REALTY: CHALLENGES or OPPORTUNITIES

The year 2020 was meant to be a year of recovery for the Indian real estate sector, especially the housing segment. After three years of business disruptions caused by demonetisation, implementation of GST and the realty law RERA, and the NBFC crisis, the market had started stabilising. But all hopes were thwarted as the Covid19 global pandemic hit India, forcing the government to impose a national lockdown from March 25 for over two months to curb the spread of the deadly disease. Instead of recovery and growth, 2020 brought more pain and distress in the realty sector, shaving off 40-50% of business in the residential segment from an already low base.

2020 saw a massive fallout in the demand and development of real estate along with a space of capital withdrawal and financial woes. For an industrial already reeling under stress, the pandemic lock down of March '20 was a significant blow. However, with the unlock in Q3'21, the industry fortunes seem to have revived in a significant way and in fact created bigger impetus than prior to the lock down.

Affordable housing, shared offices, warehousing and data centres have the largest opportunities in the coming year in India. However large commercial developments, retail, hospitality, luxury housing, education centres, recreation assets and co-living will continue to have continued challenges due to the lock down, limited mobility, limited congregation and reliance on work from home and digital engagements.

Key Drivers

The biggest drivers to the demand have been an urgency in sentiment for home buying, reduction in home loan rates and teaser rates, reduction in stamp duty in some states and for women buyers, extension in subvention and income tax rebate schemes by the government for affordable housing along with smaller unit ticket sizes, late stage projects on offer and attractive payments and financing schemes with added amenities and benefits have added to the offtake.

Housing

The Real Estate industry has seen radical transformation with the onset of COVID-19. Since the unlock in Q3 2020-21, the residential sales saw tremendous offtake and growth. In cities like Mumbai the Q3 and Q4 sales jumped almost 300% on y-o-y basis. Also, most metro cities and urban cities like Pune, Ahmedabad, Greater Noida, Hyderabad, Bengaluru and so on so high double-digit growth. Affordable housing has seen over 58% growth and offtake with smaller ticket sizes being in flavour. The subvention scheme was extended by the Government of India and tax benefits also extended for another one year. The opportunity for development and sales of mid income and affordable housing continues to be robust. The launches have gone up by almost 30% in this segment across most cities. There has also been new liquidity infusion within housing including for stuck projects and stressed assets with special situations funds like SBI SWAMIH Fund committing over Rs. 14,000 crores across projects. Several NBFCs, Funds and Banks have started to sanction fresh facilities to projects which are seeing renewed pace of construction and completion. Also due to the lock downs, second homes and leisure homes have also seen a robust come back. On the back of subsidies in stamp duty in states of Maharashtra and Karnataka, duties and premium reduction, reduction in stamp duty for women buyers and other benefits, there has been renewed sentiment in home buying.

Co-working

It is estimated that co-working operators will increase their share of commercial space occupation by over 20%. With decongestion in large Grade A developments, need to work closer to home, the demand for flexi spaces and co-working has grown multi-fold. This trend is expected to accelerate with co-working operators opening up satellite centres in key residential hubs to cater to larger occupier demands.

Warehousing & Data Centres

Increase in e-commerce and digitalisation has led to a massive surge in demand for warehousing and data centres. Global majors have been participating in purchasing, leasing and investing heavily in this segment.

Challenges

Assets classes like large commercial developments continue to be under pressure on occupancy and rent as work from home continues and decongestion in work places have been mandated. Also retail and hospitality continue to be largely non-operational or under-utilized. These assets are likely to face continued challenges and will be under pressure over the next 18-24 months.

Outlook

Over the last financial year over USD 3.4 billion was invested in India real estate showing a sharp spike over the past year. The outlook for the real estate sector is generally considered healthy with large opportunities due to consolidation, resurgence of demand, resolution of several stressed assets and prime assets being transacted by global investors.

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