MUMBAI: Growth in India's property market is expected to fall to less than 5 per cent over the next 12 months compared with an annual rate of 17 per cent since 2007, according to Jones Lang LaSalle Inc, the world's second-largest property consultant.
"The Asia Pacific property market has paused, and the outlook for India will depend on its political, monetary and regulatory environment" said Colin Dyer, president and global chief executive officer of Jones Lang LaSalle, in an interview with Reuters on Tuesday.
Growth in Asia's third-largest economy has slowed to a nine-year low of just 5.3 per cent as high inflation and interest rates, policy flip flops and strained government finances have stalled economic reforms and weakened investor confidence.
Indian developers have turned to asset sales to cut towering debt levels which combined with a slowdown in home sales and low take-up of office and retail space has lowered their profits.
"The next 12 months are going to be tough," said Anuj Puri, head of Jones Lang LaSalle's India business.
"I don't see an immediate change in the absorption of office or retail space unless the government opens (up to) foreign direct investment in (multi-brand) retail," said Puri, adding that he is also cautious about how the United States after the November elections will look at outsourcing to India, which could affect demand for offices.
Earlier this month Jones Lang LaSalle missed Wall Street's forecast as it reported a 2 per cent increase in second-quarter earnings to $1.13 per share on revenue that rose 9 per cent to $921 million, dragged down by low growth in Asia .
The company's India arm is expected to contribute about 5 per cent of the company's global revenues this year, missing the 6-7 per cent target set last year.
Despite this Asia, where it has 22,000 employees, remains the strongest region in terms of growth prospect for the next two years, according to Dyer.
"In China there has been an overall economic slowdown but it is still growing at 7 per cent, and with property prices in major cities starting to correct, we expect the market to pick up (in the) back half of this year or early next year," he said.
EUROPEAN WOES The main problem lies in Europe where the recent euro zone crisis is having an adverse impact on property markets, especially in countries like Spain, Greece and Italy, said Dyer.
Financial data firm Markit said its Purchasing Managers' Index suggested the 17-country euro zone economy would shrink by about 0.5 per cent in the July-September quarter, raising fears it could be headed for a second recession in three years.
"The crisis has lowered the level of transaction activity and the availability of credit," said Dyer, adding that the balancesheet of several European banks is shrinking as they are forced to sell assets to get out of bad real estate deals.
"Credit is what oils real estate deals so the lack of it or difficulty in getting it will affect activity. On top of that we have the issue of low confidence," he said.
Dyer said the global financial crisis will fundamentally change the way credit is made available by US and European banks to the property sector as they come under greater scrutiny from financial regulators.
"This shift, you could say is not bad, and might help stop the next round of excesses," he said.