by Mr. Subhankar Mitra, JLL India
The annual monsoons have always been perceived both as
a rural blessing & an urban curse – they are good news for the agrarian
sector & the bane of water-logging prone cities. However, this caricatured
mindset is breaking.
The threat now looming both over villages and cities
of two - thirds of the nation’s districts is a drought - like situation. Cities
& towns are reeling under water shortages that threaten to get worse, and
the economies of agrarian rural areas are held hostage.
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| Subhankar Mitra, JLL India |
These adverse effects of a failed monsoon are
self-evident. What is less obvious is the impact it can – and probably will –
have on the already compromised real estate sector. After all, the fate of
India’s property markets is not directly linked to the availability of water or
rainfall… or is it?
Health of Indian Real Estate Market..!
It is important to understand that the health of the
real estate market is directly connected to the nation’s larger economic
framework. Therefore, it is subject to any changes in the macro environment.
Agriculture contributes to only nearly 18% of India’s
GDP (Gross Domestic Production). However, almost 50% of our population directly
or indirectly depends on this sector, which is by far the largest employer in
India. Expert analysts expect India’s GDP growth will hover around the 6% mark
for this year (2012).
India has been battling hard to get back onto an 8 to
9% GDP growth rate since the global financial meltdown reared its malevolent
head back in 2008. This new forecast is not geared towards improving the
macro-economic situation – to which market sentiments are inextricably linked –
despite the fact that the world seems to be inching past the worst phase of
economic crisis.
The impact of a failed or inadequate monsoon is
multifold. First, a vast segment of marginal farmers are rendered jobless and
tend to migrate to urban areas for subsistence. These migrations add to the
burden of already strained civic infrastructure of these cities. Shelter
becomes a critical issue for such migrants, and many of them flock to the city
slums as they cannot afford anything on the formal Indian real estate market.
Inflationary pressures ..!
The rentals for residential space tend to move upwards
as mitigation of supply constraints is compromised in the short term.
Nevertheless, capital values will not gain significantly – owing largely to
currently reduced disposition for owning real estate asset, and the high
interest costs.
Inflationary pressures cause retail spends to dip and
the prices of commodities to move upward, leaving consumers with little money
to spend on capital goods – including housing. Retailers curtail their
expansion plans due to lowered revenue growth perceptions, affecting the retail
real estate sector to feel the heat. Similar effects will be seen on the
leisure and entertainment sector -a not inconsiderable consumer of real estate.
The only winner in this grim phase may be the services
sector, and its contribution to the commercial real estate sector.
Global economic recovery is picking up, and
international demand has started showing sign of revival. This will result in
improved export performances of India’s SEZs. This sends out a clear message –
a turnaround for the commercial real estate sector can only take place by
hand-holding the services sector.
About the author...!
Mr. Subhankar Mitra is Head – Strategic Consulting
(West) in Jones Lang LaSalle India
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