Cold realty market will warm up in 2012- Business News

Real estate prices to moderate in 2012

With all economic parameters indicating a slowdown, real estate prices should moderate in 2012 making it possible for many people to buy an apartment.

  • Mumbai,  January 6, 2012  
  • |  
  • UPDATED   15:45 IST

With all economic parameters indicating a slowdown, real estate prices should moderate in 2012 making it possible for many people to buy an apartment. Similarly, an oversupply situation in commercial real estate should soften rentals in this sector during the year, feel experts.

"The near-term outlook for residential real estate market is likely to remain cautious, given the likelihood of low market sentiments. Key market indicators, including absorption and new launches are likely to remain low given the execution concerns," Samir Jasuja, founder and chief executive officer (CEO), PropEquity, a real estate data and analytics provider.

He said developers may focus on execution and delivering the committed projects in 2012 rather than launching a slew of new projects to 'avoid insurmountable inventory overhang'.

"In terms of prices, the pace of appreciation may be marginal because of low sales volume and even dip. However, decline could be developer specific. However, for those with enough cash, time is ripe as developers are ready to negotiate on prices," Jasuja said.

The initial quarters of 2012 are likely to witness a wait-and-watch approach by investors. The focus of most developers is likely to be to improve sales, said Ajit Krishnan, partner and national realty leader at Ernst & Young (E&Y).

"Developers in the residential segment are likely to continue to face liquidity crunch due to soaring interest rates and slowdown of sales. This may lead to a slowdown of construction activity.

Rising home loan interest rates shall keep buyers at bay in the short term," Krishnan said. The impending economic slowdown is likely to lead to lesser jobs and restrained corporate expansions, which will have an impact on businesses and, hence, the demand for commercial office space, he added. "Year 2011 was good for our company but it remained challenging for the sector," Abhickeck Lodha, managing director (MD), Lodha Group.

This indicates that some of the cash-rich developers with premium products will hold on to prices while the cash-strapped ones would be willing to lower prices to generate liquidity. "The year 2012 will continue to witness rising demand for affordable homes. There has been some oversupply in the luxury segment where prices will see a correction. Absorption of commercial real estate is very low and this segment will suffer in 2012, things will improve after 2013," said Sunil Mantri, vice president, National Real Estate Development Council (Naredco) & chairman of Sunil Mantri Realty.

"There is a shortage of available homes due to slow new project launches. There is considerable amount of demand for real estate. However, the supply side is not able to keep up with the constant rise in demand. Thus, this demand-supply gap has further increased challenges for this sector," said Boman Rustom Irani, MD, Rustomjee Builders.

"Prices of real estate have been spiralling upwards due to charges like stamp duty, value added tax (VAT), service tax and labour tax coupled with delayed approvals, thus compounding costs for the buyers leading to very slow sales," he added. In the new year the real estate sector would continue to face labour shortage as the government's rural job guarantee scheme is preventing workers from rural India seeking construction jobs in cities. This will force more builders to go for mechanisation or resort to modern ways of construction.

Courtesy: Mail Today