Thursday, August 27, 2009

Commercial property market may revive post-Diwali: Assetventures

"We have seen a strong demand in the residential property market from December-January and now we may see buying activity in the commercial property market
post-Diwali," Religare Securities' Associate Vice-President, Suman Memani, told reporters here today.

Banks and financial services would be seen buying office spaces, but IT and ITeS sectors are yet to enter realty market as they are still passing through degrowth.

"We still remain negative on retail segments and expect sentiments to improve only 15-18 months from now as the economy gradually gets back on track," Memani said.

"We believe that there has been a significant rental correction happening in the commercial segment in Tier I and Tier II cities. However, there has not been any erosion of capital value of commercial properties," Memani said.

Lower home loan rates, property price cuts, apartment downsizing, and a recovery in the job market are translating to a pick-up in demand for residential projects as evidenced by an increase in property registration in major cities.

With the improvement in macro-economic conditions as well as buyer affordability, developers witnessed a stronger response to new launches across cities over the past quarter.

Now that property prices have climbed down and the risk of job lay-offs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand in Q2 FY 10, he said.

Commenting on realty prices, Memani said, "after going into a severe tailspin from January 08 onwards on account of weakening economic dynamics, we believe realty prices have started to bottom out and have already troughed in a few locations. With the return of liquidity to the sector in the form of FDI, QIPs and bank loans in recent months, the balance-sheet position of realty players has started to improve, in turn changing the risk dynamics of the business."

Listed real estate stocks were in the danger zone, a key risk measure for bankruptcy-but with equity infusion, the chances of bankruptcy have diminished, he added.

Most developers are looking to enhance their execution capabilities in this space. If 60 per cent of the planned development is executed, it will improve the balance-sheet of realty players and also enhance buyer affordability, he said.

Realty stock prices corrected 85-95 per cent over January 08-March 09, but have bounced back significantly thereafter. Still, they remain 25-30 per cent of their peaks. With positives like liquidity infusion, stronger balance-sheet positions, a stable reform-oriented Government and an improved employment outlook, "we expect the sectors' fundamentals to improve," he said.

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