In the current real-estate scenario, fund influx is more in the residential sector than the retail and commercial spaces. Many argue that this is a sign of a partial turnaround in the economy rather than what many claim to be a complete turnaround. Bankers say they are not bullish on the commercial segment of the real estate industry due to higher surpluses and it’s perception as a high risk exposure due to the slow pick up for leased out property.
Whereas demand in the residential space was good with a sound advance flow in the housing loan segment, leading more banks to lend and finance. Housing finance companies also cite as the reason the high inventory levels in commercial space and with retailers yet to kick-start their expansion plans, lending in these segments carries a greater risk factor. Bangalore is said to have developed around 11 million sq ft of commercial space in 2009 but absorption was just 4 million sq ft which is 60 per cent lower than in 2008. Vacancy levels across six major cities are likely to rise during the first half of 2010 and is expected to stabilise in the second half of the calender year. The ‘India Organised Retail Market’, a report based on a seven-city study in the retail space is expected to touch 21 million sq ft in the next two years.
Loans for new office space and retail have become more expensive over the last 18 months and looking at the high inventory levels, both in commercial and retail space, even private equity funds are taking a safe bet in residential segment with quick returns and better yield on investment. Fund flows will be more to the residential segment in near term without any possible indication of change in the long term for the commercial and retail verticals.
However, there is no specific pattern of funding to any of the verticals of the real estate sector and developers with sound lease rental securitisation deals were attracting enough funding from institutional lenders. So let’s see what the year ahead has in store.