Demand in the residential market is expected to turn positive in 2010 owing to improvement in affordability, steady economic growth and greater liquidity, according to a report by Crisil Research. However, the report says that the current trend for over-priced capital values of all three real estate segments — residential, commercial and retail — would persist through 2009. Further, commercial and retail markets will continue to witness erosion in lease rentals over the next two years.

Crisil Research head Sudhir Nair said, “Accelerated growth of Indian economy, recovery of global economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to strong underlying demand for housing and supply coming at attractive price points.”

He adds, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak offtake.” The report indicates that capital values for residential sector and lease rentals for commercial and retail properties have substantially corrected till March 2009 due to a slowdown in both the domestic and global economies, and also due to real estate becoming unaffordable.

The research firm believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth. It also feels that the pace of economic recovery and confidence revival will have an impact on sentiments across all the real estate categories.