New residential launches and sales may witness improvement; office leasing may also see increased activity
Around 50 percent stakeholders from the real estate sector are of the opinion that the situation for new launches will either improve or remain the same in the next six months, while 31 percent sees an improvement in residential sales. But there were mixed responses with regard to movement of prices, with almost half saying that prices will weaken and others stating that they would continue to remain around current levels or increase.
In terms of office supply, around 46 percent of respondents believe that new office supply will continue to deteriorate over the next six months, whereas the remaining 55 percent still believe that new supply will either improve or remain stagnant, according to findings from the 25th Knight Frank - FICCI -NAREDCO Real Estate Sentiment Index Q2 2020 survey.
The survey covering the period April-June was conducted in the first two weeks of July.
In the case of office leasing, 27 percent respondents see an improvement in the next six months, whereas 73 percent believe that it will remain around similar levels or worsen.
Stakeholders’ outlook with regards to future rental markets improved by a few percent points, with 54 percent of stakeholders believing that the rental market will be under pressure for the next six months and 46 percent think that it will be the same or increase in the next six months.
“The residential market across the parameters of new launches, sales and prices continued to be muted in Q2 2020. In terms of supply of new residential units, 50 percent of the stakeholders said the situation for new launches will either improve or remain the same over the next six months,” it said.
With respect to sales, 31 percent of the stakeholders are of the opinion that residential sales will get better in the next six months. As many as 49 percent of the respondents feel that prices will weaken further in the next six months, while the remaining 51 percent think that prices will continue to remain around current levels or increase over the next six months, it said.
With continued economic stress and ambiguity regarding recovery, the current sentiments of the real estate stakeholders in India have been recorded at a low 22 in Q2 2020 (April-June). However, the stakeholders have shown moderate improvement in future sentiments for the next six months, albeit they remain in the pessimism zone, it said.
The survey indicated that the ‘future sentiment score’ of stakeholders, though still in the pessimistic scoring zone, has seen an improvement at 41 in Q2 2020 against the score of 36 in Q1 2020. This is attributed to an expected improvement in macroeconomic indicators and adaptation to new business models shaping recovery in the next six months.
The survey covers key supply-side stakeholders, which includes developers, private equity funds, banks and non-banking financial companies (NBFCs). A score of 50 represents a ‘neutral’ view or status quo; a score above 50 demonstrates a ‘positive’ sentiment; and a score below 50 indicates a ‘negative’ sentiment.
“With some macroeconomic indicators showing marginal improvement and with the impending festive season in the second half of the year, the stakeholders have shown improved sentiment compared to the previous quarter, albeit they have remained in pessimistic zone. At this juncture, we expect the lockdown to ease by the advent of the festive season, helping to revive economic activity and propel conversion of pent-up demand,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
There is a need for further demand-boosting measures to improve sentiments in the economy. For the real estate sector in particular, there is a need for measures such as additional tax benefits for buying/renting a house, added incentives for affordable housing, easing of credit availability for the sector and a one-time restructuring of developer loans to help the sector recover from this crisis, he said.
Future sentiment scoreThe future sentiment score inched up to 41 in Q2 2020, indicating a possible but cautionary revival for the real estate market. Improvement in macroeconomics and stakeholders adopting a new business model has created a hope for recovery in the next six months.Stakeholder future sentiment scoreSentiment score of both developers and non-developers in the real estate sector has seen a marginal revival with scores of 39 each in Q2 as compared to Q1 2020.
Stalled construction during lockdowns and scarce availability of labour due to reverse migration are likely to result in project delays. Tighter lending norms and low demand on account of crisis-induced job losses and pay cuts will take a toll on developer cash flows. In light of such challenges, developer sentiments continue to remain pessimistic for the next six months.
With regards to funding, 47 percent of the respondents expect a further reduction in the credit flow to the real estate sector over the next six months, whereas 28 percent believe that the present levels of credit scarcity will continue for the next six months.
In the backdrop of the current liquidity, labour and raw material shortage, industry seeks hand-holding by the government to ease out economic distress. This could be done by reduction in taxes, levies; stamp duties and GST for stipulated time frame to generate demand shock which is imperative to kick start the economic uptick, said Niranjan Hiranandani, National President, NAREDCO, and founder and MD, Hiranandani Group.
In addition to fiscal stimulus, the industry pegs high hopes on a one-time debt restructuring, additional stress fund and enhanced credit flow supply to facilitate working capital requirement of businesses to revive back, he said.
Retail and institutional investors are flocking to REITS. You will see by end of the year close to 100 million sq ft listed at the exchanges. "We expect USD 2-3 billion investment to exchange hands by March 2021. Some vacancies at Tier II tenants and developments are expected," said Sanjay Dutt, Managing Director and CEO, Tata Realty & Infrastructure, Chairman, FICCI Real Estate Committee.