Outlook for real estate sector in 2012
Pritam P Hans December 28, 2011
For all its problems, the real estate market - both consumers and companies - lived through interesting times in 2011. Relentless rise in property and interest rates, controversies over land acquisition, the landmark Noida Extension court judgment and, to top it all, the various reform proposals, made for a heady cocktail. The next year is expected to be no different.
High prices and interest rates have been dampeners. "Demand has been stagnating in a few cities even as supply remains high. Investors as well as end-users have been showing signs of weariness. Repeated increases in interest rates have led to a decline in sale of residential properties. This is likely to have an impact on residential sales in 2012 as well," says Anshuman Magazine, chairman and managing director, CBRE South Asia, a real estate brokerage.
Flow of funds is a concern for developers. "Real estate developers are reeling under high debt and foreign direct investment inflows have slowed," says Ashutosh Limaye, head, research and real estate intelligence service, Jones Lang LaSalle (JLL) India.
"The top priority for most realty companies will be to reduce debt, which could mean deep discounting opportunities for buyers. The Real Estate Regulatory Bill, which seeks to bring transparency, should encourage buyers," adds Nangpal.
However, a price correction may not happen soon. "All indicators suggest a severe correction in the market, but the real estate industry has proven to be more resilient than expected. For example, in Mumbai, volumes have dropped 70% but prices are up 20%," says Nangpal.
"Demand for offices will be driven by consolidation in and relocation to special economic zones by large information technology (IT) companies seeking to reduce costs," says Limaye of JLL.
"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 for offices is expected to remain stable. However, supply is expected to outweigh demand in most prime cities of India. Commercial office space rents and capital values are expected to increase across all cities, albeit marginally," adds Limaye.
"Prices of commercial properties have corrected by 10-15% in 2011 in most markets. A further correction to a similar tune is expected in 2012. Commercial real estate supply tends to be bulky in nature and, therefore, the price trend is rarely smooth," says Nangpal.