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India’s real estate market has been on a downturn since after the Global Financial Crisis, and prices have remained largely stagnant over the last decade.
A few years ago, the outlook for the country’s real estate sector was quite poor. “The overall slowdown in the economy, coupled with factors like the NBFC (Non-Banking Financial Company) crisis, developer defaults and bankruptcies, have slackened the sentiments of the sector, especially for the residential segment. The situation is further compounded by factors like the ongoing liquidity crisis and a diminutive demand scenario,” real estate consulting company Knight Frank had said in 2019.
However, things have changed drastically during the pandemic, as real estate activity gained momentum due to low home loan interest rates, the lure of offers and use of new technology by realty developers and a renewed interest in homeownership as the Indian economy recovers.
India’s real estate market rebounds
India’s home sales rose 71% year-on-year in 2021, reaching 90% of pre-Covid levels, data from Anarock Property Consultants showed. Rating agency CRISIL sees a 30-35% sales growth for established realty players in fiscal year 2022 (1 April 2022 to 31 March the following year), and another 10-15% growth in the next fiscal.
Anand Kulkarni, Director at CRISIL Ratings said, “Increased affordability due to low-interest rates and flattish capital values, rising demand for bigger homes, and government measures in the past two fiscals have provided a fillip to residential realty.”
Additionally, the rating agency sees established realtors to have stronger credit profiles, with their debt to total assets ratio expected to improve to ~25% by March 2022 from ~45% five years ago, said Kshitij Jain, Associate Director at CRISIL.
Another factor for the higher optimism is the government allocation of Rs 48,000 crore (~$6 m) in Budget 2022, and the promise of faster approvals for affordable housing in urban areas.
Growth outlook for India’s real estate
India’s real estate market saw a significant recovery in 2021, and the robust momentum is expected to continue into 2022. UK-based property consultancy KnightFrank sees India’s residential property prices to appreciate by 5% in 2022.
A Reuters poll of property analysts predicts that housing prices in the country will grow at a median of 5% in 2022, up from the previous expectation of 3.5%. In 2021, housing prices rose about 2.5% on average, as per Reserve Bank of India estimates.
On the other hand, public policy advisory body NITI Aayog sees the real estate sector to account for 13% of India’s GDP by 2025.
“If we can meet the challenges of the pandemic, Indian real estate across asset classes will see strong momentum both in terms of demand and supply,” Shishir Baijal CMD Knight Frank India told The Economic Times.
Knight Frank expects the warehousing sector to grow at a CAGR of 20% in FY2023, whereas data centre growth is likely to increase infrastructure spending.
“With physical offices here to stay, portfolio optimization and hybrid working are expected to be the dominant themes going forward driven by incremental demand from IT/ITes firms and the rebound of flexible office operators,” the Knight Frank report said.
Prospects for foreign investors
India has allowed 100% foreign direct investment (FDI) in townships and residential development projects since 2015, and the sector is among the top-ranked for FDI inflows, a Mordor Intelligence report said.
Foreign investors are jumping on the bandwagon of India’s real estate rebound story and held 54% of the total real estate investments made in India in 2021, as per a report from real estate services firm CBRE. American corporations were at the frontline with a 37% share, followed by Singapore-based corporates (12%).
The commercial real estate sector has received a boost from government initiatives such as Make in India, the introduction of the Real Estate Regulatory Authority (RERA) and GST. The increased transparency and competence of the sector have attracted increasing amounts of foreign direct investments (FDI) in commercial real estate, as per Mordor Intelligence.
