Demand for residential projects in major cities in India is picking up due to lower home loan rates, property price cuts by developers and job market recovery, according to a study by Religare Capital Markets Ltd.

Suman Memani, associate vice president at Religare Capital Markets said when releasing the report: ‘Now that property prices have climbed down and the risk of job layoffs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand.’ Correction of home loan rates from levels of 13% in early 2008 to around 8% now has also helped spur demand, he said.

Religare expects residential prices in the premium and luxury space to rise by +10-15% as valuations have bottomed out in a few locations with property registrations in cities like Mumbai and Pune rising about +20-22% in Q2 2009 over the first quarter.

Indian real estate developers like Ackruti City Ltd, Anant Raj Industries Ltd, Omaxe, Parsvnath Developers and Sobha Developers, saw a sales slump following the economic downturn. Their margins were also squeezed as many launched cheaper housing to boost unit sales.

The commercial sector is also suffering and vacancy rates will rise by as much as +25% in 2009/10 with an oversupply of about 30m sq ft of space in seven cities and information technology companies showing slower employee growth of 2.5%. Although rental values have started correcting from February 2008, capital values of the commercial properties have not eroded so far, according to the report.