2019: REFLECTIONS ON THE YEAR GONE BY
THE YEAR 2019 DIDN’T SEEM MUCH DIFFERENT FROM ITS PREDECESSOR. THOUGH THERE WERE SOME SAVING GRACES THAT HAVE KEPT THE POSITIVITY AFLOAT FOR THE COMING YEAR.
BY : SAPNA SRIVASTAVA
The year 2019 started with the burden of financial and regulatory crisis that kept the sales down and the demand subdued in residential segment. However, the affordable housing segment saw most of the transactions happening in 2019. Some other positives for the residential sector were the announcement of Rs 25,000 crore fund to salvage stalled projects and the generous interest rate cuts and tax benefits from the RBI and the government respectively. Consistent demand from technology and flexible workspace operators kept up the leasing momentum in commercial real estate and there are more REITs in pipeline. The new business models too saw a growing demand in 2019, such as the student housing, Co-living, warehousing and industrial townships. Amit Wadhwani – Managing Director, Sai Estate Consultants Chembur Pvt Ltd points out, “There were a number of developments recorded this year within the sector. Firstly foreign investments saw a major boost. Secondly, RERA made developers focus on the completion of current projects. Thirdly, the draft of Model Tenancy which promises to accelerate India’s pace of urbanization by facilitating the tenant and landlord legal framework is aimed at encouraging institutional investments in rental housing to bring out the potential of the under-tapped market. India is expected to witness real estate renting consultancy on a mammoth scale as institutional investors move in to fill the void.”
Dr. Niranjan Hiranandani, Co founder and MD, Hiranandani Group, President (National), NAREDCO and President, ASSOCHAM words of advice were, “. Indian Government needs to quickly undertake bold fiscal decision by enhancing focus on corrective measures for the sectors like Housing and Urban Infrastructure, 25% GST rate cut temporary and slash individual tax to boost demand side of the economics. This shall bring in double digit GDP growth rate inclusive of employment generation in order to achieve $5trillion economy.”
Parveen Jain, CMD, Tulip Infratech & Vice Chairman NAREDCO elaborated on year’s trends “In 2019, buyers and investors showed keen interest in the newly launched and under construction Group Housing projects offering 2,3 & 4 BHK apartments along with amenities provided within the housing site. Also, the demand for ‘Ready to move in’ homes was quite apparent. The greatest demand was for the ‘Affordable Housing’ with majority of the buyers going for 2 BHK and 1 BHK denominations.”
Godrej Properties Ltd. commented, “With a weak economic sentiment coupled with liquidity crisis, the first half of the year saw subdued demand. However, we see this situation easing out slowly and steadily and demand coming back to the sector in the last quarter. The government too has been very supportive with numerous policies to enhance the functioning of the sector. At Godrej Properties, we believe the sector still holds a lot of potential and we will continue to focus on our priority markets of Mumbai, Bengaluru, NCR and Pune.
Despite the concerns regarding rising NPAs and the liquidity crisis, the real estate sector, compared to 2018 gained a marginal positive momentum in 2019. The year was crucial for real-estate, as it witnessed the transformative reforms that were introduced over the past few years taking shape. With India’s inflation showing downward trend in the third quarter, the signs look positive for GDP growth that will sustain the realty sector in the coming year.
10 KEY OBSERVATIONS OF YEAR 2019
- Developers with brand name and good track record saw stable sales.
- Developer’s growing inclination towards affordable housing segment.
- Real estate firms including coworking, co-living & student housing in their portfolio
- Permeation of technology in almost every facet of real estate from construction, brokerage, asset management, leasing to property management.
- Despite popular belief, retail is not dead and is simply undergoing a major transformation.
- Tier-II & II cities as the new growth hubs of real estate due to government push on physical and transport infrastructure.
- Warehousing segment riding the wave of E-commerce, is the new favourite of realty players.
- The rise in PE investments in India last year tells the success story of Indian commercial real estate.
- The dip in residential sales and limited new supply, stimulated rental market.
- Millennial changing real estate consumption pattern across cities in India.
The Year 2019 was the year of survival of the fittest. Those who had the financial capabilities were able to survive the storm and are sure to experience growth going forward. The products in the market too were redefined right from the pricing, the sizes to the marketing which has now become more transparent towards the homebuyers.
Giving a segment-wise analyses Anuj Puri, Chairman – ANAROCK Property Consultants revealed, “Affordable housing continued its growth momentum yet again in 2019 with overall new supply rising by 22% – from 77,590 units in 2018 to nearly 94,530 units in 2019. The economic challenges of 2019 widely eclipsed overall residential growth during the second half of the year. However, both housing sales and new launches increased in 2019 as compared to the preceding year. Stronger branded players were the clear winners and took charge amidst the changing preferences of new-age homebuyers towards branded realty.”
