Real estate in 2011 fared better than expected- Business News

Year 2011 better than expected for realty

Experts say despite prohibitive property prices, sharp rise in home loan interest rates, overall inflationary pressure and effects of global slump, the real estate sector in 2011 fared better.

  • Mumbai,  December 23, 2011  
  • |  
  • UPDATED   10:53 IST

Despite prohibitive property prices , sharp rise in home loan interest rates, overall inflationary pressure and effects of global slump, the real estate sector in 2011 fared better than expected, said experts.

"The year 2011 would have been much worse. Initially, we expected it to perform at lower rates. But the first three quarters pulled up the year's performance. It was only since mid-October that the sector started facing problems, "said Anuj Puri, chairman, Jones Lang LaSalle India.

Puri said that in the first three quarters of 2011, high levels of leasing activity in malls, IT space and even sales in residential property were seen. However, the scene has changed with the mounting European crisis, devaluation of the rupee and negative business sentiment.

"Now I'm cautious about the absorption of IT space as we don't know how the IT industry would react to developments in the US and Europe. We still don't know whether they would continue their expansion or not," Puri added. Global real estate consultancy DTZ India said that demand for office space in 2011 registered a modest growth of 12 per cent against the year-ago period. Additionally, many retail brands expanded their footprints despite incurring losses in the year gone by on the hopes of a turnaround.

"Amid concerns of turbulent and uncertain economic scenario, performance of the real estate has been fairly encouraging. However, activities in the residential sector - the principal demand driver for realty in India - largely remained subdued. Growing anticipation of a pending correction in capital values from endusers and "wait-and-watch" approach adopted by most investors resulted in limited transactions," DTZ India said.

Lacklustre bookings for houses during Diwali and Dussherra put further pressure. So, the sector witnessed a slowdown in new project launches with most developers focussing on existing projects. Though this slowdown would continue to bog the sector for the next two quarters, demand would pick up towards mid-2012, they felt.

"Pricing is not a problem in small towns and urban areas where demand is robust. It is only in Mumbai and Delhi that pricing is an issue. While completed projects will not see any price correction, under construction projects would have to cut prices to create demand," Puri said.

"The initial quarters of 2012 are likely to witness a wait-andwatch approach by the investors. The focus of most developers is likely to be on execution of existing projects in their portfolios and improve sales," said Ajit Krishnan, national real estate leader, Ernst & Young (E&Y).

Despite a turbulent year ahead, the projected annual GDP growth of 6.8 per cent in 2012 will provide some insulation to the commercial realty sector, DTZ said. "The residential sector may witness some further increase in home loan interest rates. This will further impact demand for residential segment," DTZ India said.

Courtesy: Mail Today