Market Report, "India Real Estate Report Q1 2013", published
2012-11-17 07:33:14 - New Business research report from Business Monitor International is now available from Fast Market Research
The India Real Estate report examines the commercial office, retail, industrial and construction segments throughout the country in the context of a cyclical slowdown. With a focus on the principal cities of Mumbai, Hyderabad, Gurgaon, Chennai and Bangalore, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best
to maximise returns in the commercial real estate market, while minimising investment risk
In July 2012, BMI conducted its latest round of interviews with in-country sources on India's commercial real estate sector. The outlook is subdued for 2012 with a mixed bag of results reported for the first half of the year, although our sources do predict very slow growth across the board from 2013. This outlook supports the current fears over India's major developers' debt levels, rising raw material costs and renewed economic crises in the US and eurozone. In addition, there are areas in the country where retail rents are on a par with those in the US, which has tended to price a number of potential renters out of the market.
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Indeed, sentiment towards India's growth story is ebbing. Not long ago, the mainstream view was that guaranteed growth would be the new norm on the back of the country's demographic dividend, huge infrastructure push and consumer boom potential. The current state of play appears dire. The rupee has sunk to record lows versus the dollar, rating agencies have warned of a sovereign downgrade to junk status, and the political landscape is mired by factional brinkmanship. For our part, we recently acknowledged that the Indian economy would be hard pressed to regain its pre-2008 rate of growth. By contrast, we see sufficient evidence to suggest that India's investment cycle - the key ingredient for sustainable economic growth - has not only stopped deteriorating, but should also start to pick up, albeit gradually, in 2012.
* Struggling under the weight of economic stagnation, burgeoning twin fiscal and trade deficits, and yet more allegations of corruption, New Delhi has finally jumpstarted India's reform agenda, announcing a series of measures designed to consolidate the public sector balance sheet and encourage private sector investment. To be sure, much of the country's economic woes have been largely self-inflicted, and we believe that a pick-up in economic reform could well ignite a cyclical recovery in the country's growth story. As such, we maintain our above-consensus real GDP growth outlook and our fundamentally bullish stance towards the Indian rupee.
* Despite coming in a touch higher than expectations, preliminary readings for Q1 FY2012/13 (April-June) real GDP data offered little substance both in terms of accuracy and composition. The key takeaways were that the Indian consumer is finally starting to tighten the purse strings and, more importantly, that India's investment cycle has yet to embark on a meaningful turnaround. This slackness in domestic demand, coupled with another all-toofamiliar bout of parliamentary gridlock, has warranted a downside adjustment to our full fiscal year growth forecast.
* We have dampened our near-term expectations for a recovery in India's construction sector, with real growth forecast to reach 6.0% and 7.6% in FY2012/13 and FY2013/14 respectively, down from previous forecasts of 7.2% and 8.2%. This downward revision is due to high base effects, relatively non-conducive monetary conditions, policy inertia and lacklustre infrastructure activity. That said, the recent July electricity blackouts and India's poor macroeconomic fundamentals could potentially be the catalyst to carry out regulatory reforms within the construction sector. This, combined with its strong potential for growth, represents pertinent upside risks to our forecasts.
* Many of our core convictions on India's real estate market, such as the prospects of falling sales volumes and rising inventory levels, have played out; and yet prices have yet to witness meaningful declines. The persistence of private equity financing goes some way to explain this unexpected phenomenon. However, as this funding starts to dry up, we believe that developers will be forced to start slashing prices or risk major solvency concerns. Moreover, we are calling for a material slowdown in investment growth in the sector.
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