DECODING INDIAN REAL ESTATE IN 2023

BY Realty Plus

Thanks to factors like robust economic growth, reasonable interest rates, and investment potential, the year 2023 has seen a significant demand for all kinds of properties majorly led by end-users. As per experts, the growth momentum of the real estate sector is expected to remain unhindered, amid signs of easing of inflation pressure and rise in capital expenditure by both government and private sector.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE explains the year for real estate, “While the technology sector will continue to be a strong demand driver going forward, we are also witnessing increased demand from other key sectors such as BFSI, Flexible Spaces and Engineering & Manufacturing. In many ways, this diversification has and will be responsible for insulating theoffice sector from global headwinds, enabling India to breach the 50 million sq. ft. gross leasing mark by the end of 2023. Owing to the growing focus of developers and occupiers on sustainability, green-certified office stock in India has increased by over 36% since 2019 to about 342 mn. sq. ft. across the top six cities in India as of 2023. Bangalore, Delhi-NCR and Mumbai are among the top 3 cities spearheading green-compliant office spaces with a cumulative share of ~68% of India's total, green-certified office stock as of June '23. The retail sector has shown significant vitality, experiencing substantial growth in leasing figures.

While Tier I cities remain the gateway cities, there has been significant traction from a quality supply and demand perspective in the Tier II cities. Post-pandemic, there has been a trend reversal, with domestic retailers accounting for almost 75% of the overall leasing during the major part of 2023. Interestingly, this leasing is not limited to only the Food & Beverage segment but is spread across segments such as fashion and apparel, footwear, beauty, and accessories, amongst others. Retail leasing is expected to touch 5.5 – 6 mn sq. ft. in2023, the highest level after the 2019 peak of 6.8 mn.  sq. ft. It is expected that primary leasing in newly completed malls will remain the key driver of retail space demand in 2023. In the Industrial and Logistics sector(I&L), demand from third-party logistics and manufacturing players continued to fuel growth in the I&L sector. 3PL players dominated leasing with a share of 45%, followed by engineering & manufacturing players in the majorpart of 2023. Consumer demand for FMCG, retail,electronics, and electrical products has intensified over the last few years. This heightened consumer demand has led these industries to revamp their warehousing and logistics strategies to meet evolving customer expectations.

Despite global uncertainties, the industry has navigated challenges with innovation and agility. Balancing occupier demands for flexible working models and sustainable practices, the sector has proven its enduring strength. The Industrial & Logistics (I&L) sector is likely to touch a 5-year high absorption mark and touch 36 – 38 mn. sq. ft. in 2023 across top 8 cities in India. Supply addition, too, is expected to outperform, touching 35 - 37 mn. sq. ft. by the year-end, driven by the completion of pent-up projects.

In the residential sector, despite anticipation around a lagged impact of monetary tightening, residential sales in Jan-Sep'23 exceeded the 230,000 units mark, registering a growth of 5% in comparison to the same period last year. The premium and luxury housing segment comprising units priced at INR 2 crores and above
in India maintained strong sales momentum, registering a 70% Y-o-Y increase in the Jan-Sep'23 period. Amid transforming preferences, affordability will no longer be the sole decisive factor for homebuyers as health & safety, community living, sustainability, and integration of smart home technologies have also started to emerge as being core to home purchase decisions. It is estimated that both sales and new launches could reach a ten-year high in 2023 and may exceed the 300,000-unit mark.”

As per Dr. Niranjan Hiranandani, Chairman, NAREDCO, the Indian real estate sector is experiencing a profound transformation in the aftermath of the pandemic, which has not only reshaped consumer behavior and product dynamics but has also triggered significant shifts in economic performance. The integration of artificial intelligence (AI) and digitalization in the real estateindustry has played a pivotal role in altering the operational mindset and patterns of various stakeholders.

Homebuyers are now placing a premium on properties with dedicated home offices, spacious layouts, and smart technologies. The need for sustainable and eco-friendly housing options has also gained prominence, reflecting a shift in consumer priorities. The emergence of flexible payment option, opened the substantial demand for luxury housing, this financial flexibility is reshaping the traditional approach to property transactions and expanding accessibility for discerning homebuyers. Simultaneously, the expedited development of infrastructure and the resurgence of workers returning to offices has spurred an increase in home rentals, reflecting a shift in housing preferences.

