The Indian real estate market could be headed for a slowdown as capital waiting to be deployed in the sector gets increasingly cautious, resulting in fewer investment deals in the realty segment that has seen property prices go past the peak of 2008, prior to the global economic slowdown.
However, Asia in general, and China and India in particular, will continue to attract foreign direct investment (FDI) inflows despite the slowdown as Europe and the US continue to grapple with economic problems of their own, said a senior official of Cushman and Wakefield, a real estate consultancy.
"The total investment volume in 2007 in real estate deals was $1.3 trillion globally with 20% of this going to Asia. In 2011, the total investment in the sector would be $700 billion with 50% of this coming to Asia," said Carlo Sant' Albano, chairman of the board of directors of C&W.
A recent report by industry chamber FICCI, in association with E&Y, said that FDI inflows in realty dropped by a sharp five percentage points in fiscal 2010-11, vis-a-vis 2009-10.
While realty FDI constituted 6% of total FDI inflows last fiscal, in 2009-10, inflows in realty made up 11% of total FDI inflows. In 2011, real estate accounted for about 8% of the total (FDI).
The impact from the Eurozone crisis also can not be ruled out, said Sanjay Verma, CEO, Asia Pacific, C&W, which could result in a downward pressure on prices. "If someone says that India is not going to be impacted with what is happening in Europe, he is naïve. But this time (against 2007) impact is going to be in different asset class and different geographies."
However, private equity and other investment companies are better placed than 2007. "As against 2007, the companies now have cash and plans. What they are doing now is, rather than allocating more resources in the US, for growth they are focusing in economies like India where the growth opportunities are in double digit," added Sant' Albano.
This year, investments in the realty sector in the Asian region totalled $300 billion. Of this, India saw investments of Rs 1,674 crore in leased assets, Rs 2,214 crore in commercial real estate and Rs 1,605 crore in residential real estate, according to C&W.
"There is still smart capital waiting to come in as the scale is very low in China and India in commercial development, but investors just don't want to throw money away, due to the 2008 experience," said Sant' Albano.
Industry experts say that the total real estate demand in India across major cities is expected to grow between 10-15% compounded annual growth within 5 years till 2015.