As the economy shows signs of decreasing GDP growth rate, the Indian real estate industry faces its own share of concerns. Real estate developers are reeling under high debt and FDI inflows have also slowed down. The recent increase in home loan interest rates is expected to dampen the sales even further. Amidst these macroeconomic conditions, Indian real estate asset classes across the prime cities of India have seen mixed sentiments.
Residential sales remained slow in most of these cities in 2011. Residential project launches also showed a marked slowdown by 3Q11.The demand for office and retail space leasing remained healthy in most of the cities. What does the future hold for the real estate sector in 2012?
Commercial Real Estate
In 2012, several IT companies are looking to pre-lease office space to take advantage of the favourable commercial terms currently being proposed by commercial office space developers. Demand is expected to remain stable. However, the office space supply is expected to outweigh demand in most prime cities of India. Corporate expansions are likely to decrease due to the uncertainties in the global economic situation, which will have an impact on business budgets for next year. India Property Index
Retail Real Estate
In 2012, enquiries for quality retail space are likely to remain robust as major Indian retailers are seeking to implement their expansion plans in the prime cities as well as select Tier II and Tier III cities. FDI in multi brand real estate, when finally permitted, is expected to catalyse a lot of demand from international retailers. That said, international luxury brands will restrict their growth plans to Mumbai, Delhi and Bangalore.
Residential Real Estate
Because of the prevailing uncertainties on the global market and the likelihood of further interest rate hikes by the RBI in the early part of 2012, sentiments on the residential market will remain cautious over the short term. The absorption rate – meaning the ratio of sales over inventory in the market – is likely to be low, and the incidence of new launches will decline. Rise in capital values will be marginal because of low sales.
Project-specific price increases can be expected across all sub-markets – this pertains specially to projects that are being delivered or are nearing completion. The mid-end and affordable housing segments will record healthy appreciation in capital values in the short term from a low base. We expect these trends to continue during 4Q11 and 1H12.
Meanwhile, residential developers will continue to tackle the current liquidity crunch due to high interest rates and slow sales. We will see a slowdown in construction activity for the time being. However, as demand improves, improving sales will benefit developers who will focus on execution of their on-going project portfolios.
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