood for the industry, has fallen more than 25 percent in the past month and over 75 percent in the past year.

“It’s just an initial indicator of a long-term crisis,” said Santosh Kumar, the chief operating officer and director of noted global realty consultants, Jones Lang Lasalle Meghraj.

“Developers went overboard on land acquisition without paying attention to the delivery of projects. Now their money is blocked in lands”.

The trouble faced by the realty developers was also reflected in their second-quarter results reported last week, where company after company had to contend with a drop in profits.

Realty major DLF, which had long ago raised Rs.100 billion over ($2 billion) in what was then the largest-ever initial public offering in India, logged a four percent drop in consolidated net profits for the July-September quarter.

So was the case with Unitech, which logged a 12 percent decline in net profit, while for Parsvnath Developers, it was the second straight quarter of decline, with a dip of 78.6 percent in the July-September period.

Another Delhi-based realty firm, Omaxe, which is also facing turbulent times for the second straight quarter, reported an 87.3-percent decline.

“Real estate continues to face tight monetary conditions that has had an impact on the sector. If restrictive conditions continue, we expect the industry outlook to weaken further,” DLF said in a statement.

“Reduction in construction costs with softening of raw material prices will help us maintain our product margins in challenging times,” said Rajiv Singh, vice chairman of the company.

“Earlier, these companies were in the denial mode. Now, they have started to acknowledge it,” said Anil Chawla of D.E. Shaw and Co, leading private equity investors in the real estate sector.

“I feel the real loss figures will come up in the next quarters.”

According to Sanjay Chandra, managing director of Unitech, the company had been “slightly affected” by high interest rates. “Borrowing costs are currently about 15.5 to 16.5 percent, compared with 12.1 percent for the year ended March 31, 2008.”

Agreeing with his assessment, Kumar said: “With tight liquidity, poor stock market sentiments and drying private equity, they are finding it difficult to cope up. Projects are also getting delayed because of funds.”

Experts did not foresee any upturn in the immediate future, though the government and the central bank have been taking steps to infuse additional liquidity into the system, especially for sectors like housing.

“The realty sector needs a reality check for itself. I feel that the realty sector will go for price cut up to 30-40 percent. Prices must match market demand and developers cannot just blindly quote prices,” said Chawla.

“This situation seems likely to persist for another 8-10 months at least. Most of the projects are getting delayed and buyers are not showing interest,” said Sanjay Verma of Cushman and Wakefield.

“Even in peak season like Diwali, the response was very lukewarm,” said Verma, who is managing director for South Asia with the international real estate solutions firm.

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