Inflation, rupee, sliding growth hit commercial property market

Sentiment in the Indian occupier and investment real estate markets has been hit on account of deteriorating levels of growth in the economy, continuous fall in the rupee value, high retail inflation and subsequent rise in key policy rates, according to the RICS India Commercial Property Survey Q3 2013.

The Occupier Sentiment Index (OSI) for India fell deeper into negative territory during third quarter (July-September) to minus 22 from minus one in second quarter (April-June). This reflects a drop in occupier demand, a pick up in inducements and a moderation in near term rental expectations, although the latter still remain positive. Weakness in the occupier market appears to be fairly broad based amongst the retail, office and industrial sectors, an official statement issued here said.

The survey said the Investment Sentiment Index (ISI) slipped back into negative territory with a reading of minus 23. This was a result of falling investment enquiries, a pick up in distressed property supply and a moderation in near term capital value expectations. “Concerns over the tapering of US bond purchases helped unsettle the currency which subsequently saw a further loss in value. This has contributed to the deterioration in the inflation picture which has forced the hand of the Central Bank in pushing up interest rates. As a result, growth expectations are being downgraded for both the remainder of this year and next.,” Simon Rubinsohn, chief economist, RICS said in the statement.

According to the survey, the marked pick up in the activity around distressed properties earlier in the year and the subsequent hike in their supply in the latest survey is already dampening the extent of gains in capital values and could continue to be a drag on performance.

Sachin Sandhir, Managing Director, RICS South Asia said from the occupier’s point of view, commercial spaces often involve more capital. Problems such as lower sales, cash flow crunch, expensive loans, high cost of labour and inflation have made occupiers cautious about their investments. Now prefer residential over commercial.