Friday, August 26, 2011: 02:53:53 PM

TJCD Poll Feature

US downgrade: Sentiments to be hurt, mixed impact on Indian realty

The US downgrading can trigger a slowdown in domestic commercial real estate activities, while throw up some opportunities for home buyers

The recent US downgrading has rung the alarm bells hard across industry verticals. The Indian real estate industry is no exception, with analysts and experts apprehending sentiments to become negative in the short-term. However, experts have assured there is no immediate cause of worry for the property sector.

 
In a recent poll conducted by ConstructionBiz360, a record 100% respondents also felt that the US downgrading would hurt sentiments of the domestic real estate industry.
 
According to Anshuman Magazine, managing director (South Asia) at well-known consultancy firm CB Richard Ellis, the Indian realty sector is unlikely to face any major impact like mature economies as the sector does not attract significant amount of foreign direct investment.
 
International rating agency Standard and Poor’s downgraded the US from AAA grading to AA+, sending shockwaves across the world. In the meanwhile, crude oil prices started declining and gold soared to an all-time high.
 
Commercial realty to suffer
 
A majority of property experts and developers strongly feel that the US downgrading can trigger a slowdown in commercial real estate activities, while throw up some opportunities for home buyers.
 
The mixed impact of the US downgrade on Indian realty has been aptly explained by Anuj Puri, chairman and country head (India) of international property advisory firm Jones Lang LaSalle in a note where he wrote, “The dollar’s depreciating against the rupee will make Indian software exports to the US less favourable. This will impact the growth of the domestic IT sector, which contributes 50% of the office space demand in India. Consequently, this would lower the expected levels of demand for IT-centric office spaces by next year, although there is little scope for such reduction in demand in the current year as it will continue to be driven by existing contracts.”
 
On the brighter side, Mr Puri mentioned, “The lowering of crude oil prices could have a softening effect on inflation, which in turn will help home buyers. Also factoring in possible discounts during the upcoming festive seasons, there may be a discernible uptick in residential sales as against the previous estimates.”
 
“Since the commercial realty space is predominantly IT-centric, there is a strong possibility that the sector may face the heat. With respect to residential sales, buyer sentiments may be hurt in the short-term, but there will not be any significant reduction in demand. In fact, we expect our sales volume to go up considerably during Diwali,” said Rajender Bhati, proprietor of Shri Balaji Group, a property firm in Faridabad.
 
Going ahead, industry experts feel that the commercial real estate sector has to diversify its focus and start catering to other segments of office space to boost overall industry’s growth.
 
Jeeta Bandopadhyay

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