Economic Indicators Show Early Signs of Real Estate Recovery
Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited
The global adversity of 2020 caused volatility, insecurity and loss of lives & businesses. The Indian real estate industry was caught in the worst stage of its cyclical movement and we witnessed fourth bottom of the sector.
Firstly, the residential segment had over 30 months’ unsold inventory due to excessive speculation and disturbed project cash flows, leading to high-cost debt borrowing from NBFCs or privately.
Secondly, RERA & GST implementation demanded more capital and discipline besides giving rise to “consumerism”, exposing those who did not take compliances seriously.
Thirdly, the situation became even worse with the NBFC crises, causing severe liquidity crunch leading to stuck projects.
Fourth, the pandemic, still being discovered. The impact is so significant that even Tier 1 developer liquidated their assets to reduce debt – we recorded nearly 4 billion US$ worth of transactions including listing of one REIT and two to follow in 2021.
The other segments of real estate promised growth in the office (49 million sft in 2019), warehousing and logistics (36 million sft Grade A &B), co-work (2 million sft) and data (48 MW). However, the pandemic caused Work from Home, Job losses, Fear of Job loss, Wait & Watch by Corporate, Disruption to SME, Hospitality & Travel Industry, and has impacted the real estate segments that could have helped revive the economy besides traction to the residential sector through end user demand.
The residential sector has bounced back faster than expected with help from State and Central Government on various financial waivers and schemes to support the homebuyer needs. For e.g: Maharashtra and Karnataka have lowered their stamp duty rates which has led to a surge in sales in these regions. Some of the noticeable themes are:
- “Digitization and Technology” adaption has accelerated transformation.
- The pandemic has led to accelerated “consolidation” in the real estate sector.
- “Work from home & office” is an accepted practice. Homes gain significance.
- “Wellness and celebrating lives” has taken prominence, including second homes away from the hectic city lives.
- “Smart & Sustainability” quotient in the design and construction is a new normal.
We know the pandemic is closer to being addressed but as most predict perhaps not before March-June. The sentiments and the economic indicators show early signs of the recovery but it would be only after another quarter of better results that one would conclude that. The demand for residential is expected to improve from current levels. The office market is expected to remain at current levels of absorption but is expected to recover to 30-35 million sft by 2022. The growth of warehousing/logistics, data centres, growth of e-commerce, artificial intelligence and new startups and growth of the unicorns is likely to some further to the momentum.