By: Sachin Sandhir, Managing Director, RICS, South Asia
Track2Realty: Real estate sentiment remained fragile through a major part of 2012, as the global economy continued to face strong and persistent headwinds. Economic activity in Europe is seen to be contracting, while growth in the US has been modest.
The Chinese economy has also slowed, and uncertainty about the country’s near-term prospects is greater than was the case some months ago. However, European property markets have been bearing the brunt of the economic malaise.
While it may not seem to be the case, Indian property markets have in fact fared better than several global counterparts and are expected to remain relatively stable in the immediate future, even as rates across several global realty markets may tumble by as much as 10-20%.
Thus, despite the economic and political sluggishness in India, it continues to remain a promising market. That said there have definitely been some visible effects of the global slowdown on India’s realty markets as well. Most noticeably in the commercial property segment, given it has a strong correlation with global economic factors and performance.
The office segment has seen a pronounced dip, with absorption levels in the two major markets of Mumbai and Delhi-NCR seeing a year-on-year slump of 47% and 26% respectively, as per industry sources.
In fact, given the market conditions where inflation has been on a steady rise over the course of the financial year and looming in the range of 9.60%, having reduced only marginally from double digit figures in previous months, we are seeing most MNCs being increasingly cautious about committing to investments and expansion plans, considering their home countries are not doing well. Even domestic companies are in wait-and-watch mode, as most of them are focused on upgrading and consolidation and exploring opportunities in more affordable markets.
The Q3 2012 RICS Global Commercial Property Survey paints a slightly positive picture, as demand seems to have stabilized in the Indian occupier market after having fallen in the previous quarter. In fact, India is seen to have improved seven places in the global rankings to 19 in Q3 as compared to 26 previously.
Rental expectations also stabilized in the country with rentals actually turning positive this quarter. In fact, India is seen to have improved 9 places to a ranking of 10, in the overall global rankings for rental expectations in Q3.
Overall, stringent lending norms to the sector have curtailed capital funds, with alternative sources of financing also unable to provide much needed respite to developers. With rising interest rates, inputs costs and pressurized margins the residential sector has also seen sluggish activity. With reduced absorption, supply is limited with less number of new projects entering the market.
Therefore, it seems unlikely that there will be any drastic price rationalization for existing housing stock. However, for new housing stock coming into the market, we may see some level of correction.
Even in the retail sector, there has been a drop of over 65% in the total supply causing the retailers in cities like Delhi-NCR, Mumbai and Bangalore to actively lease space in superior quality malls.
