Home Economy Demand for homes to drive real estate sector in 2011: Fitch Ratings

Demand for homes to drive real estate sector in 2011: Fitch Ratings


Chennai : Credit rating agency Fitch Ratings Monday said the demand for residential units, driven by high growth rate in the Indian economy and rapid urbanisation, are the main drivers for the real estate growth in the medium term.

Terming the outlook for the Indian real estate sector for 2011 as stable with negative bias, Fitch said the absorption rate is likely to be slowed down over the near term on account of strong increase in residential unit prices during the second half of 2010.

The withdrawal of teaser interest rates by lenders and the increase in interest rates expected in the first half of calendar year 2011 are also likely to dampen the demand, Fitch said.

Fitch forecast renewed hiring by the information technology (IT) and IT Enabled Services sectors since second half of 2011 — a major demand-driver for office space in the country — is likely to give the commercial real estate sector a boost in 2011.

An oversupply in this segment, however, is a cause for concern, it said.

According to Fitch, regulatory measures by the Reserve Bank of India like an increase in risk weights on bank lending to real estate companies would impact the funding available for the sector.

Unlike in 2010, when some real estate companies tapped the market for funds, Fitch said there may be a lack of enthusiasm in 2011 on the part of investors due to lending scams that was seen last year.