Our interaction with brokers indicates that demand has increased relative to the lows of Dec’08-Jan’09, but is still far lower y-o-y.
If we index the change in demand, it has moved from 100 in May-Jun 08, to 5 in Dec08-Jan09, and is 30 currently.
The main reasons for the recent recovery in demand include attractive prices and improvement in sentiment. However, in commercial and retail space, demand is low due to a weak IT/ITES sector.
Demand has improved for the affordable category (Rs2mn-4mn) as the buyer profile has primarily shifted from IT/ITES to the Government sector.
Also, buyers prefer to buy property in nearly complete/ completed projects and are willing to pay a premium if the construction is complete.
Residential prices in the region have declined by 30-40% from the peak (prices as quoted by developer).
While we do expect further price decline to be negligible, we do not estimate prices to increase in FY10 due to (anticipated) excess supply as the developers maintain cash flows through the sale of new projects comprising mainly residential apartments.
Slowdown in the economy and the IT/ITES sector is expected to lead to a ’U’ shaped recovery in the domestic real estate space.
While the expectation of a stable government has improved sentiment, our analysis and interaction with industry experts indicates that the recovery is at least one year away.
Therefore, in our view, the current market price of real estate stocks is not supported by fundamentals.
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