The Year Gone by 2019
In residential property side, the Ready to move in properties was the flavour of the year in 2019. Warehousing, Co-working spaces, Co-living, Student housing were the newfound developer interests throughout the year 2019.
Residential Sales volume absorption was not very encouraging, it was below 5%. Affordable housing was the winner since it found support from Govt policies & Norms. There were more launches in this space.
Commercial Property saw a lot of traction in 2019 and the leasing volumes also picked up substantially and lease rentals also shown appreciation. There was good interest from domestic and international funds and investors to place money on leased assets, Private Equity invested close to 5 billion dollars, most of which were in commercial reality.
April 2019 saw the first REIT (Real Estate Investment Trust) launched by Embassy Group together with Black Stone and investors were handsomely rewarded.
Outlook for 2020
Last year the Govt went an extra mile by formulating laws and policies to restore confidence to the consumer, in 2020 the developer will have to adapt organized and more professional ways of marketing and selling their product and gain consumer trust on the basis of delivery and quality.
My overall assumption on the Real Estate market in 2020:
Taking into account the current scenario the possibilities are:
1. Repo-rate has been cut to 5.15% by RBI (which translated into lowering of home loan rate), GST has been rationalized to 1% for affordable housing, income tax incentives for first home buyers, provision of stress fund(25000 crores) for stuck projects announced in 2019 will have positive impact on Real Estate Industry.
2. Commercial Real Estate will definitely do well and we will see growth in absorption in this segment. Leasing volumes will further increase. Rentals in this space will see appreciation – however, these will be city-specific. We will see more developers going the REIT way. Foreign investors will further put in money in commercial Real Estate in India in 2020.
3. Residential Sales will remain muted for the first half of the year 2020. There will be further consolidation. The prices will mostly be flat and absorption will happen more in the affordable segment in Ready to Move in Properties. The consumer will buy residential for self-use in central localities with all established social infrastructure. There may be a change noticed in buyer behavior where consumer will prefer to buy accommodation, not size (2 Bedroom in 900 sq. ft. v/s 2 Bedroom in 1100 sq. ft.,3 bedrooms in 1400 sq. ft. v/s 3 Bedroom in 1800 sq. ft .will be the choice for consumer)
4. Warehousing: GST, e-commerce, Modern infrastructure of roads, air and water will further boost the use of warehouses. The investment will pour in from foreign and domestic institutions in this segment for at least a decade, this will be the space to watch for investors in Real Estate.
5. Student Housing will pick up the pace.
6. Co-living and Co-working will keep investors interest however the strength of these business models will be ascertained in 3-5 years. I don’t think they will be the best real estate investment ideas for the long term however could be a choice for short-term goals.
Some Issues I could see continuing in 2020:
1. There is still a lot of doubt & fear in the mind of the consumer regarding the Economy (GDP), Unemployment and Global factors like Trade War between major economies, Conflict between nations and so on, which hamper sure on sale.
2. Liquidity will remain a problem in the year 2020. While the stressed fund created by the govt will help the stuck projects (provided the regulator – the SBI Cap fund manager is able to deploy in time) to move towards completion and bring money into the system but this process itself is time-consuming and hence the solution to present crisis is not immediate.
In my opinion, there are 2 definite solutions to move the market towards growth:
1. In the budget 2020 the govt can rationalize the f Direct Taxes (Income Tax) so that the consumer can get more money to invest in his pocket this will fuel consumption and hence directly help in increase in Real Estate sales.
2. The developer will have to be created and innovated enough to bestow confidence in the mind of the consumer which will help him in making the decision and hence grow sales.
The Solution is SALE and nothing else.
The real Estate industry is the second biggest contributor to GDP and a big employment generator. It gives business to more than 200 ancillary industries and hence an important industry for the govt to move the economy.
Overall, I am cautiously optimistic about Real Estate industry growth in the year 2020.
By Sanjeev Kathuria