Real Estate Prices May See Corrections

The credit rating agency ICRA believes that the real estate prices might see correction in some pockets. These pockets are cities which do not enough economic activity to support the price boom there. Vikas Agarwal, general manager, head-real estate & construction, ICRA Ltd, said, “There might be some dipping in the real estate prices in some pockets with low economic activity, low income level needed to support the price.” The property prices in an area must be supported by the underlying growth story and towns without fundamentals will experience some correction, he added. Recently, property prices in Bangalore and National Capital Region (NCR) have seen a bit of correction. He pointed out that in the short run the high interest rate may create small hiccups but in the long term there is a strong demand for real estate & their prices are going to stabilise. He also cautioned against the mushrooming growth of small players, having low credibility, in the real estate business on the back of huge growth in last 3 years. He highlighted certain challenges before the industry in the form regulation, transparency and valuation. John Kriz, team managing director, Real Estate Finance, Moody’s Investor Service, said that globally there is a movement towards public real estate and by creating real estate investment trusts (REITs) the public property space can be strengthened. In India, the government is yet to conceptualise REITs. REITs are commercial vehicles which own property and issues shares to its members. Kriz also highlighted the factors while designing REITs. These are limits on leverage, management of property owned by REITs etc.