Looking back 2019: A Mixed Bag

The new year that had harboured prospects of being the harbinger of good times is set to pass. It had come at the end of a particularly trying period for the real estate industry, one that was fraught with many challenges, stemming largely from adhering to the new regulatory environment. With the previous year 2018 setting the pace, largely easing out the teething issues regarding RERA and GST, the year 2019 was, thus, beset with high expectations. It was anticipated to be a period that would finally witness a revival in the residential segment after over three years of remaining subdued, led by a deliberate shift of focus towards building more affordable homes or projects with smaller unit configurations and reduced ticket sizes, thereby enticing prospective home buyers. Furthermore, it was expected that a robust office market, aided by positive economic growth of the country, improvement in infrastructure and consolidation of new occupier segments would reinforce positive market sentiments, abetting the industry’s growth in 2019.

And yet, as it ended, the year could at best be described as having delivered a mixed performance.


The way it unfolded 
There were a few ‘highs’ and some ‘lows’ that were interspersed during the year. It scored well on some aspects of the expectations set for it while others left much to be desired. A few major trends emerged strongly during 2019, such as the continued spotlight on the co-working and co-living sectors, as well as the growth in warehousing sector. Let us take a look at the key stories of 2019:

  • Elections and the economy – The year 2019 was a memorable one on many counts. The months of April-May saw the general elections being held and the ruling party taking helm of the country for another term. In the meantime, industries were left hanging on to their business plans in anticipation of the results. The political stability, as demonstrated in the election outcome, brought forth much cheer in the business quarters, thus bolstering foreign investment inflow. However, not all was hunky dory on the economy front, and things had started to slow down as early as December 2018. The GDP growth, that had accelerated to 8.2% during April-June 2018, began to slide rapidly and by the second quarter of 2019 (July-September), it was recorded at a dismal 4.5%, the decline attributable to several endogenous elements as well as exogenous factors such as deceleration in developed economies and the Sino-American trade conflict, amongst others. This hovered uneasily over the real estate sector and ebbed away some of the market confidence.
  • Liquidity crisis continued unabated – Steady decline in the residential property market in the past few years left many developers struggling to repay loans to non-banking finance companies (NBFCs). An alarming number of developers went bankrupt during the year, heaping pressure on the NBFCs. As per Fitch Rating’s Indian division, with about USD 10 billion of development loans coming up for repayment in the first half of 2020, there might be an adverse impact upon the mainstream banks that have lent money to the NBFCs or invested in their bonds. However, the government has announced a host of measures to unclog the market, including a USD 1.4 billion fund to help complete unfinished building projects. Indian financial authorities later disclosed during the year that the banking sector’s bad loans are finally on the decline for the first time in four years after expanding significantly during the debt crisis.
  • Residential segment improves slightly but not out of the woods – No significant development was witnessed in the residential segment, contrary to expectations held from the segment. Several measures were announced towards NBFCs/HFCs in a bid to improve the liquidity of these institutions, thereby enhancing the lending capacity to homeowners. The RBI had cut interest rates for the fifth time in a row in 2019, the rate cut expected to reduce EMIs of borrowers and making it cheaper to take new loans. Despite these steps, housing sales improved only marginally during the year as compared with the previous year 2018. While the first two quarters of the year had seen increased sales, it failed to keep the momentum in the later period. In contrast, a substantial number of new launches were observed, the upsurge attributed to several factors, such as increased office space traction, infrastructure improvements and better job opportunities in key cities of the country. Not surprisingly, affordable housing remained relatively buoyant owing to government sops such as tax deductions for first time home buyers, that were announced during the year.
  • Co-living and student housing gains steam – The student housing and co-living segment is witnessing a rapid growth across most major markets in the country. The need for student housing has stemmed from the fact that an increasing number of new educational hubs have emerged in the recent years, particularly in the tier II cities, harboring vast untapped potential for student accommodation. With the government laying down the footing for rental policy at a national level, multiple co-living and student housing players have been encouraged to enter the rental space. This augurs well for the sector as millennials today, comprising single, young working professionals and student population, are progressively looking towards changing the pattern of residential consumption and opting for a more organised rental economy in the country.
  • Office segment remains robust; co-working gathers strength – Office space demand continued to rise steadily during 2019, backed by strong economic fundamentals and favourable sentiments exhibited by occupiers and investors. The year saw the office market of the country touch a milestone in terms of absorption, surpassing the quantum observed in the previous period 2018 and ably supported by fresh supply that entered the market during the year. Despite the new supply, healthy pre-commitment of space in under-construction projects continued to be the norm, leading vacancy rates to remain under pressure in key office markets. While IT/ITeS and BFSI companies remained the major demand drivers for office space, the co-working segment accounted for a substantial share of the market in 2019, thus establishing India as one of the largest flexible workplace markets in the world. Co-working space operators continued to expand their ventures in 2019 and the fact that the country at present has over 350 operators in the segment portends a major shift in workspace dynamics with technology, innovative space design and flexibility impacting the preferences of new age businesses.
  • Growth in warehousing– The Indian warehousing sector has witnessed significant turn of events in the past few years, its growth challenging the performances of other real estate asset classes. The infrastructure status accorded to the warehousing and logistics sector in 2017 paved the way for accessibility to longer tenure financing facilities at a reduced cost of debt, aiding in the development of organised parks. Other factors such as GST implementation, the focus on ‘Make in India’ initiative, development of multimodal transport networks and industrial corridors, have boosted demand for organised warehousing. The fast-paced growth of the e-commerce sector in the country, coupled with demand evinced by third-party logistics service providers, has led the warehousing space to thrive in 2019, proving it to be a viable investment option.

Thus, on retrospection, the year 2019 has seen a fair amount of hits, thereby renewing hope for the revival of the real estate sector, while observing a few misses. The period lived up to its expectations regarding the creation of positive sentiment in the market, and despite the NBFC crisis, a good momentum in the market was witnessed, particularly in the office space segment. The year also witnessed the growth of several other segments – encompassing affordable housing, co-living and warehousing, and this signifies the beginning of a new realty landscape in the country that would attract new investors and customers.

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