By: Anshuman Magazine, CMD, CBRE, South Asia
Replicating global trends, the Indian economy is looking towards an impending slowdown in growth due to decline in consumption expenditure, repeated hikes in interest rates and consistently high inflation. This has led industry experts to forecast a GDP growth of 7.5-8% for the coming few quarters.
For the real estate sector, 2011 has been a mixed bag. The sector is bearing the brunt of rising input costs such as increasing construction cost, cost of development financing as well as declining residential sales due to increasing home loan rates. While absorption levels have not shown a significant dip, the second half of the year has displayed signs of stagnancy in uptake.
Developers have also faced issues concerning funding from traditional sources such as banks and equity markets. This has increased dependence on private equity as a valuable tool for project financing. Most of the investments are pouring in from the realty-focused funds while generic funds have maintained a cautious approach towards investing in real estate ventures.
In the near future, the real estate market might remain stable with a growth bias. The global economic situation will have an impact on the trajectory of growth. Locations where infrastructure development has been inadequate and lagged proposed plans might continue to underperform. Residential would be the focus on investment, largely into mid income/affordable housing project. Strong demand fundamentals and shortage of such projects in leading as well as smaller cities would be guiding indicators.
Besides residential, prime office and retail in key areas of leading cities might also gauge investment focus. Industrial might be another key area of investment, as it is grossly undersupplied for investment grade quality supply. Economic growth will continue to drive occupier expansion across cities, thereby promoting growth in commercial office market. However, tightening of monitory policy by the central bank might have impact on credit demand. This might impact demand for residential property to a certain extent.
…..to be continued
