2018: Wobbly start gives way to some solid sales in Indian Real Estate

An Indian real estate expert takes a lookback at the year to encapsulate some of the key trends and what to expect in the New Year. The year began with a wobbly start in residential sales that strengthened as the year passed. The compact segment led the way, surpassing sales numbers in many markets over 2017. The segment is classified as units less than 1,000 sq ft. Given that the Indian realty market is dominated by over 80 per cent of the residential market, the compact segment remains the most crucial. With the Real Estate (Regulation and Development) Act (RERA) being implemented in most states and enforcement getting a reasonable push, the number of new project launches were also limited across markets. Hyderabad has seen the best growth, with Bangalore and Pune following suit. Surprisingly, Kolkata too had good sales growth over 2017. Overall, it has been, by and large, a year of selling existing residential inventory of which over 10 per cent has been ready-to-move in units. Despite an increase in sales volume and velocity, due to stock of inventory being in the 24 months to 40 months range across markets, developers have not been able to increase prices. This has led to price stagnation for two years in a row. Further, given that average impact of tax has gone up from 8 per cent to 12 per cent by way of Goods and Services Tax (GST) - the buyers felt the impact of a price hike, but the developers were not the beneficiary of the difference. Commercial realty, on the other hand, has had a good year across geographies with supply getting mopped up and rental rates showing a general uptick across markets. This market produces around 30 million square feet each year and a similar sum has been getting absorbed each year with vacancy levels being in the 12-15 per cent range for 2 consecutive years. With marquee assets being traded in the near half-a-billion-dollar range between funds, this market is beginning to show depth and demand for A grade assets and a clear bias in construction of A grade assets. There also seems to be a stable appetite from investors for leased commercial assets with capital rates in the 8 per cent yield range. Bangalore, Chennai, Hyderabad and Pune seem to have hit rental peaks, similar to that of Q3 2008, signalling a strong trend in this segment going forward.

Liquidity impact and NBFCs

Long and short of it