The year gone by: How Real estate fared in 2019
As the year 2019 comes to an end the real estate sector, which continues to struggle with a funding crisis closes with a ray of hope. This silver lining came in the form of commercial real estate. With 2019 not being the best year for residential, commercial was the saving grace.
Real estate sector is one of the most important sector contributing as much as 7-8% of GDP and amongst the biggest employment generators. Any revival in growth needs active participation from the real estate sector. Moreover, shelter being one of the basic needs is a good indicator of the fundamentals of the economy.
“As the year draws to a close, its time the industry look back at the year gone by and gear up for the next year. The former RBI Governor had hit the nail on its head when he expressed that the real estate sector is in “deep trouble”. Somebody had to bell the cat and call out the truth for its worth rather than beating round the bush and who better than Raghuram Rajan. It has been a very difficult year for real estate. On one hand, credit dried up completely resulting in a number of bankruptcies and huge sufferings for end customers, on the other demand weren’t sufficient to sell the completed projects.” shared Rahul Grover-CEO, SECCPL.
Commercial 2019: The Silver Lining
India’s office real estate sector was decidedly vibrant in 2019, with demand for Grade A office space spiralling upward while vacancy levels in prime locales reduced. India’s first REITs received an overwhelming response and within just six months of its launch, its value increased over 37%. Thanks to REITs, India entered the league of mature markets in 2019.
Indian real estate has undergone steady growth in the commercial sector. In addition the industry was witness to India’s largest commercial space transaction in 2019 in which JLL acted on behalf of the sellers, Tishman Speyer and GIC in the latest transaction of WaveRock office development in India. Shapoorji Pallonji and Allianz Real Estate Fund have acquired it for US$250 million.
Located in Hyderabad, the 2.3 million sqft office development is currently occupied by global technology and service giants like Apple, DBS, GAP, Du Pont, Accenture and TCS. It is a fully stabilized asset developed by Tishman Speyer.
Source: ANAROCK Research
Ramesh Nair, CEO & Country Head – India, JLL said,“In spite of the economic slowdown, we feel commercial real estate activity in India will continue to increase given the long term fundamentals of the country’s commercial market. Single asset transactions are expected to rise in 2020 considering the amount of global institutional capital looking at India, and with office absorption in the country being the highest in the world. Going forward, foreign capital will continue to play a larger role.”
Residential 2019: A steady work in progress
For the housing sector, 2019 was a non-event in terms of sales growth and investor interest. Sentiments remained subdued, sustaining almost solely on end-user activity focused on ready-to-move-in or almost-complete homes.
Branded developers gained ground, with some listed players performing exceptionally well on sales and commensurate revenue growth. As per research, the housing sales value of India’s top 9 listed players touched INR 108 billion in the 2nd and 3rd quarters of 2019, amounting to a 5% q-o-q growth. However, some other big names were dragged into insolvency.
Source: ANAROCK Research
Shishir Baijal, Chairman & Managing Director, Knight Frank India, “The year 2019 has been an eventful one, with the government taking note of the issues of the sector and announcing a slew of measures to boost demand and infuse liquidity in the system. However, the residential real estate sector remained subdued despite all efforts, and saw only a marginal rise in sales of 4% y-o-y in the first half of the year on account of stimulus to the affordable segments. Real estate stakeholders for the first time became wary about the future of the real estate sector and the overall economy in the next six months. However, the real estate sector saw its silver lining in the commercial office segment which recorded healthy leasing throughout the year, and also got its first ever Real Estate Investment Trust (REIT).”
Retail 2019: The sluggish Affair
Consumer spends took a major hit in 2019, both in terms of purchase volumes and ticket sizes. Inevitably, overall retail leasing activity reduced drastically by as much as 35% in the top 7 cities alone. Retailers had to seriously re-vision their strategies in 2019. More players started to harness technology to compensate for reduced manpower.
The government’s further relaxation of FDI norms for single-brand retail and the widened definition of mandatory 30% domestic sourcing norms benefited players like IKEA, Apple, H&M etc.
- The top 7 cities saw retail leasing activity drop by 35% in 2019 over 2018 – from 5.5 mn sq. ft. in 2018 to 3.6 mn sq. ft. in 2019.
- The share of organised retail gained ground in 2019. While it currently still accounts for only a 8% share of the overall Indian retail market, it is set to reach 13% by 2020 end on the back of government interventions.
- Average vacancy levels have come down to almost 14% in 2019 as against nearly 15% a year ago.
- Total PE inflows in retail touched nearly USD 260 mn between January to September 2019, compared to USD 355 mn in 2018 – an annual reduction of 27%.
Will 2020 be the year of revival for Indian real estate?
As 2020 dawns on Indian real estate, expectations will initially overtake on-ground improvement. The current trends indicate that H1 2020 will not see much growth over the patterns of 2019. However, the H2 does hold promise as the positive impacts of various government measures kick in.
Dr. Niranjan Hiranandani, National President , NAREDCO, “On onset of year 2020, Indian Real estate system will reap the benefits of structural economic policy reforms introduced with the intention of bringing financial discipline, accountability and transparency. The muted investment and subdued consumption which reflects imbalanced demand-supply economics will start gaining momentum with sustained rehab of monetary and fiscal interventions to resurrect the sliding economic growth. 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.”
“I foresee 2020 as a promising year for the real estate sector, with the government’s push for mid-income, affordable housing and infrastructure growth. Any industry that adapts to change grows faster. Sales momentum and volume has already picked up well with respect to the developers with good brand image and this will go up further in the coming year. In 2020, another key trend would be – builders looking for scalable and asset light business models, primarily through ‘development management’ model. ” expressed M Murali, Chairman and Managing Director, Shriram Properties Ltd
All in all the year 2020 looks to be another year of growth for a sector that is steadily getting back to its feet. The Indian real estate industry, one of the biggest contributors to the country’s GDP will witness green shoots of revival in the new decade. New asset classes such as co-working, co-living and warehousing have proved to be the solution the industry was so eagerly seeking. So, as we embrace the new decade, the real estate fraternity aims towards embracing new technology, methods, and projects in order to return the real estate industry to its former glory.