Redevelopment projects are experiencing a boost, driven by the rejuvenation of urban spaces and the modernization of existing structures. This trend aligns with the growing emphasis on creating sustainable and aesthetically pleasing environments, meeting the expectations of today's discerning homebuyers. An interesting facet is the growing presence of millennial homebuyers in the market. Their preferences for technologically integrated, eco-friendly, and community-centric spaces are influencing the design and features of new residential developments. The introduction of new business funding models is adding another layer to the evolving real estate landscape.

Innovative financing options and collaborative ventures are fostering increased investment in the sector, further fueling its growth. However, it's essential to note the challenges faced by the derailment of affordable housing amidst these transformative trends. The focus on luxury and upscale developments may inadvertently sideline the critical need for affordable housing, necessitating a balanced and inclusive approach to meet diverse housing requirements.

The increasing popularity of green homes and sustainable ecosystems is a positive aspect of this transformation. Homebuyers are showing a heightened awareness and preference for environmentally conscious living spaces, contributing to a more sustainable and eco-friendly residential market.

In essence, these interconnected trends are shaping a strong and sustainable foundation for the future of India's residential real estate market. By understanding and navigating these dynamics, stakeholders can position themselves strategically to capitalize on the evolving preferences and demands of the discerning Indian homebuyer. It feels like these trends fit together like a puzzle to create a comprehensive picture of India's residential real estate market. This emerging trend complements each other and creates a strong, sustainable foundation for the future." 

Venkatesh Gopalakrishnan, Director Group Promoter’s Office, MD & CEO - Shapoorji Pallonji Real Estate (SPRE) expresses his year end sentiments. “As we bid farewell to 2023, the real estate sector experienced a significant surge, with a remarkable increase of more than 90% in the demand for luxurious homes. This surge not only mirrors the aspirations of a growing middle class but also reflects the changing preferences of discerning homebuyers. The sector witnessed an unprecedented interest in premium residences, includingplotted developments and villas, driven by factors such as urbanisation, evolving lifestyles, and a renewed focus on quality living."

Dhaval Ajmera, Director, Ajmera Realty & Infra India Ltd was of the view that the Indian real estate market benefited well from the significant boost received from the investments made by the government towards connectivity. This has led to the creation of newer micro-markets across states and cities, thus creating a need for housing in these markets as well as strengthening the demand in existing ones. "Theyear has recorded some historic landmarks like the real estate index hitting a 15-year high and a multiplying demand for mid-segment and luxury homes in key metros like Bengaluru and Mumbai. Another key landmark is that Mumbai has recorded over 10,000 project registrations for the fifth consecutive time from June to October 2023, with October figures being the decadal high, showcasing strong sentiment among the buyers. Key factors,including the pause in the repo rate hike, increasingper-capita income, and the need to upgrade to a better standard of living, have been catalysts for growth.

Over and above, redevelopment of older housing societies picked up rigorously during the year, especially in Mumbai, and the reduction of stamp duty for redevelopment
projects to 100 INR was a great move.”

Manas Mehrotra, Founder, 315Work Avenue summarizing the year 2023 for coworking sector said, “The co-working sector has expanded and demand has gained great traction with corporates making a bee- line to coworking spaces that have emerged as strong centres of growth. Established businesses actively con- sidered these hotspots for brainstorming and secured a great opportunity to learn, collaborate and grow their business. Coworking spaces also helped in huge cost savings and zero capital expenditure for businesses. Large deals were also a feature in 2023 with MNCs being major players picking up spaces in the sector. We saw a lot of companies gaining from the hub and spoke and decentralized model that coworking spaces adopted with the idea of making offices easily accessible to employees and enhance productivity. The coworking sector is looking at a bright future and we see demand going up as the economy continues to perform well in an overall vibrant business and macro-economic climate. With the commercial real estate (CRE) sector and office spaces expanding rapidly, it would be prudent to seize the opportunity to enhance leasing options with the CRE sector as this would help attract more clients to opt for

coworking spaces in the upcoming future. The situation now is very positive and we see that CRE is on the edge of a transformation as coworking spaces have become a highly popular choice for businesses of different kinds and dimensions due to multiple advantages.”

