The Indian real estate industry does not see the downgrade of the US credit ratings as an immediate cause of worry.
With Standard & Poor's lowering of the US ratings from AAA to AA+, analysts feel it’s only the sentiment that would become negative in the short term. In the long run, however, the commercial property space might face the heat.
Anshuman Magazine, managing director (South Asia), C B Richard Ellis, a leading real estate consultant, said unlike mature economies, Indian real estate sector does not attract much foreign investment, hence there is no reason to worry in the short run.
ECB (external commercial borrowing) or bonds are not allowed in the sector, so there won’t be much impact,” said Manoj Goyal, senior vice-president, Raheja Developers Ltd.
However, Magazine cautioned if there was a slowdown, it may have a long-term impact on the office market. The sentiment of the Indian real estate sector has already been negative due to the high interest rates and steep input costs.
Demand from IT/ITeS firms constitutes over 60 per cent of office off-take in the country and any uncertainty in the US is expected to curb their demand for offices. "Since IT firms are likely to suffer due to the US crisis, they may defer buying or renting new spaces. You can also expect this from financial services companies, international fund managers and so on,” said a senior executive with HDFC Property Fund.
Anuj Puri, chairman & country head, Jones Lang LaSalle, India, said since the US would reduce its spending on IT, it would impact the outsourcing business, ultimately affecting the Indian real estate sector at various levels. “The downgrade would see a reduction in foreign institutional investment, including those targeted at real estate,” he said.
Some developers fear the re-run of the 2008 financial crisis. Then, office rents fell by 40 per cent.
Mumbai residential market, which witnessed one of the lowest dip in registrations, could see further fall, said property experts. June saw 30 per cent dip in the number of property registered in Mumbai, one of the lowest in the last six months.