Optimistic on future growth

With increasing demand and level of international interest,it would be difficult for the most hardened pessimist to have a gloomy long-term view of Indias real estate market.

Considering the levels of excitement we are seeing once again,Indias property market bears careful watching. Of course,its not possible to track all of it 8212; with so much of it still not organised 8212; a lot of what happens in terms of real estate in India still takes place off the radar. However,we have been able to zero in on some broad trends for the current quarter.

Before that,let us look at the possibility of double dip in the economy. Naturally,the Indian real estate sector would be significantly impacted if one occurred,but I seriously doubt that there will be one. Unlike many developed countries,India has a well regulated financial sector a fact that stood it in good stead during the global economic turmoil. Also,Indian real estate has the advantages of strong domestic demand and a track record for higher resilience than most developed countries.

Now,a look at those trends. Retail and commercial real estate are following more or less predictable and logical paths,and Im not stressed about them. On the other hand,Indias residential real estate sector has been under the spotlight a lot of late and not always for the right reasons.

RESIDENTIAL REAL ESTATE

The third quarter of 2010 saw 58,901 residential units getting launched against 67,171 units in the second quarter of 2010. The absorption rate of residential units stabilized in the range of 20-21 per cent during the first three quarters of 2010,showing an impressive increase from the lows of 9 of the first quarter of last year. Average capital values appreciated by 2-4 per cent in this period a slower growth when compared to the increments we saw in previous quarters across Indian residential markets. Be that as it may,real estate investors are back. They are primarily targeting large-scale projects in residential,which have a quick absorption ratio. Their other focus area is integrated projects with multiple asset classes in commercial real estate.

Residential real estate demand has been put into a partial stranglehold by the spurt in property rates,and quarterly sale volumes have stabilized at about 47,000 residential units. d we have been observing in the recent past.

While I expect selective price escalations to happen until the end of 2010,we are very likely to see corrections related to locations,projects and the degree of unrealistic pricing happen after that.

COMMERCIAL REAL ESTATE

The IT/ITES sector has made a strong showing this year. As an indicator,almost half of the total absorption of office space in the first three quarters of 2010 was by the IT/ITES sector alone. There is also a lot of demand from financial institutions,the telecom sector and existing domestic corporates who are consolidating their operations. Currently,the highest demand is for Grade A office spaces in the CBD and SBD locations of major cities. That said,I expect that supply for commercial and retail properties will remain under stress for the next 10-12 months,until the oversupply situation is resolved.

INFRASTRUCTURE

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Unfortunately,India still falls short on meeting its infrastructure needs. Many projects to improve accessibility and ease of transport have been announced and even launched,but inefficiency in the public sector is causing the Government to fall short of its investment targets in key sectors such as roads,railways and ports. This is worrisome,because any bottlenecks in infrastructure have direct repercussions on real estate growth.

Reportedly,the Government is in the process of implementing a series of measures designed to boost funding for the countrys infrastructure including a multi-billion dollar debt fund. The initiative to roll out tax-free infrastructure bonds with a minimum tenure of 10 years will make infrastructure investment more attractive.

IN SHORT

As usual,there are good and bad news. I always like to take a long view of the real estate sector,and the overall outlook is excellent. Considering the steady and ever-increasing demand,the rapid advancement of transparency and the level of international interest in the Indian real estate market,it would be difficult even for the most hardened pessimist to take a gloomy long-term view of it and Im an optimist. l

The author is chairman and country head,Jones Lang LaSalle India