Should you invest in residential property this year?
Premium- Despite the impact of a second covid wave, private equity investments in the real estate industry increased by 57% YoY in 2021
India’s investment environment which was initially affected by the pandemic in 2020 rebounded, as the vaccination drive along with the fiscal and monetary policy support lifted economic growth. Despite the impact of a severe second wave, private equity investments in the Indian real estate industry increased by 57% year-on-year (YoY) in 2021, as per Knight Frank's report.
The real estate industry received a total of $6.2 bn in investments across four segments: office, residential, warehouse, and retail. Knight Frank India highlighted that the residential sector has recorded a 9-year high sales volume in January–June 2022. The previous high was recorded in the first half of 2013, when sales were at 1,85,577 units.
“Home ownership, which had been put off owing to the ‘uberization culture’ of recent years, made a significant comeback because of the pandemic. Going ahead, India is likely to maintain its position as a preferred investment destination as the positive momentum is expected to strengthen further," said Vivek Rathi, Head of Research, India of Knight Frank India in the note.
The residential sector has now moved into an upcycle fuelled by positive consumer sentiments on home ownership and a better prepared developer eco-system, he added, saying that India’s retail sector will continue to witness investment interest led by rebound of consumption demand in brick-and-mortar formats.
Knight Frank has listed several factors for the increase in housing sales such as homebuyers' need to upgrade primary lifestyle, low interest rates on home loans and comparatively low home prices to the pre-pandemic levels. The renewed need for home ownership sparked by the covid pandemic is also driving housing sales.
Residential real estate will be a particularly appealing investment choice in 2022 with enhanced risk acceptance by the stakeholders as reflected in the increase in equity participation – 52% of deals in 2021 compared to 35% in 2020 and 21% in 2019, he added.
“Overall, 2022 is expected to record even higher investment activity, because of abundant liquidity and steady cap rates. Improving economic conditions will augur well for investors across these real estate asset classes," said Rathi.
Housing prices increased across all markets in the range of 3–9 per cent year-on-year (YoY). This also marks H1 2022 as a period in which prices have grown in YoY terms across all markets for the first time since the second half of 2015.