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India Real Estate Report Q1 2012
Business Monitor International, Nov 2011, Pages: 57
India's real estate sector is plagued by fears over its major developers' debt levels, rising raw material costs and renewed economic crises in the US and eurozone. However, the consensus is that these woes are temporary, and the industry hopes to grow moderately in 2012.
However, despite these fears, it is believed that investment may increase in a number of locations and sectors in future. In particular, a number of office majors and retailers have expressed interest in the Indian market, some (like Nokia and Google) have even opened headquarters in Gurgaon. While underlying fears persist, there is reason to be cautiously optimistic about the market in 2012.
The rate of economic growth is slowing, albeit to a level that would still be exceptional in a Western economy. BMI believes that FY2011/12 (April-March) expansion will be 7.8%. The key problem is high – and persistent – inflation. The Reserve Bank of India has already raised interest rates on five occasions and by a total of 300 basis points (bps) in just 15 months. That latest tightening, in July 2011, was a further 50bps when the market had expected only 25. Many observers now believe that there is another 50-75bps of tightening still to come, although the consensus is that the end of that process is near.
Key Opportunities In The Real Estate Market:
- State governments and bodies like the Confederation of Real Estate Developers' Associations of India (CREDAI) are hoping to crack down on unlawful and potentially dangerous construction practices with new requirements and increased transparency.
- The interest shown in the country by IT and retail companies will help increase property values in city centres. Increased competition between these companies in India could also aid growth in demand for high quality property.
- For the most part supply is continuing to match demand, but not surpassing it, keeping rents at the optimum level.
Key Risks To The Real Estate Market:
- Fears remain over major Indian companies' debt levels and whether interest rates will increase while they try to reduce them over the next year or so.
- The unstable market in the US and eurozone could cause international investors to reduce their activities in order to save capital. However, it is also possible these fears may drive investors into the Indian market.
- Raw material costs are high and increasing, which could slow construction and cause developers to reduce the number of projects they wish to invest in until levels stabilise. Currently, prices are not predicted to decrease in the medium term.
Business Monitor International's India Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on India's Real Estate industry.
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