Posted by: John Elliott | July 6, 2007

HSBC hit by Delhi real estate prices

HSBC seems to be finding it hard to survive in India’s increasingly costly bazaars. Almost unbelievably, the world’s fourth-largest bank has closed its ATM booth in central Delhi’s prestigious Khan Market because, senior executives tell me, it does not consider it economically viable to pay the admittedly astronomical six lakhs of rupees ($15,000) rent a month that its landlord wants for the 150 square feet of potential (now shuttered – see pic below) retail space.

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It is moving its money machine, and its usually sleepy guard, to cheaper location, possibly in a nearby gas station that will be far less accessible for local shoppers and tourists who used the old ATM. The bank’s customers can still use their cards to withdraw cash at a (rather luxurious) Citibank ATM just a few yards away from the former HSBC location, at no extra cost.

Despite a strong business strategy that led to its Indian operations declaring a 67% increase in annual profits two weeks ago, the bank is losing high visibility in one of Delhi’s leading middle class and expatriate markets.

That struck me as odd when I flew into London’s Heathrow airport this morning and saw HSBC logos plastered all over the docking gates, where (as in other airports) they have been for years. That cannot be cheap advertising, even compared to Khan Market, and I have never understood why HSBC associates itself with the hassle and misery of arriving at such airports – though I guess HSBC’s senior executives are pleased to see the name displayed so prominently.

But coming back to Khan Market, HSBC’s experience is the result of India’s real estate boom, which is hitting prime sites in Delhi and elsewhere. Cushman & Wakefield, a real estate consultancy, said late last year that Khan Market was India’s costliest retail location and the 24th highest in the world.

A survey by Richard Ellis, another consultancy firm, found in April that office space in Connaught Circus, at the heart of central Delhi, was the seventh highest priced internationally after locations in London, Tokyo, Moscow and Mumbai, India’s commercial capital. Office rental values for prime Delhi sites have risen 80-130% over the past year, largely because of a lack of quality real estate.

Ironically, the property boom means that HSBC is being hit harder than mom-and-pop shops in the parallel boom that is hitting India’s current rapid retail developments. (An article I have written in Fortune’s current international edition suggests there is room for both the moms and pops and big retailers for years to come).

While HSBC has allowed itself to be driven out, owners of other small shops are getting rich by leasing their sites out to foreign and Indian brand names that seem to care little how much they pay for the location. The old owners find they can make far more money leasing their sites to names such as Zeiss, Adidas and Levi than they could ever do selling, for example, medicines and electrical goods.

The high rents are bad news for regular shoppers who value the friendly service of the old style shops. It is also bad news for the image of HSBC.


Responses

  1. Hey this is a really bad news for the people who are coming from outside delhi for income leaving here on rent…how they survive company like hsbc…are shut down their atm…

    but it is good news for the NRI ya investor..to invest their money in delhi property..which is booming in rapid speed..

    it s good news for the investors.

  2. This is a great article on the effect of the housing market.

  3. “Friendly service in a mom-and-pop-shop”? are you joking? there is no service, and its certainly not friendly: its more like ‘take it or leave it’ and ‘absolutely no returns or exchanges’. In fact, they complain when you don’t buy something after having them show it to you. Most prefer the service of returns and exchanges that comes with the bigger brands.


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