‘Property rates to fall 25% in 12-15 months’

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Mumbai: Religare Hichens Harrison in its report on realty sector has projected a price correction of 20-25% over the next 12-15 months depending on location in India.

Commercial property rates are expected to fall by 20-25%. Increasing vacancies will lead to a further correction in lease rentals which also applies to the retail industry. Further, supply will exceed demand which will lead to a fall in IT/ITes property and rentals rates.

According to the report, the present downcycle will last for 15-18 months before the sector begins to show signs of revival.

The market trends over the last five decades suggest that India is currently in the midst of the sixth downturn in the realty sector. developers are facing a sever cash crunch that is hindering the execution of ongoing projects and grounding new launches.

Further, demand has dropped off sharply over the past 9-10 months, particularly for residential units, owing to spiralling inflation (leading to higher mortgage rates) and overheated property prices.

Over the last 9-10 months, there has been a noticeable decline in enquiry rates for residential property. Realty prices in the four metros have fallen to some extent across segments, with the residential space witnessing the most pronounced decline.

After increasing substantially in FY08, under construction activity has stagnated over the last 8-10 months, implying lower cash outflows towards projects.

A drop in land acquisition and sluggish construction activity generally translates to a delay in new launches and deferral of planned projects.

Developers have already begun to reschedule their developmentplans and push back launch dates. This could enlarge the demand supply mismatch in the longer run.

The report anticipate a further deceleration in project execution and delivery as the economic slowdown deepens.

According to the report, mid term outlook continues to be grim as price correction deepens.

Demand has slumped as buyers and investors adopt a wait and watch policy in anticipation of a fall in both interest rates and property prices. At the same time, future supply has started to taper off on account of project delays.

However, projects that are already in the advanced stages would be launched in the near term, creating a situation of over supply in certain realty markets and leading to deeper price corrections.