India's property market has recovered from lows plumbed early this year but is unlikely to see a quick rebound given soft end-user demand, the India head of a U.S. private equity fund said on Friday.

Sourav Goswami, managing director of Walton Street India Real Estate Advisors, sees the most potential in middle-income and affordable housing in top-tier cities and expects land that was initially earmarked for high-end development will be shifted to lower-cost housing as strapped investors sell at a loss.

"There are deals in the marketplace now where funds are offering to sell down some of their land positions at 50, 60 cents on the dollar. And once they do that, the next fund that's buying in at a much lower basis has the ability to sort of re-engineer, sort of reposition the product," he said.

Chicago-based Walton Street manages $3 billion globally. It has invested $200 million in India, including a position in a high-profile township project in Kolkata.

Once-soaring property prices in India tumbled by as much as 50 percent during the global financial meltdown as an asset price bubble collapsed, and while prices have crawled back by roughly 20 percent, Goswami said they have a long recovery ahead.

"I really think that even the 20 percent recovery from the lows may have gotten ahead of itself a little bit, and I think maybe you'll just see it stall here for a little bit before it starts to pick up again," he said in an interview.

Much of the bubble was driven by high-end, high-margin projects, and Goswami said the pool of buyers for such offerings has shrunk in the wake of the global financial crisis.

"To really sell into the marketplace you need to make sure that you're building something that the local population can afford," or a monthly mortgage of about 40 percent of a buyer's income, he told Reuters TV.

The run-up was also driven by brokers and speculators who bought into projects with the intention of quickly flipping them.

Sourav said demand from owner-occupants remained thin.

"I'm concerned that I don't think as much of the demand is as end-user driven as it could be," he said.

"It'll still be another six months before we see a real end-user demand driven recovery," he said.

Walton Street is shunning second- and third-tier cities, where Goswami said "the absorption risks are too great," to focus on top-tier markets such as Mumbai, New Delhi and Bangalore.

"The big cities are not getting smaller, they're just getting bigger," he said.

Many property-focused investors have scaled-back their presence in the country during the recent global shakeout; some are looking for easier returns elsewhere.

"Some people just don't buy the India story any more," Goswami said.

"You can get a 20 percent return, 25 percent return in the U.S. or Europe right now, especially with the government partnerships. It's a lot easier to make money in the U.S. than it is to make money in India right now." 

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