Expressing positivity, Ashok Mohanani, Chairman EKTA World Vice President, NAREDCO Maharashtra, expressed, “Commercial and retail sectors of real estate performed comparatively better than residential spaces.However, with the cabinet approval on Partial Credit Guarantee Scheme to NBFCs and HFCs, the residential sector will see increment in liquidity and cash flow by attracting investors and home buyers.”
Gopal Sarda,Group CEO Kolte Patil Developers Ltd, stated, “In 2019, the real estate sector continued to consolidate in favour of developers with strong balance sheet, shorter approvals-to-launch cycle and sound capital allocation for business development. Property buyers are more discerning and wellinformed post RERA, GST and NBFC liquidity crisis. Resultantly, they are gravitating towards developers that have demonstrated track record of corporate governance, timely delivery and customer-centricity.”
Vinamra Srivastava, CEO, Business Parks, CapitaLand India, added, “Given the slowdown and the associated risks in housing sector, the office space witnessed strong interest from investors and financers, both in domestic as well as foreign investors with record level absorption crossing 50m sqft this year. The logistics sector also witnessed unprecedented structural shifts with government’s ambitious GST and Make in India initiatives which acted as catalyst transforming supply chains, automation and consolidation. Overall the RE sector is witnessing a paradigm shift with modern era of REITs and emergence of alternative asset classes.”
The Indian real estate sector is being shaped by reform policies, growing transparency, rapid technological progress and shifting end-user demand. While NBFC sector cause liquidity stress for the RE sector, the inflow of long term, patient capital from PE and institutional players especially in office has provided the sector a steady growth curve.
Despite the slowing economy, capital inflows increased by more than 30% to nearly USD 4.6 billion in 9M 2019, compared to the same period last year. In fact, the investments in the three quarters are comparable to the overall 2018 inflows (USD 4.8 billion), indicating that the market is expected to attain a new peak by the end of 2019. This is suggestive of the investors’ continued faith in the Indian market despite a weakening economic scenario and the recent NBFC crisis. While investments in core built-up assets were mostly led by private equity and other institutional investors, investments in land were driven by developers aiming at strengthening their commercial pipeline in cities such as Mumbai, Bangalore and Pune. Developers focusing on increasing their footprint in other key markets across India are expected to continue to gain momentum. In the logistics segment, leasing activity increased by almost 31% compared to H1 2018, crossing 13 million sq. ft. in H1 2019. 3PL players accounted for about 56% of the leasing activity, thereby driving space takeup during the first half of the year. Logistics leasing activity strengthened, owing to recent policy reforms, infrastructure initiatives consolidation and expansion by occupiers. Supply chain integration is likely to remain tech-enhanced, with increasing demand for 3PL and even 4PL services in certain instances.
Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa at CBRE was of the opinion that despite a weakening economic scenario, policy reforms across various sectors in 2019 acted as a business sentiment booster. “The real estate sector has shown remarkable resilience despite the bearish phase of the economy. As the Indian economy transitions and its workforce expands, it will offer vast development and investment opportunities for the real estate sector. Technology, demographics and environmental issues are its new value drivers.
Already, workplaces are becoming more modern and open, in keeping with the aspirations of the millennial working population. The logistics industry is embracing technology to keep pace with the increasingly digital times even as retail goes omni-channel and housing is getting more affordable, on the back of government initiatives and the growing needs of young families. The real estate universe is expected to expand sizably as new asset classes (REITs, co-living spaces, student housing) make their presence felt.”
According to Ashish Bhutani, CEO, Bhutani Infra consecutive repo rate cuts, GST, fund allocation announcements summed up the year for real estate. “This summary contains a whole gamut of expectations that real estate sector had. It meant that buyers got lower EMIs and gift in the form GST, developers got announcement of funds that will expedite the development of projects. The hectic activity in 2019 will translate into lot on the plate of the buyers to choose from and hence the coming year will definitely be a good year for the sector, he said.
Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman – ASSOCHAM National Council on Real Estate, Housing and Urban Development considers 2019 a good year for the real estate sector. “A lot of announcement were made and we hope that in the coming year at least some of them will come to fruition. In affordable segment we expect that government should seriously look into the issue of raw material cost and land prices. Haryana Cabinet’s decisions to increase the total limit for grant of Affordable Group Housing Colony in a sector from existing 15 acres to 30 acres and extending the Deen Dayal Jan Awas Yojna to Gurugram Development Plan is a positive for the sector. The latest development came a few months after the announcement of DeenDayal Jan Awas Yojana (DDJAY), an affordable housing scheme to encourage the development of ”high density plotted colonies” in Low and Medium Potential towns of Haryana through a liberal policy framework. To meet this burgeoning demand, a coordinated effort on policy part is required where every state should have such policies and the supply should come up everywhere to meet the target of ‘Housing for All’.”
