Even as India’s economy slowed sharply over 2019, the residential real estate sector seems to be showing some signs of recovery. Even as sectors like automobiles have seen sales slump, home sales across the top 8 cities rose 1 per cent last year to 245,861 units, compared with 242,328 units in 2018, according to real estate consultants Knight Frank.
IT capital Bengaluru, in fact, saw home sales rise 10 per cent in 2019 to 48,076 units. In the National Capital Region, sales had been subdued over the last few years, amid a few developers going bankrupt. However, that market too seemed to be turning around with sales in 2019 rising 5 per cent to 42,828 units. Chennai, Hyderabad and Ahmedabad too reported sales growth of 6 per cent, 4 per cent and 3 per cent respectively.
The volumes grew as affordability in some of the markets improved and developers aligned themselves with the needs of home-buyers by reducing ticket-sizes and unit sizes in a bid to boost sales, said Knight Frank
“2019 can be seen as a relatively positive year for the real estate sector. Economic headwinds such as slower GDP growth, reduced industrial output, poor consumer sentiments, amongst others, presented significant challenges to the residential market throughout the year. However, the slew of recent fiscal and monetary incentives by the government and Reserve Bank of India, seem to have had an arrestive impact on the real estate sector,” said Shishir Baijal, chairman and MD of Knight Frank India.
However, housing demand remained subdued in the financial capital of Mumbai, Pune and Kolkata. In Mumbai, sales fell 5 per cent last year to 60,943 units from 63,893 units. The slowdown was more prominent in the second half of the year (July-December), where sales tumbled 14 per cent.
For many years, India’s key residential markets like Mumbai were investor driven. However, much has changed since demonetisation and now it's largely driven by end-users, who still find affordability an issue in Mumbai. The general slowdown and lower income growth, coupled with the NBFC crisis, also weighed.
“In Mumbai, net affordability is yet a question. Right location, right sizes are a big concern. Unless, we are ticking in all those check boxes, I doubt if the industry will turnaround. In the next 3-4 years, maybe you will see some turnaround from the infrastructure side. In the interim, if anything has to change, it will happen if economic indicators change. In the last year or two, disposable incomes haven't shot up,” said Gulam Zia, executive director at Knight Frank.
In Pune, sales were down a marginal 2 per cent last year to 32,809 units from 33,521 units. However, in the second half sales fell 10 per cent. In Kolkata, while sales rebounded 9 per cent between July-December, full year residential sales were still down 12 per cent to 11,266 units from 12,731 units.
Due to the falling demand, weighted average home prices in Mumbai metropolitan region have declined almost 14 per cent from the peak of second half 2016, data from Knight Frank showed. Apart from reduction in base prices, developers are also offering freebies such as no-floor rise, two-year free maintenance, GST waivers, free club memberships among other things as developers have looked to attract buyers. However, affordability, particularly in Mumbai city still remains an issue.
Weighted average prices in Mumbai still remain above Rs 7,000 per square feet and over the last couple of years, incomes haven’t grown sharply. So, there are no positive signs yet that the market will bounce back, Zia added.
In many other cities, while sales have showed an uptick last year, whether the growth rate will be sustainable will depend on the overall turnaround of the economy and the liquidity condition in the non-banking financial services sector.
NBFCs and housing finance companies account for a big chunk of lending to real estate. However, the sector has seen a liquidity crunch following the defaults at infra IL&FS. Dewan Housing Finance (DHFL), once the country’s second largest private sector housing finance company, was taken to the bankruptcy court in December.
“Liquidity constraints and home-buyer sentiments will continue to keep buyers tentative in residential segment,” said Baijal.
Even as the housing segment has been slow, commercial sector has been seeing strong demand, from sectors such as information technology. Office leasing activity in 2019 touched a historic high of 60.6 million square feet, up 27 per cent year-on-year.
Bengaluru continues to lead, with total office transactions of 15.3 million square feet, up 14 per cent year-on-year. However, Hyderabad is fast catching up, with transaction volumes in 2019 surging 82 per cent to 12.8 million square feet.
“Commercial office space has continued to soar on the back of a strong IT, ITES demand. There also, over the last decade there is a massive change from the earlier BPO, voice driven to today, the IT, ITES sector providing high-end engineering solutions in India for data security, artificial intelligence and the like,” said Baijal.
The IT sector accounted for 41 per cent of the total office space leased in the second half of 2019.