Indian residential real estate is entering a new decade and 2021 will undoubtedly be a year of recovery.

- Anuj Puri

Chairman, ANAROCK Property Consultants

Real estate sector is one of the key contributors to the GDP of the country. But it has been going through rough seas since the last few years. Can you give us an overview of the sector (across asset class)?

Encouragingly, the ongoing trend of housing sales exceeding supply is likely to continue and 2021 is expected to witness an increase of 35% in housing launches and a 30% increase in sales over the previous year. Further, with the vaccination drive gaining significant momentum and the spread of COVID-19 under better control for now, 2023 will very likely emerge as the new peak year that breaches 2019 levels with supply that year growing by 11% and sales by 22% over 2019.

The office market has been under strain since the pandemic. However, the IT/ITeS sectors have been on a hiring spree in 2020 and 2021. ANAROCK Research shows that the top four Indian IT/ITeS firms - TCS, Infosys, HCL and Wipro - hired around. 42,000 employees in the first nine months of FY 2021. Also, multinational majors Cognizant and Capgemini hired nearly 39,500 employees in CY 2020, with bulk hiring plans for CY 2021.

To accommodate these employees in a future when we see gradual return of employees and adoption of hybrid workplace practices, office demand may grow - most likely from 2022.

As for retail, the second wave again wreaked havoc as prior to it, nearly 80-85% footfalls in malls in Delhi-NCR had returned. With the likelihood of a 3rd wave before festive season, the recovery may be quite challenging. Social distancing norms will also prevent many from visiting malls. The only silver lining is that e-commerce is fully functional - ultimately gaining larger share in short to medium term. Also, post pandemic, various leading retail brands across categories are eyeing prominent high street markets over malls for expansion.

Traditionally, real estate market has been driven by investors. But today we see it as an end user market. Has the transition benefitted the industry? What is the reason for investors shying away from the sector? Do you expect PE/VCs to return to the sector or will it witness further consolidation?

Indian residential market is now seen to be heavily dominated by end-users. As per ANAROCK's consumer sentiment survey, as many as 74% respondents looking to buy a property now are doing it for self-use while just 26% are looking at it from an investment perspective. In comparison, during the lockdown period, the share of investors was higher at 41%. One major factor driving this change - buying for self-use - is because affordability of homes has reached its lowest-best across all major cities. Offers and discounts doled out by developers coupled with lowest-best home loan rates are other major factors.

This has streamlined the sector as speculators have moved out and it will see steady growth in the future. Further, the consolidation phase in the sector - already happening since RERA - has accelerated since the current Covid-19 outbreak and as we emerge from this pandemic, many weak players may cease to exist.

The Government has announced various schemes (smart cities, AMRUT, housing for all, etc) to boost the real estate sector, especially the residential segment with "affordability" being the focus. How far have the benefits of these schemes actually translated into giving a boost to the sector?

Interestingly, one of the most important drivers of new real estate demand for many of the Tier 2 & 3 cities has been their inclusion in the current government's ambitious 100 Smart Cities, program, which - at least in theory - bodes very well for their real estate markets. Over and above, real estate continues to lure investors with both big and small investment appetite and if not for the city where they live or work in, the prospective investors are now seen to be preferring to invest in tier 2 & 3 cities. The reason is common among them - affordable property prices and the growing prospects owing to better infra facilities and smart initiatives in them.

Tell us about the challenges faced by the developers currently (delay in approvals, higher premiums and pandemic effects). Also, according to you, what measures need to be taken to iron out the challenges?

Liquidity concerns, to some extent, have been looked into by both the RBI and the government via multiple tranches announced during the lockdown period. Besides this, there was a slowdown in demand due to second covid wave and labour shortage. But most importantly, rising cost of raw materials such as steel, cement, labour cost etc. is among the major challenges faced by developers presently. There is already immense financial stress on many developers (aggravated by the second wave) and this increase in input costs is putting extra financial burden on many.

Controlling price rise of basic inputs is very important because ultimately rising raw material costs will lead to increase in construction costs and the overall project cost. As for the demand boosters:

• Allow selective subvention schemes for developers with good track record.
• Waiver of GST on homes for certain period may attract buyers as it will reduce overall property cost by at least 5% for premium homes priced above INR 45 lakh.
• Reduction in ready reckoner rates and stamp duty (just like in Maharashtra) may further attract prospective buyers.
• Increase tax benefits to homebuyers and also extend income limit under PMAY to boost demand.

RBI is proactive in giving a boost to the sector by reducing the repo rate, but banks are not transferring the benefits to the developers - Your take on what needs to be done to regularise it?

Home loan rates are their lowest-best presently, largely because the RBI reduced repo rates over the last one year and the banks have passed on the benefits to borrowers. As for the developers, banks have been proactively doing their due diligence and giving loans only to those with good previous track record.