Yash Miglani, Managing Director, Migsun Group concurred, “The year 2019 was a tough one for real estate sector, but affordable housing did reasonably well. Most of our project offerings are in affordable category and we received encouraging response of the customers especially in the second half of the year. With Government announcing several measures in the last couple of months, we expect the revival of the sector is round the corner and affordable housing will play a key role in it. Adding on, the move by the government was appreciated as infusion of funds will see the light of the day making it possible for the real estate sector to function it efficiently.
Giving an overall perspective, Ramesh Nair, CEO and Country Head, JLL India said, “The office market exhibited healthy growth of 16% in 2018 with net absorption estimated to cross 33 mn sq ft during the year. This trend is likely to continue, with net absorption expected to surpass 37 mn sq ft by the end of 2019. Signalling good news for occupiers and investors, demand for offices remained high across key markets. The residential market has seen a gradual shift in consumer behaviour. Homebuyers are now looking at mostly ready-to-move in apartments or under-construction properties by developers who have good track records. The revival signs of the residential segment will be more visible through affordable housing demand which will drive long term institutional funds to invest in this segment.”
As a matter of fact, the leasing activity for the office segment increased by more than 30% annually to cross 47 million sq. ft. during the first three quarters of 2019. Bangalore, followed by Hyderabad, NCR and Mumbai, accounted for about 80% of the leasing during the first three quarters of 2019 (2019 YTD). Meanwhile, supply addition was up 80% in the first three quarters of 2019, as compared to the same period in 2018. The additions were led by Hyderabad, Bangalore, NCR and Mumbai. Flexible space operators will continue to expand operations and target secondary markets in Tier I cities and major markets in Tier II and III cities.
Retail demand continued to remain strong in 2019, and witnessed a healthy mix across brand categories of F&B operators, mid-range & value fashion along with entertainmentbased retailers. Supply addition witnessed a dip during 2019 however, it is expected to pick up as nearly 4.0-5.0 million sq. ft. of investment grade mall developments are expected to become operational by the end of 2020.
Year 2019 had much to offer for real estate developers and buyers, from infusion of funds to repo rate cuts. Though, there are still many hiccups on the way to real estate revival.
Terming the year 2019 as a mixed bag, Anuj Kapoor, Founder & MD, StratCap Corporate Advisors, Hyderabad said, “Year 2019 has been a turbulent one for the Indian real estate sector. The sudden liquidity crisis in the NBFC sector had a tremendous impact on funding, borrowing cost and delivery timelines of projects. The change in GST parameters resulted in higher input cost and related product pricing to end consumer, thus leading to longer sales cycle for developers. RERA has streamlined the sector but has also enhanced funding requirements in a scenario, where borrowing options are limited.”
Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI agreed, “From an industry perspective, the year 2019 turned out to be a rather challenging one. Despite various measures announced by the Government as well as RBI, the going was tough for the industry. The sluggish economic growth during the first two quarters of the current fiscal added to the misery of the sector. As a result, both sales as well as launches fell during the year.”
Chintan Sheth, Director, Ashwin Sheth Group considered 2019 performance as pretty much expected. ”The year saw little upsurge in terms of sale and little optimism has come. With prices going up and the pent up demand from the previous year has piled up and people have come to the market. Since the start of this calendar year, sales volume picked up with auspicious occasions of Dussehra and Diwali registering the best sales during the year. This is a positive sign.”
Anuj Khetan, Director, Vijay Khetan Group concurred, “The year 2019 has been a roller coaster ride for the realty sector with the developers understanding the preferences of the homebuyers and altering the supply accordingly. The metropolitan cities have several real estate micro-markets that are reasonably priced and offer good returns for endusers and investors alike. The Co-living and rental apartment are in high demand from millennial, students and young working professionals.’’
Deepak Kapoor, Director, Gulshan Homz considered 2019 as a hectic year for the sector. “The government was seen concerned and willing to help but all these measures are likely to have effect in the coming year. All the segments of real estate — commercial to residential — saw a healthy movement but the pace was not the way it should have been.”
Nayan Raheja, Executive Director, Raheja Group concluded, “While the year 2019 for Real Estate shall be looked back upon as a year of New Law Changes, GDP projection downgrades, IBC law amendments, it was a good year primarily for the affordable segment, office segment, co working, rentals and Ready to Move Inventories. While new launches remained muted, the older inventory kept being steadily absorbed.”
Irrespective of the challenges, the year 2019 still managed to close on a positive note, as on an annual basis, residential supply increased by 24% in 9M 2019, compared with the same period previous year. Sales activity too improved by 26% during the same period. The growth can be attributed to the sustained efforts of the central government to strengthen the sector, especially affordable housing. These include setting up an alternative investment fund worth INR 25,000 crore for stalled housing projects, enhancing banks’ lending cap to registered NBFCs for on-lending by housing finance companies, etc. While the NBFC crisis and the resulting economic slowdown have slowed the recovery of the sector, affordable housing continues to drive the sector.