MUMBAI India's property market could see lower prices and a pick up in business activity lifting demand in the near term, but new supply will keep a lid on rises in property values, a top industry official said on Tuesday.
"In India, demand is holding up relatively better as the economy is still growing. Commercial property is stabilising, but residential has seen a bounceback," Alastair Hughes, chief executive for Asia Pacific at property services firm Jones Lang LaSalle, told Reuters in an interview.
But he expects new capacity coming into the market and developer's liquidity worries to keep prices in check.
Developers in India and China are increasingly turning to share sales to rework their balance sheets, as debt funds dry up and foreign investors stay away amid the global downturn.
India -- the world's second-most populous country -- has however, seen home buyers trickling back in major cities on some sharp price cuts, after the global financial crisis cut off funding last year and demand vanished on inflated prices.
India's economy, Asia's third-largest, is likely to grow between 6 to 7 percent in 2009/10, slower than earlier years but still among the fastest globally, which could help revive demand for office and retail space.
The BSE real estate index has trebled from its low in March, compared with an 82 percent slump in 2008. In comparison, the main stock index is up 91 percent from its March low.
Jones Lang's India unit could see revenue dip by a tenth in 2009 to about $70 million, but the firm remains optimistic on the long-term growth prospects. India and China remain the core growth drivers for the firm's Asia business, which reports annual revenue of about $500 million.
"We are holding capacity right now but as growth returns, we will expand our business and market share here," Hughes said. He hopes to double the India business in the next three years.
LURING HOME BUYERS
While demand in commercial property was fundamentally linked to revival in economic activity, residential segment is driven more by human instinct and price cuts are helping draw buyers across Asia, Hughes said.
"When people see home values falling 40 percent, their instinct is to look to invest, try to get good value. We have seen this in Shanghai, Beijing, Hong Kong, Singapore and Mumbai."
Cash-strapped developers in India have cut prices by about 25 to 40 percent, shrunk apartments and redesigned projects in tune with demand. Developers in other Asian markets, like China, Hong Kong and Singapore, have also cut prices to lure buyers, leading to an uptick in demand.
"This is a market-driven appraisal by developers of where the demand is. Today the premium is on value for money," Hughes said.
Other Indian developers have focused on building low-cost homes, with firms such as Omaxe, Puravankara Projects and Tata Housing launching several such projects in the past few months.
Hughes said he was positive on the development as this fulfilled a long-term gap in the Indian market - where, according to analysts -- there is a need for at least 30 million low-cost units given the growing urbanisation.
"There is a long-term need for affordable housing. But even practically, we are in a slump and the reality is they can sell only affordable housing right now."
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