India’s real estate slump likely to get worse

Stakeholders downgraded the outlook for the rest of the year to ‘pessimistic’

Budget 2019: Home buyers body want Rs 10,000-cr 'stress fund' to complete stalled projects Representative image

India’s real estate slump is only likely to get worse, with stakeholders downgrading the outlook for the rest of the year to ‘pessimistic’.

According to the latest Real Estate Sentiment Index Q2 2019 survey done by Knight Frank for business chamber FICCI and real estate apex organisation Naredco, the economic slowdown is taking its toll on the property market, coupled with factors like the NBFC crisis, developer defaults and bankruptcies, liquidity crunch and low consumer demand.

“The real estate sector has been witnessing tough sales environment which is only expected to continue,” said Knight Frank India chairman and managing director Shishir Baijal

The overall sentiment for the realty sector at 47 points for the first quarter of financial year 2019 and outlook for upcoming months at 52 - a sharp drop in confidence compared to preceding quarters.

Outlook for coming months at 52, or just above the neutral line, is the lowest in recent history, and a sharp drop from 63 at the beginning of this year. This signifies that realty stakeholders, while showing moderate optimism, are still cautious in their expectations on account of an overall economic slowdown that has begun impacting the already troubled sector in a bad manner.

As much as 74 per cent of stakeholders believe the situation may remain same or may even worsen in the coming months, while more than half believe the funding scenario may worsen. A slowdown in consumption, lower investment and tightening of borrowing ecosystem has further compounded to negativity in outlook. Global rating agencies including International Monetary Fund (IMF), DBS Bank and Asian Development Bank (ADB) have lowered India’s GDP outlook.

The worst affected is the residential housing sector, with three-quarters of the stakeholders feeling that residential prices are unlikely to grow, even though Reserve Bank had cut the repo rate by as much as 110 basis points in the last four reviews. However, reduction in domestic spending and investment activity will loom large given the flat income growth.

The only silver lining seems to be the office sector, with an 83 per cent positive outlook on rental growth in the next six months.

“Liquidity, being the oil of the India growth engine, needs a quick fix resolution enabling Indian real estate to play its role in enhancing GDP growth in tandem with ample job creation,” commented Naredco president Niranjan Hiranandani.