India's Half-Finished "Ghost Towns" Leave Middle Class In Crisis

If you thought the American housing market was a mess during the immediate aftermath of the collapse, wait until you read about what's going in India.

Rapid economic growth and the government's gradual economic liberalization have caused the ranks to India's middle class to boom. The emerging Hindu middle class is already reshaping Indian society: Prime Minister Narendra Modi owes his electoral victories to this group, and his reform agenda was designed with the goal of sheparding even more of the country's 1.4 billion citizens into the higher income bracket.

Modi's first term included several important reforms, including simplifying India's byzantine tax system and instituting a simplified system for taxing goods and services (though some argue that it must still be simplified further. He's also helped modernize the country's bankruptcy laws.

But as the country's growing wealth has sparked a flight from India's crowded urban slums to its more spacious suburbs, they're struggling with a shortage of homes, a shortage that has been made even more intense thanks to roughly half a million apartments that have been sitting unfinished for years.

Across the country, outside major cities like New Delhi and Mumbai, hundreds of developments have been stranded by developers, many of which have declared bankruptcy, or simply run out of money to finish the projects, according to the Wall Street Journal.

India's banks, already saddled with bad loans, are refusing to lend any more money to the developers. As a result, millions of Indians who put up their life savings as a down payment on a new, yet-to-be-built apartment have essentially been left bereft, with no money and nowhere to live.

Most are now making ends meet by cutting out any and all luxuries, and relying on friends and family, as they wait to see if the apartments they paid for will ever be finished.

Delhi has the largest number of apartments delayed by more than three years, but the problem is nearly universal across India's cities and emerging suburbs.

Here's a brief recounting of how India got to this point: market liberalizations that began in the early 2000s prompted a crush of developers and consumers all borrowing money either to build homes or to buy them.

But unfortunately, India's stodgy system of local regulations hadn't been liberalized enough, and many developers quickly racked up unanticipated delays thanks to difficulty in securing government clearances. Others had trouble hiring enough skilled workers to build the apartment complexes.

As a result, the number of buildings that are taking five or even ten years to build has skyrocketed.

One woman who spoke with WSJ poured her savings into a new apartment ten years ago. But the development was halted a few years after construction started, and she has no recourse for retrieving her savings.

Jonaki Ray took a loan to buy an apartment in 2009 that has tied up her life savings for more than a decade. To pay for her mortgage, and an apartment she has rented in the meantime, she stopped splurging on things like vacations abroad and a new car.

Ms. Ray has finally been given the keys to the unit, but still has no plans to move in. She has to finish the interiors on her own, and she is worried about safety as no one else on her floor has moved in.

"There is this thing looming over me and I don’t know what is going to happen,” she said. "It’s always there at the back of my head."

These half-built "Ghost towns" now dot the outskirts of India's cities, creating an outrageous blight on the landscape.

Wish Town, a development in the New Delhi suburb of Noida, encapsulates the plight of middle-class Indians who sank their life savings into

The construction workers are long gone, the site’s cement factory and cranes have stopped working. Signs mark aborted projects: a "Sports Field" is still a cauliflower patch, the "Social Club" a shell of a building.

Construction stopped in 2016 when the developer couldn’t pay its debt. Only about half of the 40,000 apartments that were to house close to 200,000 people have been finished and handed over to their buyers. Those who have moved in complain that the golf club, gyms, pools, retail spaces and restaurants advertised by its developer, Jaypee Group have largely yet to be built.

Modi regularly riffs on India's housing crisis and the plight of those who have lost their savings. But it's unclear what, if anything, his government plans to do about it.

One data provider used by WSJ put the total value of all the delayed developments at $50 billion, 10x the number from five years ago. 

The question now is: Will Modi commit the enormous resources necessary for a bailout? Or risk alienating the base that just handed him a second term in office?

Whatever happens, the crisis is just one of the myriad reasons why international investors are beginning to lose faith in Modi's India.