Housing demand to remain stagnant till economy improves

Despite recent rate cut by RBI, stagnancy in demand will continue in the short to medium term, says analyst

Housing demand is expected to remain subdued in short-to-medium term despite cut in key policy rates by RBI, global property consultant CBRE has said.

"While the recent rate cut by the RBI has helped generate positive sentiments in the market, stagnancy in demand will continue in the short to medium term unless there is an overall improvement in the economic scenario," CBRE South Asia Chairman and Managing Director Anshuman Magazine said.

RBI had last month cut the repo and reverse repo rates by 50 basis points.

 In its report 'India Residential Market View - 2011', CBRE said the housing market witnessed stagnant demand for most part of the last year.

NCR and Mumbai witnessed steady escalation in housing prices during the revival period from 2009 to first half of 2011 (as high as 40-50% in certain micro-markets), the latter half of the last year brought in stagnation in overall prices, the report found out.

"During 2011, we witnessed initial buoyancy in the real estate market as investor and developer sentiment improved, riding on the high residential demand wave," Magazine noted.

However, he said, with repeated interest rate hikes, rising prices and prevailing economic conditions, the market saw a dip in sales towards the middle of the year.

This resulted in a supply pile-up in the key markets of NCR (National Capital Region), Mumbai and Bangalore, leading to capital values remaining flat across various micro-markets in these three leading hubs.

On the NCR market, the consultant said it witnessed considerable appreciation in capital values in the first half of 2011.

Most micro-markets in Gurgaon remained central to the residential demand curve for the NCR region, with both primary as well as secondary market witnessing significant activity. However, the growth in capital values slowed in the last few months of 2011.

The Noida market witnessed issues with land acquisition across key locations such as the Greater Noida Expressway and Noida Extension.