'Residential demand to lead realty recovery'

The real estate market is likely to recover on increasing demand in the residential segment in 2010, driven by improving affordability, steady economic growth and greater liquidity, a Crisil report says.

“The demand in the residential market is expected to turn positive in 2010” a ten-city research report on the real estate market stated.

However, a decline in the currently over-priced capital values of all the three real estate segments —residential, commercial and retail — would persist through 2009, it said.

Further, the commercial and retail markets would continue to witness erosion in lease rentals through the next two years. “Accelerated growth of Indian economy, recovery of global economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to strong underlying demand for housing and supply coming at attractive price points,” Crisil Research Head Sudhir Nair said.

Stress to stay
Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak offtake, Nair added. The report indicated that capital values for residential sector and lease rentals for commercial and retail properties have substantially corrected till March this year, due to a slowdown in both the domestic and global economies.

Cities such as Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, witnessed a greater fall in capital values compared to other cities, the report revealed. The situation is expected to continue through 2009 and 2010, particularly so for the commercial and retail segments. However, Crisil believes that demand for houses would improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy.

“Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year,” the report said.

Crisil Research pointed out that the pace of economic recovery and confidence revival would have an impact on sentiments across all the real estate categories and would be an important variable to watch out for. The report provided information and analysis of more than 400 areas across 88 micro markets in 10 cities —Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, NCR and Pune.