Still Under The Weather

Nobody can argue with the underlying potential of the real estate sector, but the crisis of 2008 had caught these companies napping. Many of them had over-leveraged themselves on the hypothesis that property prices could not come down. They believed that constantly rising prices would ensure a steady stream of end users and speculators. But over the last two years events have taken an altogether different course. And now many real-estate companies find themselves trudging along the long road to recovery. Let’s review their progress. Overview Demand: Buyers have returned to the market but not in such numbers as to wipe out the inventory of real estate companies. Residential inventory stands at 11 months, 50 per cent below its June 2009 high. On the other hand, commercial inventory stands at 61 months, 33 per cent below the June 2009 peak. In the residential segment, the decision to focus on low- and mid-price housing has paid off. However, commercial demand is still low. The outlook of the IT sector, which prior to the crisis accounted for as much as 75 per cent of the total demand for office space, has turned positive. This provides hope that absorption rate in the commercial segment will pick up. Supply: It appears that many developers have misread the demand numbers. According to analysts at IDBI Capital, devel