The Highs and Lows of Indian Real Estate in 2018
The year 2018 was a veritable roller-coaster ride for the Indian real estate. Despite signs of recovery across segments, the liquidity crunch – further exacerbated by the NBFC crisis – put all industry stakeholders on tenterhooks. Consolidation via mergers and acquisitions was rife in all sectors, completely redefining the concept of ‘financial health’ among players and drawing clear lines on who will survive the heat. This process will continue throughout 2019, as well.
Despite all odds, economic indicators remained positive with India’s GDP growth rate pegged at 7.3% in 2018. CPI inflation, a major concern in the past, remained reined in at a manageable 4.8%. GDP growth and contained inflation are generally considered panacea for most real estate woes. However, it took a lot more than that for real estate to retain even a semblance of an even keel in 2018.
The initial agony of policy overhauls like RERA and GST faded, leaving in its wake a reluctantly more transparent and efficient real estate market environment. While affordable housing took centre-stage in residential, co-working emerged as the new poster boy of commercial real estate. Logistics and warehousing saw significant growth. Despite minimal new supply in 2018, the retail real estate sector held its own on the back of conducive FDI norms.
Coming as it did almost at the end of the year, the NBFC crisis put an entirely new spin to India’s ‘cautiously optimistic outlook’ and as of now, it shows no signs of relenting. The Indian real estate sector enters 2019 with a gun to its head. Strong intervention from the Government and RBI is definitely called for.
Commercial Real Estate: Steady Growth
In terms of market traction, commercial real estate retained its status as the most buoyant sector in 2018 across major cities. Demand for Grade A office space saw new highs and vacancy levels declined in prime locales.
India’s first REIT listings, now expected to happen in early 2019, will result in massive liquidity infusions into commercial office spaces. This, in turn, will prompt commercial property developers to focus more on this segment to fulfil demand from occupiers across the IT/ITeS, BFSI, manufacturing and co-working sectors.
Big-bang boosters like the start-up revolution and Smart Cities scheme helped create a lucrative environment for businesses to work and expand, inevitably increasing demand for office spaces. Proactive Government policies further increased the ease of doing business in India, revving up the confidence of global entities.
Concurrently, office real estate in most Tier I cities emerged as strong investment options for producing higher yields than the other segments of real estate. The increasing presence of institutional investors in India’s commercial real estate space helped improve governance, making it more structured and transparent.
Retail Real Estate: Quality Malls Push Growth
2018 saw further liberalization of FDI policies, repositioning Indian retail on the global investment map and attracting a large number of global retailers into the country. In H1 2018, private equity investments into Indian retail swelled to over $300 million, denoting a bracing growth of 54% over the previous year.
Worryingly or encouragingly (depending on one’s viewpoint) online retail also witnessed exponential growth in 2018. In fact, online retailing is now expected to be at par with physical retail over the next 5 years. With India positioned to become the world’s fastest-growing e-commerce market, online retail in the country is driven by robust investments and deepening internet penetration in the country.
- As per ANAROCK data, the top cities with significant retail growth in 2018 included MMR, NCR, Bengaluru and Hyderabad
- New retail supply in 2018 was limited to 5.1 mn. sq. ft.
- Interestingly, apart from the top metros tier 2 & 3 cities played a significant role in India’s retail growth story in 2018
Residential Real Estate: Affordable Housing Plays Pied Piper
The fallout of RERA and GST was still very visible in 2018, but the dust began to settle. With developers and brokers accepting the new market realities and beginning to fall in line, the residential sector began to regain visibility and viability. Transparency and accountability – never the defining characteristics of Indian real estate – became the ‘new normal’ this year, and the market reacted positively. 81% respondents in ANAROCK’s Consumer Survey, which covers both resident and non-resident Indians (NRIs), believe that Indian real estate has become more credible and efficient.
Even though sales and new supply picked up q-o-q across the top cities, the issue of stalled projects showed few signs of resolution in 2018. However, a number of landmark court judgments strongly indicated that the Indian legal system is awake and aware of the problem. 2018 was a year where consumers, previously held hostage by lack of efficient regulation, finally felt that they are being heard and represented. As is always the case, the process of resolving a problem starts with acknowledging that a problem exists.
Average property prices remained largely static across the top 7 cities in 2018. In fact, average property prices at the pan-India level saw only 1% increase in 2018 as against the previous year, from INR 5,491 per sq. ft. in 2017 to INR 5,545 per sq. ft. in 2018.
Hospitality Real Estate: 28% GST on Luxury Hotels a Dampener
India’s ever-growing middle-class, rapid infrastructure development, rise in foreign tourists and the provision of the e-Tourist visa facility to nearly 164 countries gave a major boost to the hospitality industry in 2018. Technology played a vital role, with 2018 seeing a significant rise in the number of online bookings via mobile devices and apps. Social media platforms also drove significant footfalls.
Other Sunshine Sectors
The logistics & warehousing sector transformed rapidly in 2018 after the Government granted the coveted infrastructure status to logistics in November 2017. In fact, warehouse stock supply is expected to see substantial increase over the next two years owing to the implementation of GST, the Government’s determined infrastructure push and increased interest from national and international investors. Overall, strong economic fundamentals, proactive reforms and increasing use of technology will continue to boost the sector.
Besides conventional sectors, 2018 also saw the emergence of the alternate asset beyond senior living. Student housing and co-living, barely mentioned or considered in previous years, drew considerable interest not only from industry watchdogs but also institutional funds.
All in all, 2018 was a mixed bag of hits and misses.
Authored Anuj Puri, Chairman – ANAROCK Property Consultants