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Good news for the discerning end-user

21 Dec 2013 , Hindustan Times

This is the right time for investors looking at cost-effective projects to park their funds, as weak market sentiments are likely to open up opportunities for investing in quality projects

There are still significant investment opportunities left in India’s real estate market. Housing demand remained largely stagnant across major urban markets in India during the first half of 2013. End-user perceptions of inflated housing prices, as well as high borrowing costs kept off home buyers during this period. In fact, subdued demand levels even led to a price correction of around 10% to 15% across most markets in India. Recent policy moves from the Central Bank — vis-àvis the rise in repo rate as well as the 20:80 schemes — are expected to further dampen investor sentiments. With home loans having gone up now, homebuyers are likely to remain cautious and delay their purchase decisions further. However, a silver lining seems to be the increasing interest of non-resident Indians (NRIs) in purchasing property to leverage the depreciating value of the rupee.

Despite the prevailing demand slowdown, residential supply in key markets across the country witnessed an increase in the first six months of 2013. As per CBRE’s latest report on the residential segment, India Residential Market View H1 2013, more than 65,000 units were launched across India’s leading cities in the first half of the year, as compared to about 48,000 units launched during the second half of 2012.

This demand/supply mismatch has contributed to an oversupply situation in most cities, leading to mixed sentiments on asset pricing across various cities. About 88% of this supply was concentrated in the Delhi National Capital Region (NCR), Mumbai and Bangalore markets, indicating their prominence as residential real estate investment destinations. Not surprisingly, most of these new launches across India’s top cities came up in peripheral/suburban areas, and in the mid-end price segment, to cater to the rising demand for affordable housing.

Office space absorption in the top seven cities of the country declined by approximately 14% q-o-q, registering around six million sq ft as compared to around seven million sq ft in the previous quarter, according to the findings of a recent report.

As far as housing investments go, homebuyers may consider the present period for investing in good housing properties. This might be the right time to take advantage of the price weakness in NCR markets, for instance.

It is an end-user market currently; and price points in the premium/luxury as well as high-end/mid-end segments are expected to remain stable in the short- to medium-term. Corporate occupiers looking at renewing or restructuring leases in the short to medium term will continue to hold strong leverage in the office leasing market.

The author is head – consulting and valuation, CBRE South Asia Pvt Ltd

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