The demand for residential properties, a major revenue source for most real estate companies, is receding. An expected increase in borrowing rates and the near-peak realty prices may reduce the demand further.
This will affect most realty firms that had started showing signs of recovery in the recent quarters. This explains why the 29-stock ET Realty Index has underperformed the broader benchmark Sensex in the past three months. During the period, the realty index fell by 16% while the Sensex gained 13%.
The negative impact of the tapering housing demand may be partially offset by the gradual recovery in the commercial segment. The pick-up in business activity last year has led to a revival of demand for commercial properties, especially in the past six months. The segment was previously struggling even as residential housing demand bounced back from the slowdown.
As much as 70% of commercial realty demand is for office space, followed by retail leasing. Under office space, demand is dominated by the information technology (IT) sector followed by banking & financial sectors. Better growth in these sectors over the past few quarters has improved demand for office space across various pockets of the country.
Source Economic Times