Given the latest growth forecasts for the Indian economy, one could be forgiven for feeling like every sector is struggling and experiencing a deceleration. The latest Knight Frank India Real Estate: H2 2019 report suggests that transactions in the Office space have experienced historic high whereas sales of homes have stayed resilient despite numerous sectoral and financial headwinds.
Pan-India Residential Market Remains Buoyant
Across India the residential fared surprisingly well. According to the Knight Frank report, YoY there were 23% growth in launches. Although there was a marginal 1% drop in sales in H2, overall sales grew by 1% during 2019. Even the QTS or Quarters to Sell improved to 8.9 in 2019 compared to 10.2 in 2018. The rigorous implementation of RERA and rationalisation of GST rates have served to keep customer sentiment buoyant. Whereas the setting up of an Alternative Investment Fund (AIF) aimed at providing developers with some financial relief towards unfinished and stressed projects has done much to help them align themselves to the new normal of India’s real estate sector. This can be seen from the increased volume of new launches.
Sector Performance Highlights:
- Affordable housing has seen a small drop in share of transactions despite 60% residential launches happening in the affordable sector.
- Weighted average prices in Mumbai, Pune and Chennai witnessed a drop by 2%, 3% and 5% YoY, respectively.
- Moderating prices, government reforms and incentives have kept the residential market from stagnating.
Mixed year for Mumbai Residential Market
According to the report, in Mumbai launches decreased in H2, however for 2019 there was a steady 7% growth in launches thanks to a strong 22% in H1. Sales in H2 however were affected by the weak consumption demand led by the slowing economy and the lengthening shadows of the NBFC crisis which continue to present aftershocks. This has led to an annual decline of 5% in sales for 2019. The biggest highlight from a consumer perspective is the continued decline in prices in the MMR market. This shows a steady price correction to Rs. 7,014 per sq. ft. from a peak of Rs. 8,120 in 2016.
Sector Performance Highlights:
- Average apartment sizes have shrunk by 25% over the last 5 years across the MMR market from 892 sq. ft. to 673.
- 6% decline in launches in Mumbai during H2 – 35,988 compared to 43,822 in H1
- Unsold inventory and QTS have increased over the last two years.
- Thane market registered highest growth (36% YoY) of new launches
Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India, said, “The residential sector in Mumbai was also impacted by the general slowdown as well as the continued effects of the credit crunch and NBFC crisis which has impacted end-user sentiments with sales declining by 14% YoY in H2 2019. We hope that the series of reforms that the government is undertaking would augur well for the revival of the economy as well as the real estate sector.”
Performance of Office Sector experiences all-time highs
Office leasing in 2019 touched a historic high of 60.6 msf thus recording a 27% YoY growth compared to 2018. This growth was witnessed despite the current economic slowdown. Bengaluru has seen the highest volume of office leasing in 2019 at 15.3 msf to top a decade of leading office leasing in the country. Hyderabad was not far behind at 12.8 msf.
While leasing by IT sector increased in H2 2019 the share of BSFI leasing reduced to 16% thus revealing the direct impact of the of the NBFC crisis. Meanwhile leasing by coworking businesses accounted for 12% of the total space at 4.1 msf in the same period, reveals the Knight Frank report.
Mumbai witnessed a historic year of leasing activity in 2019 touching 9.7 million sq. ft. and thus registering a 22% YoY growth. New supply of office space, however, declined by 18% YoY.
Shishir Baijal, Chairman and Managing Director, Knight Frank India tempered this high with sobering views, “The historic rise in the office transactions is a significant growth indicator for the office market as it represents the continued commitment of domestic and global corporations in the country’s growth potential despite the ongoing economic slowdown. While the office space is expected to sustain demand, increasing supply could weigh on rents and vacancy levels.”