THE GREAT INDIAN REAL ESTATE SPELL

BY Realty Plus

After a two-year lull, the realty market rebounded with developers reporting a surge in property demand. The housing segment saw an uptick in tractions and the top eight housing markets in India recorded substantial sales. The industry experts believe, the affordable housing finance will grow the fastest, with mortgage penetration expected to double to 8-10% over the next few years, driving further growth.

While, strong buyer sentiments are fuelling the housing segment's growth, commercial real estate picked up on the back of corporate's aggressive expansion plans. Office space leasing in the first nine months of 2022 witnessed a 66% hike in which Bengaluru, Delhi-NCR, and Chennai were the major contributors to the space absorption. The commercial segment also stands as one of the most lucrative investment options since it yields great rental income attracting investors across geographies. According to an industry report, various multinational corporations are eyeing India for establishing Data Centre and offices, in the next three years, stimulating commercial real estate investment and spurring the segment's growth.

With the revival of the commercial realty sector, the retail real estate segment also gained prominence this year due to robust retail leasing witnessed in the top Indian cities. An industry report indicates that retail leasing in India has risen 114% Y-o-Y between January and September 2022, while supply has grown by 102% Q-o-Q. The first nine months of the year saw impressive retail absorption in the malls of the Delhi-NCR due to a remarkable inflow of domestic and international brands.

As per, real estate marketers, the growing homeownership awareness contributed to a 40% increase in home sales in India's eight major housing markets in the first nine months of 2022 despite increasing interest rates, indicating a positive trend. The year also witnessed a strong demand for luxury housing, owing to homebuyers' growing desire for spacious homes with luxurious amenities. Additionally, NRIs too have re-established their faith in real estate this year due to the depreciation of the Indian rupee, which has enabled them to invest more in Indian real estate.

Though the housing and office space segment performed exceptionally well, retail real estate grabbed the interest with record-breaking leasing growth across cities. The phenomenal boost in the demand and supply of Grade A quality retail space is driven by the increased investment inflow, economic growth, rapid urbanization, changing consumer preferences, and positive market sentiments.

The retail sector is gradually returning to growth mode, with consumers visiting malls to shop and spend quality time with their families to restore their social life.

The real estate companies believe that in the next five years, the demand for real estate infrastructure will outweigh the supply, and the more infrastructure we build, the more demand we will have. However, the development should be infrastructure and need-based. Also, there is a need for the government to ease the policies for promoters and developers. In addition, developers should be given an extended arm by the government so they can market, compliant properties, have a streamlined approval process, and can develop projects quickly.

The developers across the country see the desire to own a home remaining strong in the coming year and the demand for luxury homes continuing to be the driver for the real estate sector in 2023. Plotted developments, premium and uber luxury homes are likely to strengthen their market hold. Even the shift in focus to other smaller cities where infrastructure development is taking place will see a lot of traction from the industry and from investors at large.

IN THE PURSUIT OF GROWTH

Indeed, in 2022, the sector experienced an upward trend due to factors like homeownership, the desire for bigger homes, lower interest rates, and attractive pricing. Foreign investments and NRI homebuyers have taken centre stage. Some metro cities witnessed an increase in real-estate prices; along with this, even tier II and III cities gained momentum for demand for housing.

The government also helped the real estate sector by launching several initiatives. Together, these factors drove the real estate sector in 2022. The year turned out quite well for home buyers and investors who were keen to invest in property on a long-term horizon and not looking for immediate, short-term, returns.

ANAROCK Research indicates that housing sales in the top 7 cities have created a new peak in 2022, breaching the previous high of 2014. Approx. 3,64,900 units were sold in 2022 against 2,36,500 units in 2021 across the top 7 cities – rising by 54% on Y-o-Y. The last peak was seen in 2014 when 3.43 lakh units were sold across the top 7 cities.

In terms of cities, MMR witnessed the highest sales of approx. 1,09,700 units in 2022, followed by NCR with approx. 63,700 units. The two realty hotspots are together once again the leading residential markets. Meanwhile, new launches across the top 7 cities saw 51% annual rise – from 2,36,700 units in 2021 to nearly 3,57,600 new units in 2022. MMR and Hyderabad witnessed maximum new launches in 2022, together comprising nearly 54% share of the total new launches in the year.

A report by Colliers shows that technology and start-up firms drove the demand for office space during 2022 with a 97 percent jump in leasing across 6 cities i.e. Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.