Saket Mohta, Managing Director, Merlin Group, shared his perspective, “The year 2022 saw a remark- able comeback after a two year long slump setting a new sales record of 68% year on year. Year 2023 has been very good in terms of sales. Most importantly, the commercial property market also picked up greatly after a long gap due to covid. Various reports suggest that the property market in India will exhibit a compound annual growth rate of 9.2% during the period between 2023 and 2028. And the results also corroborate the predictions. We saw renewed interest among NRIs and Millennial in real estate.It further establishes real estate as one of the fastest growing industries in the country. This year we witnessed customer’s preference for smart homes, sustainable homes."

Boman Irani, President, CREDAI National stated, “Homebuyer sentiments have been quite positive in 2023, playing a huge factor in not just the volume of housing registrations, but also indirectly having a cascading impact on increasing housing prices. On the back of a stabilized economy, job security, stable lending environment, we project this sales momentum to continue, with sustainable development and Green housing expected to lead the next growth phase in the industry. Developers have also been at the forefront to ensure that it remains a conducive buying environment, facilitating enhanced transparency and providing fi- nancial incentives that added to the overall appeal of purchasing homes.”

“The strong 10% annual increase in housing prices across India's top eight cities during the third quarter of 2023 signifies a competitive and flourishing housing market. Fueled by strong homebuyer sentiments and positive market fundamentals, Hyderabad and Ben- galuru witnessed the highest price rise at 18-19% YoY during the quarter. Tracing the strong streak of sales momentum with industry consensus, sales estimates already reaching closer to 2022 levels, 2023 is expected to close stronger than 2022. Furthermore, developers are increasingly targeting sustainable projects, with homebuyers’ inclination towards eco-friendly living, affirming a green future for the country,” concurred Badal Yagnik, Chief Executive Officer, Colliers, India.

THE LEARNING OF THE YEAR 2023

Let us summarize the hits and misses of the Indi- an real estate industry for CY 2023 despite external headwinds.

“The dynamics of real estate have evolved at a rapid pace during 2023. The demand for mid-segment and premium homes have witnessed a major uptick given the strengthening of connectivity infra and realisation of real estate a safe haven for investments. The be- havioural dynamics of homebuyers have witnessed a paradigm shift. There is a strong demand for projects from branded developers that provides quality homes and all-inclusive amenities. We foresee this demand to continue and further strengthen during 2024 along with robust growth in redevelopment of older housing societies," said Dhaval Ajmera.

“In 2023, the Indian real estate landscape not onlyweathered global economic challenges but emerged stronger, with luxurious and premium housing seg- ments leading the way. Discerning buyers sought not just a home but an experience, leading developers to redefine luxury with sustainable designs, cutting-edge technology, and world-class amenities. The spotlight shifted to established metro cities and Tier II and III cities, where infrastructure development took centre stage, resulting in unwavering demand for upscale residences. This year underscored the significance of long-term investments, offering a ripe opportunity for both homebuyers and investors to capitalise on evolving preferences and market dynamics," expressed Venkatesh Gopalakrishnan.

“It is clear that the real estate market in India is constantly changing and adapting to changing consumer preferences. The number of trends like sustainable green homes, wellness design, IOT & automation, energy efficient, multi-utilitarian, flex- ibility and integrated are here to stay with lifestyle evolution. These trends dominated Indian real estate in 2023, shaping market dynamics and influencing consumer preferences. New trends like senior living, student housing, flex spaces, rental housing, smart & efficient space, biophilic design, will continue to evolve in the ensuing year 2024 and beyond," said Dr. Niranjan Hiranandani.

“As we reflect on the commercial real estate land- scape in 2023, the year has been characterized by high growth, resilience, and transformative trends. Despite global challenges, the Indian real estate sector has recorded robust growth across segments. In 2023, com- mercial real estate has demonstrated growth, marked by a surge in leasing activity in the office sector, notably in key cities including Chennai, Hyderabad, and Pune," stated Anshuman Magazine.

