Receding housing demand may hamper real estate recovery

Residential properties are witnessing a marked decrease in demand due to the increase in borrowing rates. Moreover, with the increase in real estate prices which have reached its peak the demand for residential properties will go down further. For most of the real estate companies’ residential properties are a major source of revenue. Realty firms which have been showing signs of recovery in recent times will be affected by this trend. The writing is on the wall as far as the performance of the 29-stock ET Realty Index is concerned. In the past three months the index showed a downslide of about 16% even though when Sensex climbed up by 13%.

However the gradual recovery of the commercial segment may help counter the negative impact of receding housing demand. Last year witnessed an increase in business activities that revived the demand for commercial properties. In the past six months the demand for commercial properties has increased. Previously when the demand for residential properties showed signs of revival the commercial segment was struggling. The demand for commercial properties increased because of the increase in demand for office space followed by retail leasing. Almost 70% of commercial space is being developed to cater to the demand for office space. A healthy growth in sectors like information technology (IT), banking and financial institutions has led to an increased demand for office space.