Reports and Surveys: Travel, Realty Demand, Cushman & Wakefield Research, BRIC report, CREDAI, India

Realty demand to remain robust in long-term

A recent paper by Cushman& Wakefield Research, titled 'The Metamorphosis - Changing Dynamics of the Indian Realty Sector,' points out that real estate demand in India, has moderated with the sharp increase in real estate prices, coupled with rising interest rates. But despite all such apparent similarities, it would be unfair to liken the economy's performance in 2008 with that in 1995.

The economy continues to remain strong in comparison to that in the mid-nineties. Consumption demand too has remained strong despite dire predictions. With the services segment comprising sub-segments like trade, hotels and restaurants, real estate, banking and insurance, etc., the growth of the segment clearly indicates a space demand for commercial office, retail and hospitality verticals.

It is important to reiterate that with a moderate growth rate predicted for the time being, the real estate sector will revert to its strong uptrend over the long term, performing in line with the overall economy.

The long-term robustness of demand for real estate in India will remain intact and we will probably see resurgence once the market finds its own level by responding to these short to mid-term global and domestic factors.

The BRIC report citing Indian economy's potential with the view of surpassing the richest countries by 2050 is indicative of it being among the fastest growing markets.

According to Cushman & Wakefield Research, the pan-India demand projection across office, residential, retail and hospitality segments is expected to be approximately 1,098 million sq. ft. in the coming five years.

The residential segment continues to drive real estate demand with 687 million sq. ft., contributing 63 per cent throughout the term under consideration.

Despite the expected slowdown in the office market, the demand for commercial office space is projected to be 243 million sq. ft, which is around 22 per cent of the total demand projections for the next five years. The retail and hospitality segments are expected to constitute 95 million sq. ft. (9 per cent) and 73 million sq. ft. (6 per cent) of this total demand, respectively, driven by an increase in income levels as well as by accelerated travel in the domestic and international sectors.

The top seven cities in India account for nearly 80 per cent of this pan-India demand with around 877 million sq. ft. The residential sector still remains the largest segment for the top cities with 60 per cent share, the commercial office segment coming up to 23 per cent, followed by the retail (9 per cent) and hospitality (8 per cent) segments. The residential segment is expected to be the major demand contributor over the next five years with a total space requirement of 529 million sq. ft., followed by office space at 203 million sq. ft., retail at 79 million sq. ft. and hospitality at 66 million sq. ft.

The real estate demand is expected to increase marginally over the period with the Tier I cities expected to generate majority of the demand during 2008-2012. The Indian economy is expected to perform well with growth driven by domestic factors, which will add momentum to the real estate sector in addition to expected improved global economic situation with reinforced investor confidence in the coming years.

Rising property prices and increased interest rates, coupled with a demand-supply mismatch has brought down the overall affordability of residential properties in the country today. Developers have come up with innovative schemes like 'Book now and pay later on possession', as well as home loan installment payment for the initial one to two years. However, established developers with substantial cash reserves have up till now remained insulated from this trend.

Middle-income housing projects as envisaged by industry experts are gaining visibility. In order to meet the demand for affordable housing, the Confederation of Real Estate Developers Association of India (CREDAI) has even proposed a concept of Special Residential Zones (SRZ) as a solution. An SRZ is a notified geographical region that is free of domestic taxes, levies and duties, with special development rules to promote large-scale, Greenfield affordable housing projects.

Finally, a 10-15 per cent fall in price or a decline in mortgage rates is most sought after in the current scenario to improve affordability and for end-users/home buyers to come back into the market. If this happens, demand is likely to pick up again with rising income levels.

Oct 31, 2008
Source: Sify
URL: http://sify.com/finance/fullstory.php?id=14788169