As demand soared, the year has already seen triple-digit growth in the office and retail segments. With the country emerging as a global manufacturing hub after multinational conglomerates moved out of China, it remains under a positive forecast lens. The ever-rising IT sector and boom in e-commerce led to a paradigm shift in the demand for commercial real estate (CRE) spaces. Start-ups and multinational corporations are considering India as a hub for their data centres and large commercial spaces boosting India's commercial real estate market. Industry experts also point out that more market share is being taken up by the flex sector over traditional leasing because in tougher economic situations, companies tend to outsource more to save on heavy capital expenditure. Therefore, this trend is here to stay and will only grow over the next year or two.

While the top metros witnessed significant growth in development and consumption, the traction in Tier II cities was also eminent. It is mainly due to the initiatives like Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation).

The financial institutions expect the trend to continue with increased absorption and decreased vacancy rates, strong ROI, more considerable NRI and FDI investment and solidified government initiatives helping infrastructural boost leading to growth in the office space segment. They foresee more traction in Tier-II towns with the rise in employment opportunities and economic activities in these markets. Additionally, with a behavioural shift towards digitization, more people will be investing in commercial assets through fractional routes.

SCALING NEW HEIGHTS

The global economic sentiments and market volatility haven’t affected the Indian real estate market all that much yet. The Indian real estate industry has met investor expectations and has persevered through recent market ups and downs. This year, India's housing market has seen significant demand, primarily from end-users, in both the metropolises as well as developing cities.

The residential sector, despite the price increase, is likely to cross over 3,00,000 units FY22-23. Even tier-2 & tier-3 cities have shown substantial growth. What’s more, the weakening rupee and the promise of the new Indian economy actively motivated NRIs to invest in their home country considering the geo-political situation and global inflation uncertainties, say developers.

In the office market space, despite less than 50% of the workforce having returned to offices, it has witnessed 40 million sq. ft. net absorption. The serviced office is well over 10% of the office absorption, the highest ever. High Street & Shopping Centres have cross pre-Covid levels in terms of traffic and sales. Warehousing and logistics are touching 30 million sq. ft. annually. Several new entrants have taken up the Data Centre business and their underwritings have converted to commitments.

Also, with the Energy Conservation (Amendment) Bill passed recently, which places a core focus on sustainable development, the overall quality of residential and commercial projects will be keeping climate change in mind. On that account, according to Reuters, prices have increased by 7.5% countrywide (4-5% in Mumbai and Delhi, 5.5-6.5% in Chennai and Bengaluru. However, the current real estate cycle has been consumer-driven and it is still in a sweet spot as far as affordability is concerned in spite of rational price hikes by developers.

MODERN TECHNOLOGY AIDS GROWTH

Real estate's fundamental concept has evolved into providing end users with a complete 360-degree experience. Technology has enabled the real estate industry to reach its full potential by encouraging the use of digitalization and technological tools like artificial intelligence (AI), augmented reality (AR), virtual reality (VR), big data, and analytics.

As developers concur, innovation is the new mantra for real estate and Proptech industries. With large homes and integrated living gaining ground, Proptech is trying to better manage the consumption of critical resources like water and electricity and improve residents’ user experience. With the pace of growth achieved in 2022 despite the interest rate growth, the coming years are going to be excellent tech companies in real estate sector.

According to tech companies, the momentous shift in 2022 in the Proptech has been that the scope has widened. Developers, tenants, landlords, and other real estate stakeholders are fast adapting to Proptech to lower operating costs.

All these exciting developments have increased investors’ appetite around the growth of Proptech in India. With PE funding increasing by five per cent in H1 2022 from an already higher base of H1 2021, the market is pegged to touch USD 1 trillion by 2030.

A BRIGHT ROAD AHEAD

There is a high le vel of optimism in the real estate sector as next year likely to be a banne r year for the country’s realty sector owing to the lucrative opportunities. Along with the r esidential and commercial realty segments, the retail real estate sector will also be in the spotligh t concurrently with new debuts and records. In light of the current positive outlook, retail brands will likely continue to be proactive in their expansion spree next year.

As per the ratings of agencies, India's growth is expected to be between 8% - 9%, and such a favourable economic outlook will contribute to the real estate market’s boost. In addition, the industry is also expecting to experience significant demand from global brands contemplating the Indian market debut and further expansion plans. Industry players feel that 2023 will pivot towards many opportunities.

Commercial real estate is also in high demand as a result of the country's economic boom. Additionally, the government's urban development policies, such as Smart City and AMRUT, are expected to increase demand for real estate infrastructure in developing cities.

The sector will continue to have strong and positive momentum. As 2022 draws to a close, real estate developers look forward to welcoming another ambitious year that will propel the market to new heights.

Tags : Indian real estate home buying developers growth commercial office space Bengaluru Delhi NCR