2018: Recap on the year gone by
2019 is just around the corner and it is the time to look back at the year gone by and trace its trail to reminisce the ups and downs of the real estate sector. With catalyst-for-change reforms, like RERA and GST implemented in the year 2017, the initial negative sentiment witnessed a shift towards more cautious acceptance to these game-changers in 2018.
The first two quarters of the year started with no big incentives from government in the budget to boost demand and bailout the industry from prolonged slowdown. Challenges became bigger for on-going projects and beyond repair in case of some large development projects due to liquidity obstruction, adding to the pain was occurrence of NBFC crisis that completely dried the last open tap and hope of faster completion for many on-going projects.
Residential Market: Mid-Segment and Affordable
Despite the need for housing in majority of cities for mid to affordable segment being so high, the demand did not pick up in primary market or for under construction projects. This happened due to lack of buyers’ confidence in the developers’ ability to finish projects on time and thus, this shifted buyers’ preference and choice to buy ready-to-move-in options, which lead to higher demand in the secondary market, resulting in higher transactions and price appreciation ranging from 5 to 10 per cent.
In many macro to micro markets, government has taken many initiatives and incentivise developers to promote affordable housing. However, it is not enough to bring back the excitement and enthusiasm in the industry and hasn’t resulted in the actual development of affordable dwelling units on ground.
Commercial Real Estate Market
Indian commercial real estate market continued to show positive movement. As compared to 2017, commercial market has displayed higher volume of leasing transactions in the current year in all the verticals of commercial real estate, may it be Office Space, Retail, Logistics & Warehousing, IT parks have witnessed positive growth & higher demand. This is the reason why major chunk of institutional capital & investment is directed towards commercial space and the overall sector is performing exceptionally well.
Cities like Bengaluru, Delhi-NCR, Chennai, Kolkata, Pune, Hyderabad and Mumbai have progressively impacted its growth trajectory with its high-quality of inventory, good infrastructure, ready-to-move-in options and occupier demand from IT companies, financial firms, education co-working spaces, startups, e-commerce, etc. Thus it is not surprising that this upward pattern has influenced midsize and large investors to invest in the commercial segment, especially income yielding assets were and are in good demand.
The retail market leaves formidable impact on the commercial real estate’s growth graph. Indian retail sector is well-known for attracting investment from global players, owing to its vast business scope and growth prospects. Considering rise in income and purchasing power of the middle class and upper middle class, clubbed with the entry of large number of global brands, demand for retail space is bound to go North especially for the organised retail spaces and larger retail centres, which are focused on bringing all magnets of retail spaces, like food & beverages, entertainment, fashion, grocery and various other experiences under one roof, attracts higher footfall and trading density and are also high on demand across the country.
Tough competitiveness from e-commerce brands given to physical retail formats has raised the level of realisation for brick & mortar to think new strategies and raise the quality of experience. There has been a shift in tenant mix of retail centres , which now gets driven predominately by Food & Entertainment formats .The new kid on the block is at evolving stage and many online brands are testing waters in brick and mortar platform as well and demanding spaces in prime malls realising the importance of customer demand to physically experience the product, which is critical to win customer loyalties and generate sales. Hence, e-commerce companies are adding to requirement of retail spaces. These fast-changing steps will surely work in the right direction to make the retail spaces more organised and offer large-scale opportunities for profitable development.
Aspiration from year 2019
After a bleak phase for long & transformational reforms in the upcoming budget, if government gives much-awaited push to support & announce favourable incentives in the form of more tax benefits on interest for home loans, coupled with the availability of funds at optimum cost for the real estate sector and stronger government participation in solving the problem of incomplete projects/inventories across the country, this will certainly ensure to bring back the huge piled-up demand in the housing sector that occupies more than 80 per cent of the entire real estate sector and 2019 may see a revival of the housing sector much earlier than expected otherwise.
The already corrected prices, inflation in wages of potential customer, and developers’ intent to complete their undelivered projects ,makes year 2019 an opportune time for homebuyers to make their wise and judicial purchase in the market. The next few quarters will be buyer driven and will offer the best choices & value for property. The first two quarters might see a cautious approach due to election time.
The highly expected increase demand in the residential sector commingled with growing consumer base should boost demand for the retail sector. Large institutional investors will continue to have keen interest to fund commercial projects, which on the back of positive demand, offer profitable development opportunities and will see large-scale developments in the next few years.
With government understanding the role of good infrastructure in GDP and announcing many projects in country, warehouse and logistics is one of the sectors that will gain immensely from these developments. With projects like Smart Cities underway, warehousing industry will be at the receiving of profitable benefit.
All in all, 2019-20 lays down the runway to fly high like never before in the past many years, and there is no reason for not to see positive demand, occupancy levels and sales provided all the stake holders recognise and give serious participation in streamlining few chronic issues, improve transparency, combined with the support from Government.
Authored by Harinder Singh, Chairman at Realistic Realtors