Real Estate’s Turnaround In 2018 Augurs Well For 2019
Having overcome the initial headwinds from major policy reforms such as GST and RERA, realty is poised for a sustained upswing in the coming years
Photo Credit : Reuters
As the popular phrase goes, “The night is always darkest just before dawn.” In other words, when the situation seems to be at its worst, this is the moment when the turnaround is just around the corner or could be already underway. The real estate sector is undergoing a similar slow-but-steady transition in its long-term fortunes.
During last 2-3 years the Realty sector has witnessed an unprecedented sluggishness due to effects of demonetization and macro policy initiatives such as GST and RERA. The overall credit squeeze has not helped the situation either. While, policy changes like GST & RERA were essential, and these would support the long term growth vision of our economy, these measures in the short run have led to slow down in the sector. Even then, the organized players are gradually getting equipped to attend to the intricacies of compliances associated with GST & RERA. But still, challenges continue to haunt the SME and unorganized players, who continue to struggle to find a foothold for aligning with the new ground realities.
Against this backdrop, residential real estate recorded a 25% annual increase in sales in the metro cities in the first half of 2018. New residential launches across the country’s top seven cities also increased from 34,834 units in Q4 of 2017 to 42,975 units in Q2 of 2018. Simultaneously, home prices rose 6.7% year-on-year in Q4 of 2017-18.
Concurrently, commercial realty has also been picking up. In the first half of 2018, leasing activities of corporates rose 54% y-o-y. As per a CII-JLL realty report, 8 million sq. ft. of additional space were leased majorly in the metro cities compared to the same period of last year. The cities that have contributed the most to the growth are Bengaluru and NCR, having gross leasing volumes of 26% each during the above period.
Industry analysts credit this pickup to the improving economic indicators, with GDP showing a steady increase too. The uptrend is also credited to large technology entities, financial services, co-working and in-house global data centres. Consequently, the net absorption of retail space soared 75% y-o-y, recording 1.9 million sq. ft. of total absorption in the first half this year, backed by retail leasing activities from national as well as international brands. In the residential segment, price stability and the implementation of RERA in many states have slowly been attracting end-users back into the sector.
Moreover, there’s a rising belief the realty market may have bottomed out. In which case, analysts assert this may be a good time to buy rather than postponing purchase decisions any further. The only dampener in the stabilising scenario is that repo rate increases by the RBI have made home loan rates somewhat dearer compared to the past couple of years. Global volatility and political uncertainty could also exert inflationary pressures, making it all the more imperative for fence-sitters to buy now, rather than waiting any further and risking further rate hikes.
Under the present circumstances, prospective buyers and investors would be wondering what New Year 2019 has in store for realty. A JLL-FICCI report, ‘Future of India Real Estate: Deciphering the Mid-term Perspective’, sheds some light on upcoming trends. As per highlights of this report, office absorption in 2020 is expected to exceed 2011’s historic high of 37 million sq. ft. While the new growth drivers would be affordable housing, logistics and warehousing, the expectations are that student housing will emerge as a Rs2,400 crore market by 2020.
Meanwhile, policy reforms such as GST and RERA are turning out to be big blessings for the industry since these have fostered quiet confidence among domestic and foreign private equity investors, including institutional entities. Given the higher degree of transparency and professionalism these reforms are driving, private equity investments, which have peaked at Rs. 950 crore this year.
In the coming years, even REITs shall open up another new & safe investment avenue. Although a few loose ends are still to be tied up before this picks up traction, but then, we should expect this to happen sooner than later. According to JLL and FICCI report the Grade ‘A’ office space absorption is expected to reach 700 million sqft by 2022. Wherein the Delhi-NCR market is likely to witness the highest absorption during 2018-2020, followed by cities like Hyderabad while the absorption levels in Mumbai and Kolkata to surpass the supply during 2018-2020.
The face of housing will also undergo a complete makeover, owing to changing customer preference & mind set. Institutionalized leased residential accommodation is likely to displace some of the demand for bought out residential accommodation. Furthermore, fully services and semi serviced residential apartments catering to tailored needs of niche segments are also likely to gain momentum, in form of, amongst other, Co-living spaces, student housing, old aged homes, assisted living conglomerates, working men’s / women’s / couple’s accommodation, etc., particularly in cities such as Bengaluru, Pune Hyderabad, Chennai, Mumbai and Delhi- NCR.
Overall, the future is bound to become brighter for the realty sector in 2019 and thereafter.
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