Fitch Ratings' outlook for the real estate sector in 2010 is negative with a slight stable bias.
Fitch expects growth in 2010 to be driven by government support (especially for the affordable segment) and improved access to debt and capital markets. However, there might be some moderately adverse policy actions during the year when economic conditions should have reached a point of greater stabilization. The government may also find it politically difficult to provide a supportive environment if developers continue to increase prices.
Residential
On demand outlook for 2010, Fitch said the residential market demand picked up in H209, as reflected by the absorption of new projects that were launched at a 25-30 per cent discount versus prices during the previous peak in H208.
A favorable monetary policy and government provided fiscal incentives were successful in reviving demand. Any significant increase in property prices by developers and a tightening monetary policy could adversely impact future demand.
With some recent launches already indicating an increase in residential prices, there is a risk that volumes may moderate if prices continue to appreciate.
Commercial
The commercial segment continues to remain under pressure, as evident from vacancy level reported in key markets. Fitch expects demand for commercial space to improve in H210 consequent to the expected resumption of hiring in key sectors like IT/ITeS and financial services.
Many large developers have announced huge projects in the retail property segment, following massive roll-out plans by both domestic and foreign retailers in 2005-2007 and attractive rentals due to a lack of supply. However, the downturn in the economy and slowdown in expansion plans of retail companies led to a sharp drop in rentals.
In 2009, many retail mall projects were either postponed or shifted to residential/commercial property.
As retailers move back into expansion mode, Fitch expects volumes to pick up and rents to stabilize by H210.
The affordable entry or low income segment should continue as the primary growth driver in the residential sector for 2010.
The strong growth potential in the low income sector remains supported by the government. This effort will require better and more efficient construction practices to maintain overall operating margins, as this segment generally has lower margins and a shorter construction sale cycle. These factors should also reduce working capital requirements.
Mumbai, Jan. 27
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