Indian realty market cools down
Slower economy cools down Indian realty market: experts
Panaji, Sep 18 (IANS) It’s time for a reality check for the Indian realty market, which is coming to terms with the downturn after riding on the economic boom over the last four to five years.
‘The economic slowdown, high interest rate, tight liquidity and the sub-prime crisis in the US are having a cascading effect on the Indian realty market,’ global realty consultant Cushman & Wakefield executive managing director (South Asia and Australia) Sanjay Verma said.
As a result, sale of real estate projects spanning industrial, office, commercial, retail and housing segments has tapered off over the last six-seven months.
On the flipside, global private equity (PE) real estate firms are looking at India and China to minimise or neutralise the impact of distress selling on their investments in the US and British housing markets.
‘As the global economy nosedives, PE firms have begun to target distress in the US as part of their strategy. In downturn, PE funds are looking at investments in India and China,’ Verma told IANS on the sidelines of a summit on the Indian realty sector.
Experts participating in the three-day ‘Girem Urban Planning and Real Estate Leadership’ summit feel demand has moderated with corresponding increase in real estate prices and rising interest rate, making housing loans unaffordable.
‘The high cost of land and construction materials has pushed up input costs by about 30 percent, squeezing profit margins. The slow demand and rising costs will adversely affect the profitability and liquidity of realty players in the near to medium term,’ Verma said.
Since the Reserve Bank of India (RBI) raised the repo rate and cash reserve ratio (CRR) this quarter, banks have hiked their prime lending rate (PLR) by about 50 basis points, which will be passed on to buyers.
‘If there is another increase in the cost of funds during the fourth quarter (January-March) of this fiscal (2008-09), ostensibly to curtail inflation from the demand side, the supply side will remain inelastic in the near term,’ Verma said.
The commercial office market across major cities has witnessed an additional 17.7 million square feet in the second quarter (July-September), an increase of 26 percent year-on-year (YoY).
‘There is an over-supply in some cities, primarily in the suburbs and peripheral locations due to sluggish demand. The impact of slowdown in the IT/ITeS sector is evident from the rental correction in some locations of major cities,’ Verma said.
In the retail real estate market, a slower economy has put paid to investments in quality retail space to the latter half of the fiscal or next fiscal. The sector is set for a rental correction due to slower uptake of retail space and an overall negative sentiment.
‘In the housing market, shrinking demand from investors/genuine buyers and high price points have led to stabilised capital values in high-end and mid-range segments across major cities. The increasing home loan interest rate has also eased demand for mid-range residential development,’ Verma noted.
Interestingly, speculators, fly-by-night operators and second-home buyers, who have pushed prices to unrealistic levels, are the worst effected as the downturn has dithered them from investing in real estate properties.
‘The realty sector has already seen some correction in terms of pricing and supply, with the trend continuing across the horizon. Over the long-term, the sector will revive, performing in line with the overall economy,’ Verma said.
In the short to medium term, the current slowdown may lead to a shakeout among medium-size and small players. Many developers have borrowed heavily to benefit from the real estate boom over the last few years. The slowdown is delaying many ongoing and planned real estate projects.
‘The sector may witness consolidation due to the inability of small developers in completing projects on hand. Such a trend has already begun in retail and hospitality segments. The land sector may see consolidation, as small and medium-sized firms are placing their land banks on the block to counter the downside,’ Verma added.
Anuj Puri, chairman and country head of realty consultant Jones Lang LaSalle Meghraj, has attributed the slowdown in Indian real estate to a number of factors, including overheating of prices in certain regions, reduced liquidity among developers due to credit crunch and watch-and-wait stance of property buyers, anticipating a blanket correction.
‘The fall in demand will prevail over the next 10 to 12 months, but will not be of a magnitude comparable to that of other countries. India will continue to be attractive, but investors are looking for greater transparency and stability,’ Puri said.
Asipac Projects Ltd chairman Amit Bagaria fears that just as too many cooks spoil the broth, the entry of so many players in the realty sector would have a negative impact in the long-term.
‘My view is, if we have so many developers and promoters, so much money and supply, we will not see a book like 2005-06 again for 8-10 years,’ Bagaria said.
