Abstract
India’s property market is in a downturn. After nearly four years of a
real estate boom, prices have
dropped 20-40% since their peak, property
sales have fallen over 50% year-on-year (y-o-y), and
developers are
burdened with many unsold and unfinished projects.
The economic recession
has taken hold, and bank lending has tightened. Many projects have been
stalled
by their inability to raise finance.
Office rents have fallen,
especially in Mumbai and New Delhi, where they have declined considerably
since their peak. There are many office projects in the pipeline, and this
will exert further downward
pressure on rents in the near term. Further,
due to the economic downturn, some major companies may
relocate to less
expensive office space, or renegotiate existing leases to drive down
rents.
In the residential market, prices are falling. Potential buyers are
delaying purchases in the hope that prices
will go down further. First
home buyers are seen as a major driver for the residential segment.
Luxury
residential prices fell dramatically in early 2009. Demand is sharply down.
Affordability is now
one of the main drivers in the residential market.
There has been a resurgent interest by developers in
affordable housing
schemes, especially as the market has stalled for luxury houses and
apartments.
Chanda Kochhar, the incoming chief executive of the ICICI Bank
(India’s largest private bank) said in
February 2009 that real
estate prices still need to fall by at least 20% if the market is to pick
up.
The share prices of Real Estate Investment Trusts (REITs) have fallen
in value by up to 80% since their
peak. Foreigners cannot invest directly
in the real estate market, so they have been investing through
REITs. They
have largely exited these now.
India’s organised retail sector is
still expecting further rental falls, especially with many new
developments set to be completed in 2009-10.
The office rental market is
set to continue its fall – not helped by an oversupply, as well as the
many new
developments already in the pipeline.
House prices have
softened, and will likely stay this way – at least until there is an
economic turnaround,
not expected before 2010.
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