The sentiment score for the real estate sector has dropped from 61 in Q3 2022 to 59 in Q4 2022, mainly because of bleak global economic scenario and geopolitical risks from the Russia-Ukraine war, according to the 35th edition of the Knight Frank-NAREDCO Real Estate Sentiment Index Q4 2022 (October - December 2022).
The resilience of the Indian economy and that of the real estate industry have influenced an upward movement in the Future Sentiment Score. The Future Sentiment Score has increased from 57 in Q3 of 2022 to 58 in Q4 of 2022.
The sentiment index is based on a survey of supply-side stakeholders like developers, investors and financial institutions. A score of above 50 indicates 'optimism' in sentiments, a score of 50 means the sentiment is 'same' or 'neutral'. A score below 50 indicates 'pessimism'.
The Developer Future Sentiment Score – representing the market expectations for the upcoming six months (till March 2023), has scaled up from 53 in Q3 2022 to 62 in Q4. Despite increasing mortgage rates owing to the 225-basis point hike in repo rates, the sustained momentum in residential sales has boosted developer sentiments for the next six months. The Future Sentiment Score captures the stakeholder sentiments for the next six months for the real estate sector.
While the underlying demand for residential asset class lend confidence to the developers’ sentiment, non-developers express watchfulness for the next six months while remaining largely future positive.
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The non-developer (this segment includes banks, financial institutions, PE funds) Future Sentiment Score decreased from 60 in Q3 2022 to 55 in Q4 2022 while remaining in the optimistic zone. The looming threat of a recession and high-interest rate regime in major advanced economies can impact the investment climate and make fundraising for Indian businesses challenging.
Based on the sales rally witnessed in 2022, stakeholders expect the current residential demand momentum to sustain in the next six months. In Q4, 74 percent of the survey respondents expect residential sales to increase or remain stable in the next six months. In comparison, 71 percent of the respondents held a similar view in Q3.
Stakeholder sentiments about residential launches have improved in Q4 . In Q4 2022, 50 percent of the stakeholders expect residential supply to increase in the next six months while in Q3 2022, 46 percent shared a similar view.
In Q4 2022, 47 percent of the survey respondents expect residential prices to increase in the next six months. In comparison, during Q3 2022, 41 percent of the survey respondents had a similar view.
In Q4 2022, 39 percent of the survey respondents opined office leasing will increase in the next six months. In contrast, 44 percent held a similar view in Q3 2022. This is largely due to the perceived impact of recession in global economies which can delay decision-making for office leasing in India in the near term.
In Q4 2022, 50 percent of survey respondents expect office supply to improve in the next six months. In the previous quarter, 48 percent respondents had a similar opinion. In Q4 2022, 30 percent of the survey respondents expect office rents to increase, whereas, in Q3 2022, 53 percent of the survey respondents held the same opinion.
“The strength of domestic demand with relatively better inflationary position and nuanced monetary policy actions placed India as one of the leading performers in an uncertain global environment plagued by early recessionary trends. This reflects largely on the performance of the real estate market in the country as demonstrated by robust office and residential sales in 2022," said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
While the global geopolitical and economic conditions is likely to remain volatile, the domestic economic conditions may see some stability as inflationary pressures are expected to ease by mid of the year. This should reflect well on demand and help the residential market remain largely buoyant, he said.
“However, globally, possibility of further rate hikes in key markets like the USA and UK may lead global investors to remain watchful. Having said that, the long-term outlook for India remains strong with a positive outlook for future real estate activities,” he said.
"Although global headwinds are there, India has navigated the scenario well so far, and it will be able to limit the impact of recessionary pressures going forward as well. So, even if the Current Sentiments have taken a hit, the Future Sentiments have witnessed a boost.” said Rajan Bandelkar, President, NAREDCO and Director of Raunak Group.