Panaji, Sep 18 (IANS) It’s time for a reality check for the Indian realty market, which is coming to terms with the downturn after riding on the economic boom over the last four to five years.
‘The economic slowdown, high interest rate, tight liquidity and the sub-prime crisis in the US are having a cascading effect on the Indian realty market,’ global realty consultant Cushman & Wakefield executive managing director (South Asia and Australia) Sanjay Verma said.
As a result, sale of real estate projects spanning industrial, office, commercial, retail and housing segments has tapered off over the last six-seven months.
On the flipside, global private equity (PE) real estate firms are looking at India and China to minimise or neutralise the impact of distress selling on their investments in the US and British housing markets.
‘As the global economy nosedives, PE firms have begun to target distress in the US as part of their strategy. In downturn, PE funds are looking at investments in India and China,’ Verma told IANS on the sidelines of a summit on the Indian realty sector.
Experts participating in the three-day ‘Girem Urban Planning and Real Estate Leadership’ summit feel demand has moderated with corresponding increase in real estate prices and rising interest rate, making housing loans unaffordable.
‘The high cost of land and construction materials has pushed up input costs by about 30 percent, squeezing profit margins. The slow demand and rising costs will adversely affect the profitability and liquidity of realty players in the near to medium term,’ Verma said.
Since the Reserve Bank of India (RBI) raised the repo rate and cash reserve ratio (CRR) this quarter, banks have hiked their prime lending rate (PLR) by about 50 basis points, which will be passed on to buyers.
‘If there is another increase in the cost of funds during the fourth quarter (January-March) of this fiscal (2008-09), ostensibly to curtail inflation from the demand side, the supply side will remain inelastic in the near term,’ Verma said.
The commercial office market across major cities has witnessed an additional 17.7 million square feet in the second quarter (July-September), an increase of 26 percent year-on-year (YoY).
‘There is an over-supply in some cities, primarily in the suburbs and peripheral locations due to sluggish demand. The impact of slowdown in the IT/ITeS sector is evident from the rental correction in some locations of major cities,’ Verma said.
In the retail real estate market, a slower economy has put paid to investments in quality retail space to the latter half of the fiscal or next fiscal. The sector is set for a rental correction due to slower uptake of retail space and an overall negative sentiment.
‘In the housing market, shrinking demand from investors/genuine buyers and high price points have led to stabilised capital values in high-end and mid-range segments across major cities. The increasing home loan interest rate has also eased demand for mid-range residential development,’ Verma noted.
Interestingly, speculators, fly-by-night operators and second-home buyers, who have pushed prices to unrealistic levels, are the worst effected as the downturn has dithered them from investing in real estate properties.
‘The realty sector has already seen some correction in terms of pricing and supply, with the trend continuing across the horizon. Over the long-term, the sector will revive, performing in line with the overall economy,’ Verma said.
In the short to medium term, the current slowdown may lead to a shakeout among medium-size and small players. Many developers have borrowed heavily to benefit from the real estate boom over the last few years. The slowdown is delaying many ongoing and planned real estate projects.
‘The sector may witness consolidation due to the inability of small developers in completing projects on hand. Such a trend has already begun in retail and hospitality segments. The land sector may see consolidation, as small and medium-sized firms are placing their land banks on the block to counter the downside,’ Verma added.
Anuj Puri, chairman and country head of realty consultant Jones Lang LaSalle Meghraj, has attributed the slowdown in Indian real estate to a number of factors, including overheating of prices in certain regions, reduced liquidity among developers due to credit crunch and watch-and-wait stance of property buyers, anticipating a blanket correction.
‘The fall in demand will prevail over the next 10 to 12 months, but will not be of a magnitude comparable to that of other countries. India will continue to be attractive, but investors are looking for greater transparency and stability,’ Puri said.
Asipac Projects Ltd chairman Amit Bagaria fears that just as too many cooks spoil the broth, the entry of so many players in the realty sector would have a negative impact in the long-term.
‘My view is, if we have so many developers and promoters, so much money and supply, we will not see a book like 2005-06 again for 8-10 years,’ Bagaria said.