What is your take on technology re-shaping the realty sector? How do you see investment scenario in PropTech segment?

Frankly, technology disrupted all industries including real estate even before Covid-19 set in. Few developers were seen to be adopting innovative technologies like automation in construction, innovative designs, sustainability, use of prefabricated material and online marketing to value-engineer their product. But the Indian real estate sector still had a long way to go.

However, once Covid-19 came, most real estate firms (broking, developers etc.) relied heavily on technology to continue doing their business amidst the pandemic-infused lockdown. They (those with the wherewithal) were seen to be transitioning anything that required physical communication to virtual interaction. These included e-brochures for housing projects, virtual tours, videos or walkthroughs, video conference calls, setting up online payment structures and banking platforms. In a way, the world of real estate marketing changed significantly in 2020. To conclude, crisis such as Covid-19 called for further improvisation and usage of technology and several players adapted to this change swiftly.

Can you throw some light on the success of REITs and what is the scope of REITs for attracting investments in the commercial real estate segment. Can you give us an estimate on the REITable area available across the country?

The REIT market opportunity is significant and still largely untapped in India. The successful launch of India's second REIT (Mindspace) despite the pandemic sent out positive signals and paved the way for others to follow suit. More retail investors are likely to come forward as the first Indian REIT - Embassy Office Parks - yielded over 14% returns since its listing in April 2019 in contrast to negative returns generated by BSE Realty Index during the same period. Currently, the top 7 cities of India have close to 550 million sqft Grade A office supply, of which 310 - 320 million sqft is REIT-able. Indian REITs are still at a nascent stage with immense potential even in other asset classes going forward.

How do you see the prospects of warehousing and data centres being brought under the ambit of real estate and emerging as the next investment destinations?

Amidst growing clamour for making India a global manufacturing hub, warehousing clusters are seen to be expanding rapidly beyond the top cities to the tier 2 and 3 cities of India. Demand for small and multi-location warehouses is set to rise significantly. Majority of these emerging clusters are in line with the industrial and freight corridors being developed in the country. The emerging tier 2 and 3 warehousing clusters include Ludhiana, Ambala, Lucknow, Siliguri, Guwahati, Bhubaneshwar, Vishakhapatnam, Vijaywada, Coimbatore, Kochi, Nagpur, Indore, Jaipur and Dholera. Notably, as per ANAROCK data, there is more than 110 mn sq. ft. of Grade A warehousing stock available across the country, of which majority is in the top 8 cities.

While India has been seeing a massive digital thrust since 2014, the current government's data localization policy paved the way for hyperscale data centres to handle the increasing data consumption. Hyperscale facilities have clear advantages over smaller colocation centres as they can cater to the huge domestic data warehousing demand creating operating efficiencies and thus, pass on cost benefits to their customers. Smaller colocation facilities will need to reassess their competitive position and may need to repurpose to ensure survival.

Can you tell us about the demand-supply and sales scenario across the country (with numbers), across the real estate segments?

Growing preference for homeownership, adoption of new-age technologies, digital marketing, and innovative business practices has somewhat minimised the impact of Covid-19 on the Indian residential sector. As per ANAROCK Research, housing sales in the top 7 cities saw 43% jump in H1 2021 as against the corresponding period in 2020 despite Covid-19 - from 57,940 units in H1 2020 to nearly 82,860 units in H1 2021. This clearly highlights the growing demand for housing in exigencies such as the pandemic when homeownership has become a compelling reality for many. In terms of new launches, H1 2021 saw total new supply of approx. 98,400 units across the top 7 cities as against 42,600 units in the corresponding period of 2020.

Do you think the worst is over for the real estate sector? Can you please share your outlook on the sector in terms of investments likely to flow into different asset classes, demand-supply situation, etc?

The Indian residential real estate is entering a new decade and 2021 will undoubtedly be a year of recovery. While a new peak may not be attained immediately, it is anticipated that new residential launches may gain some momentum. Developers will continue to focus on completion of existing and delayed projects to reinstate confidence among the homebuyers. It is anticipated that several projects which were delayed due to the induced lockdown will see completion during the year. Launches are likely to be dominated in the mid and premium segments priced between Rs. 40 lakh to Rs. 1.5 crore.

There are already visible green shoots of revival in economic activities across all the sectors. This is likely to favourably impact employment generation which is necessary to stimulate demand for housing. The prevailing low interest rates and all-time best affordability ratio of 27% are anticipated to influence homebuyers to spring into action sooner than later. We expect housing demand to remain buoyant in the remaining year. The funding situation for developers is likely to remain ‘selective' in 2021.

Moreover, as things stand now, the housing market is likely to attain a new peak by 2023 with housing sales crossing the 3.17 lakh units mark and new launches over 2.62 lakh units.

Hits: 169