Realty sector may benefit from sub-prime crisis

The Indian real estate sector is likely to benefit from the sub-prime crisis affecting the United States in the medium to long-term. But the negative impact of the crisis may remain in short-term, said international real estate consultants, Jones Lang LaSalle Meghraj, in its report on 'Impact of the US Sub-prime Crisis on the Indian Real Estate Market.'

Currently, the US contributes 40-45 per cent of the total IT/ITeS outsourcing and offshoring business in India and is the single largest market for India's IT/ITeS business.

The real estate sector's growth is fuelled by demand. In India, the demand is derived mainly through shift in global economic conditions. Thus any change in the real economy will have an impact on the physical real estate (construction or ready office space) market.

The pressure on margins felt by the various companies affected in the US may result in an accelerating trend to outsource all or some of their operations to the likes of India. Therefore, demand levels may be maintained or even grow, although the price sensitivity would increase driven by the cost-cutting approach.

"Given the crunch in the financial markets, many US corporations in the mortgage processing business and financial services are scaling down or even closing their offshoring operations. This, along with the negative outlook for US growth, may curb the demand for office space, resulting in an immediate impact on the real estate market," said Abhishek Kiran Gupta, Senior Manager - Research, Jones Lang LaSalle Meghraj.