The year 2019 has been a period of ups and downs for the Indian real estate sector. The sector witnessed the impact of the ongoing NBFC crisis resulting in liquidity squeeze and the slow pace of recovery in sales. On the other hand, the successful launch of India’s first Real Estate Investment Trust (REIT) opened new avenues for investments while multiple government sops provided relief to the housing sector.
Branded developers gained ground, with some listed players performing exceptionally well on sales and commensurate revenue growth.
As per ANAROCK research, the housing sales value of India’s top 9 listed players touched Rs 108 billion in the second and third quarters of 2019, amounting to a 5 percent growth QoQ. However, some other big names were dragged into insolvency.
Of the estimated 2.3 lakh new unit launches in 2019 in the top 7 cities, nearly 40 percent or approximately 92,000 units were in the affordable segment, followed by mid-segment with a 33 percent share. The luxury and ultra-luxury segments accounted for the least share with 10 percent (approximately 23,000 new units), the study revealed.
Housing sales in 2019 saw a modest 4-5 percent annual growth with over 2.58 lakh homes sold during the year.
New housing launches in 2019 saw 18-20 percent annual growth with new launches in the region of over 2.3 lakh units.
According to developers, sustained efforts of the central government would strengthen the sector, especially affordable housing-led growth.
A series of key decisions were taken by the government to revive the realty sector. In the Union Budget FY20, the government announced an additional deduction of up to Rs 1.5 lakh for interest paid on loans borrowed up to March 31, 2020, for purchase of a home valued at Rs 45 lakh.
Further, the GST rate cut was announced under the new scheme of 1 percent for affordable houses and 5 percent for other categories.
Moreover, the government set up an alternative investment fund worth Rs 25,000 crore for stalled housing projects.
The Union cabinet also approved changes to the partial credit guarantee scheme allowing them to purchase BBB+ or higher-rated assets from non-banking financial companies (NBFCs), and housing finance companies (HFCs).
“During the year, the number of insolvencies increased significantly, highlighting the severe cash crunch faced by many developers. These developers were unable to complete projects and meet their debt obligations in the face of the funding crisis. Despite 5 consecutive rate cuts by the RBI, banks have not passed on the benefits to the borrowers due to large non-performing assets (NPAs). Considering the situation, the government has become proactive and introduced further measures to revive the demand,” said JC Sharma, Vice-chairman and Managing Director, SOBHA Ltd.
Office leasing increased by more than 30 percent annually to cross 47 million sq. ft. during the first three quarters of 2019, surpassing its previous peak of 2018. The leasing activity stood at about 15.4 million sq. ft. during Q3 2019, rising by nearly 23 percent on an annual basis, the CBRE report said.
Commercial office space continued to be the most sought-after asset class. On similar lines, warehousing and retail sectors were the next favourites for investors, according to JLL India.
“The year 2020 is expected to infuse growth in the sector. Like the year 2019, commercial office space will again lead, followed by retail and warehousing. On the other hand, the impetus given to the residential sector is expected to yield positive results. The special opportunity fund created by the government is likely to help the completion of stalled projects, thereby improving the buyers’ sentiment,” expects Samantak Das, Chief Economist and Executive Director- Research & REIS, JLL.
Commercial spaces continued to attract maximum PE investments. In the first three quarters of 2019, commercial spaces received close to $3 billion funds, up 43 percent YoY.
Also, the launch of Embassy REIT has opened up a new asset class for investment in the country. The price of a single REIT unit touched high of Rs 462 as against the launch price of Rs 300, registering a growth of over 50 percent.
“On the onset of the year 2020, the Indian real estate system will reap the benefits of structural economic policy reforms introduced with the intention of bringing financial discipline, accountability and transparency. The muted investment and subdued consumption which reflect imbalanced demand-supply economics will start gaining momentum with sustained rehab of monetary and fiscal interventions to resurrect the sliding economic growth,” said Niranjan Hiranandani, National President- NAREDCO and MD Hiranandani Group.
This segment has seen leasing activity rise by almost 31 percent compared to H1CY2018, crossing 13 million sq. ft. in H1CY2019.
“Recent policy reforms and infrastructure initiatives have boosted this sector, which is likely to attract significant investments in the near future. In 2020, we expect the overall pipeline for the sector to reach 60 million sq. ft., with leading players accounting for at least 22 million sq. ft. of this supply,” said Anshuman Magazine, Chairman and CEO - India, South East Asia, Middle East and Africa at CBRE.
The logistics industry is embracing technology to keep pace with the increasingly digital times even as retail goes omnichannel with an eye on the smart shopper, Magazine added.
Real estate developers expect the year 2020 to reap the benefits of initiatives taken by the government that would lead to a revival in the sector.
“Commercial and retail sectors of real estate performed comparatively better than residential spaces. Now because of the cabinet approval on Partial Credit Guarantee Scheme to NBFCs and HFCs, the sector will see economic growth, thanks to better liquidity and cash flow,” said Ashok Mohanani, Chairman, EKTA World Vice-president, NAREDCO Maharashtra.Meanwhile, Hiranandani suggests the government should quickly undertake bold fiscal decisions by enhancing focus on corrective measures for sectors like housing and urban infrastructure, 25 percent GST rate cut and slashing individual tax to boost demand.