Following a surge in demand in the low-cost housing segment a few months ago, real estate developers and construction firms expected their long-continuing woes to end by the current financial year. Moreover, domestic market indicators led small and mid-sized property developers to believe that resurgence in the housing sector was just around the corner. However, this does not seem to be the case anymore.

The recent research report released by CRISIL has poured the proverbial cold water on the optimism of realty developers. The industry analysts at the leading ratings and research firm have expressed scepticism over the revival of the Indian housing market in 2009-10.

Downward trend to continue in ‘09

Experts at CRISIL project that the fall in the currently overpriced capital values of all three real estate segments — residential, commercial and retail spaces — will persist throughout 2009. Furthermore, the premier research and ratings firm also anticipates that the commercial and retail real estate markets will see continual erosion of lease rentals in the next 2 years due to the widening supply-demand gap.

“A major push in the demand for commercial and retail spaces seems unlikely in the coming quarters as the overall global economic outlook would continue to remain weak. Investment in these segments is also expected to remain muted for some time to come,” said S Kumar, Director, Thejas Associates, a mid-sized Real Estate company in Coimbatore.

However, things are expected to take a positive turn in the next calendar year once the global economy starts picking up momentum. Experts foresee the demand in the residential markets to rise following economic growth and an improvement in the liquidity situation.

“Improved access to bank credit, global economic recovery and a growth in income levels are some of the prime factors which will signal demand revival in the residential segment. We are also expecting resurgence to come faster on account of the strong underlying demand for housing in the country. Residential apartments are likely to be offered at attractive price points post-revival,” said Sudhir Nair, Head, CRISIL Research.

Going by the research reports, SME realty developers are seeking a reduction in high borrowing costs by banks and are advocating for greater availability of cheaper home loans as well as better job security, which are imperative for boosting the residential market.