The year 2019 proved to be a rather staid roller coaster ride for the real estate industry, with its share of ‘highs’ and ‘lows’ devoid of the convulsive stir that the industry had witnessed during the period 2016-2018. This, perhaps, is a sign that the industry is gradually inching towards normalcy and the dust created by the introduction of the reformatory measures have finally settled down. The year witnessed the creation of positive sentiments in the market, and despite the continued non-banking finance companies (NBFCs) crisis, housing sector remained resilient and remarkable momentum was observed in the office market. The year also witnessed the growth of affordable housing, co-working, co-living and warehousing, thereby renewing hope for the revival of the real estate sector in the forthcoming period by way of these emerging segments.
This brings us to the new year – 2020, and with all eyes on the upcoming period, here are some of the key expectations from it:
Office market to remain upbeat – Despite the subdued economy, the key office markets of the country have only moved from strength to strength. The segment has witnessed several positive developments this year, right from the launch of the country’s first real estate investment trust (REIT) to a record high in office space leasing. There is considerable demand in the market, as evinced by the IT/ITeS sector and co-working space operators, and this demand for office spaces is bound to expand further at a similar momentum in the forthcoming year. Besides, there is substantial quantum of supply in the pipeline to whet the appetite of both investors and occupiers. Good quality office space supply would aid in fuelling investor anticipation of increase in occupier demand, thereby ensuring greater investment inflow and a subsequent rise in rental growth.
Remedial measures to unclog the real estate market – Indian real estate has been affected significantly by the liquidity crisis in NBFCs. While there is no quick-fix solution to the predicament, the government has striven to provide several measures to counteract the adverse market situation. In a welcome move, the government has announced the INR 25,000-crore stress fund aimed at providing relief to developers with unfinished projects and to ensure delivery of homes to buyers. It also announced liquidity support of INR 30,000 Crore to the HFCs to improve the liquidity of these institutions, thereby enhancing the lending capacity to homeowners. These measures are expected to resolve the homebuyers’ and industry stakeholders’ woes. Additionally, the government has slashed corporate tax rate by almost 10 percentage points as it aimed at reviving private investments with an INR 1.45 Lakh Crore tax break. This will result in investment picking up, further helping in creation of jobs, increasing income levels and higher GDP growth.
Moderate rebound in the residential market – With liquidity concerns and sluggish consumer sentiments hounding the residential property market, it is unlikely that the market would witness a speedy resurgence. Residential real estate developers are expected to deliberate over new land acquisition deals for projects and maintain a cautious stance. The revival is expected to be gradual and largely on the back of a strong office market and improved consumer confidence owing to the various measures announced by the government for providing impetus to the sector. It is anticipated that residential sales will see an upturn with lowering of bank lending rates. The RBI has already cut interest rates for the fifth time in a row in 2019, the rate cut expected to reduce EMIs of borrowers and make it cheaper to take new loans. In the meantime, affordable housing as well as those projects with ready units will continue to observe positive momentum in sales.
Greater demand for co-working and co-living – India has today become one of the foremost markets for co-working/flexible workspace. Workspace arrangements offered by these co-working space operators are fast gaining acceptance, thus encouraging firms to expand their footprints in the city. While the past year 2019 witnessed the involvement of around 350 co-working space operators in the country, it is interesting to note that the segment is steadily evolving as per the demand evinced by the millennial workforce in the country. From being workspaces catering mostly to start-ups, majority of the co-working spaces now have their clientele coming from large MNCs, corporates and SMEs. Thus, in 2020, the segment is expected to evolve further and consolidate its position firmly in the country’s office market, surpassing many of the traditional office spaces. The segment is also likely to expand its presence in tier II and III cities as well.
At the same time, co-living and student housing is poised to create a substantial disruption on the rental housing scene in the country. The co-living market in India is observing a fast-paced growth with investments from national and international institutional investors encouraging the new business model to succeed. The fact that the government is targeting a gross enrolment ratio of 30% by 2020-21, which will result in a further increase in the number of students enrolled for higher education, augurs well for the for the sector as millennials today, comprising single, young working professionals and student population, are progressively looking towards changing the pattern of residential consumption. The forthcoming year, thus, hold much potential for interested parties to delve into the sector and offer stiff competition to the existing players for a piece of the pie.
Warehousing industry to maintain growth momentum – The Indian warehousing sector has grown by leaps and bounds in the recent years, its growth challenging the performances of conventional real estate asset classes. The fact that the sector is observing large-scale global investments evidently emphasize the trend and this is foreseen to continue. With muted growth in residential market dissuading developers, they are now venturing into warehousing and industrial logistics. Developers such as Lodha, Shapoorji Pallonji, Raheja Universal, Hiranandani, Brigade, Prestige Group and Assetz Property Group are some of the names associated with launching their own warehouse projects. Going forward, with a steady growth in the e-commerce industry, the warehousing industry of the country is set to witness a positive transformation, which in turn, is expected to boost growth.
Thus, to summarise, the year 2020 is expected to witness a number of positive events, right from a gradual resurgence of the residential sector to the reinforcement of co-working and co-living segments, while office demand will continue to catalyse the market with its dynamism. These events, in spite of the IMF’s downward projection of the country’s GDP growth, would ensure that the real estate industry continue to strive towards its journey of achieving normalcy – which is perhaps a distinct level of normalcy than the pre-RERA, GST and demonetisation era. Further, other factors such as the government’s endeavour to institutionalise rental housing in India, a successful REITs initiation and the emergence of tier II cities as centres of growth would accelerate positive buyer and investor sentiments, making 2020 one of the memorable years for the real estate industry.