Sharing the hits and misses for the co-working segment Manas Mehrotra shared, “Coworking spaces are tailored to suit the unique needs of different busi- nesses ranging from overall designs to specifics such as different seating options and configurations within the office space. Hence coworking players have to innovate to stay ahead in the game. As businesses increasingly shift offices from traditional and conventional set ups to coworking spaces, commercial real estate operators will increasingly lease space to flexible operators and both will grow exponentially and co-exist in a win-win situation. The rapidly increasing trends to re-strategize the workspaces indicates a brighter future for this new age asset class.

While we welcome the continued vibrancy of the coworking sector, we could see that the tendency to work from home has continued to prevail. Post Pandemic, employees found working from home comfortable over a long period and hence the tech sector has found it challenging to get back employees to office. While the

hybrid work model has many advantages, it tended to slow down the pace at which employees returned to office. However, there were no other factors that hin- dered the unbridled growth of the coworking sector in 2023. This is evidenced by fairly big deals struck this year and corporates and large enterprises continued to opt for coworking spaces. Overall, companies are aspiring to keep pace with the economic engine and are looking out for workspaces that meet new office requirements of the changing economy and coworking spaces help them fill a unique void. Flexible spaces is becoming mainstream now.”

Saket Mohta believes the sector had more hits, hardly any misses. “The coming year may see challeng- es with more supply in the pipeline. In the year 2023, The State Govt further extended the rebate in stamp duty and circle rate for registration which motivated potential consumers to buy property especially in the mid income housing market. . Even fence sitters also took the decision to buy property. We saw an uptick in sales due to interest in investing in real estates. Real estate will always be a good option as an investment tool as the prices will always appreciate. The residen- tial real estate in India rose positively in this year with increase in capital value. The first nine months of 2023 witnessed good growth in sales and we predict the sales will overtake last year as well.

The real estate market in India has been experi- encing dynamic shifts and changes over the years, driven by technological advancements, demographic shifts, and economic fluctuations after the pandemic. In 2024, home buyers need to be the main focus and the buyers will be more aware about their preference. It will predominantly be a buyer’s market.

The purchasing power of the middle class is growing so there is a shift in buying pattern that is for better and little bigger housing units. With growing aware- ness about sustainable and eco-friendly practices, a section of environmentally conscious home buyers is driving demand for eco-friendly properties. Integrating digital platforms in the real estate industry transforms traditional homes into smart homes. Homes with smart features like automated lighting, security systems, and energy management are expected to gain traction and become the norm in top-tier metro cities by attracting tech-savvy homebuyers."

THE YEAR 2023 HAS PROVEN TO BE QUITE AN INTERESTING YEAR FOR THE INDIAN REAL ESTATE SECTOR. AS PER A REPORT FROM CREDAI— COLLIERS—LIASES FORAS, OVERALL HOUSING PRICES IN INDIA WITNESSED A RISE OF 7% YOY DURING Q2 2023 AND 8% YOY DURING Q1 2023. THE IT, BFSI, FLEXIBLE SPACES AND ENGINEERING & MANUFACTURING WERE THE STRONG DEMAND DRIVER OF OFFICE SPACES AND RETAIL EXPERIENCED SUBSTANTIAL GROWTH IN LEASING FIGURES THIS YEAR. WHILE, THE WAREHOUSING SAW DEMAND FROM THIRD-PARTY LOGISTICS AND MANUFACTURING PLAYERS AND DATA CENTRES WERE THE FLAVOR OF THE YEAR.

INDIA'S REAL ESTATE MARKET IS EXPECTED TO UNDERTAKE A GROWTH RATE (CAGR) OF 9.2% DURING THE FIVE YEARS FROM 2023 TO 2028. . THE REASONS ARE MANIFOLD – THE RISING MIDDLE CLASS, THE AFFLUENT UPPER-MIDDLE CLASS, INDIA’S EMERGENCE AS AN ECONOMIC SUPERPOWER, RAPID URBANIZATION, INCREASED EMPLOYMENT OPPORTUNITIES IN CITIES… TOGETHER, ALL THESE CONTRIBUTE TO THE PHENOMENAL GROWTH OF THE SECTOR IN INDIA.

Tags : Anshuman Magazine Saket Mohta Boman Irani President CREDAI National Manas Mehrotra Founder 315Work Avenue Retail leasing