Bangalore: Supply of office properties from developers struggling to fund, complete or sell their projects is likely to increase further in the April-June quarter, according to the latest RICS India Commercial Property Survey.
This continues from a marked pick-up in the supply of such distressed office properties in the January-March period, the property consultancy said in a report released Tuesday, without giving specific numbers or estimates.
While distressed properties would be available at prices lower than market rates, the rise in their supply could dampen the capital values of office spaces, say experts.
“Problems such as lower sales, cash flow crunch, expensive loans, high cost of labour and inflation are putting builders into a situation where they are forced to go for a better selling asset. Thus we see such examples, where developers are either reformatting their commercial project into a residential project or are looking for an exit,” RICS said in the report.
“From the occupier’s point of view, commercial spaces often involve more capital. As there is huge demand for housing, small affordable to mid-income residential apartment projects sell faster than a commercial project. Even investors—considered a good source of funds for developers—now prefer residential over commercial,” said Sachin Sandhir, managing director of RICS South Asia.
The slowdown in India’s economic growth last year is taking its toll on occupier demand, although the economy is expected to improve this year, the consultancy said. However, in comparison to the last quarter, occupier demand rose modestly in the first three months of 2013, it said.
India’s economy grew at an estimated 5% in 2012-13, the slowest in a decade, but is expected to pickup pace to about 6% this fiscal year.
“Developers within the commercial space are facing problems of funding. India has not been able to attract a lot of foreign investments in comparison to other countries such as China and Malaysia within the region,” said Simon Rubinsohn, chief economist at RICS. “Ongoing issues such as high inflation, large budget deficit and the slow pace of regulatory reforms are weighing down on business sentiment.”
The survey notes that investment enquiries increased modestly in the January-March quarter compared with the December quarter. “It is expected that the investment scenario will improve as the year progresses with the benefits of the recent regulatory announcements beginning to be felt,” Rubinsohn said.