The real estate sector in India is expected see an increase in demand in the latter half of 2010 as per the 10-city CRISIL Research report.
The economy since mid-2008 has been affected by job related uncertainties and liquidity crunch among developers. This has taken an obvious adverse effect on sales. Developers have resorted to discounts and the market has seen levels of corrections. Average residential capital values declined by 18-20 per cent in March 2009 from the lofty highs in the first half of 2008.
The impact was more prominent for houses priced over Rs 60 lakhs. This was augmented due to a rise in real estate prices between 2005 and 2008 with a failure of household income rising at an equivalent rate.
On the subject of affordable housing, it states that there is no official definition of affordable housing. It hence assumes “affordable housing” as that can be afforded by majority of households in the city (assuming 60% of households). The onus of the affordable housing, however, has been placed on the government which it states has access to cheap land within the city.
The revival in the market, specifically resurgence in demand, has adopted the “wait and watch” policy. The report stated that the withdrawal of investors affected cities like Kochi, Chandigarh and Pune considerably, whereas Pune, Bengaluru and Mumbai have witnessed the steepest corrections in capital values.
It goes on to indicate that planned supply is unlikely to materialize in full due to the credit crunch and a relatively sluggish demand; hence, majority of the projects may get delayed by 1-2 years and a few projects that are still in the planning stage are likely to be shelved.
The report states, “In light of the marginal improvement in affordability levels of individuals in the current environment due to reduction in home loan rates…demand is likely to increase.”
CRISIL Research believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy. Hence, capital values are likely to stabilize in the first half of 2010, and increase during the second half of the year.
The commercial front has seen a similar scenario. The upswing in commercial real estate was due to high demand from domestic IT/ITeS, captives and large global players. The global recession slowed down the pace of demand. Places like Andheri and Malad in Mumbai appreciated by over 200% during the period of 2005 and 2008. Lease rentals have now dropped considerably but with the worst seemingly over, stability as per the report would return by mid 2010.
The reports were out in the month of June 2009 and CRISIL are expected to come out with a new report in the end of November 2009. The RBI suggests that the liquidity scenario is now improving and the interest rates are not to be revised anytime soon. In lieu, the reports hold true.