Indian Residential Market Grew 84% in Q4 2020: Knight Frank India

The year 2020 will forever be known for the COVID-19 pandemic and the challenges it threw at us. However, 2020 will also be recognised as the year the Indian real estate industry showed a lot of resilience in the face of these challenges. A number of government-driven initiatives were certainly helpful in doing so. The H2 2020 India Real Estate report by Knight Frank India, a leading international property consultancy, highlights the increase in sales in the country’s main residential markets. Similarly, the office market also performed stunningly despite the initial period of inactivity following the imposition of lockdown measures.

Residential Market Performance

The 14th edition of Knight Frank India’s flagship half-yearly report provides insight into the residential and office market across 8 Indian cities. According to the report 95,000 residential units were sold in H2 2020 across the country’s top 8 cities. 61,593 units were sold in Q4 2020 as against 33,403 units during Q3 2020, thus recording 54% QoQ growth and achieving a recovery of almost 100% of pre-COVID levels. Almost 57% of the sale of homes in H2 2020 were made up by homes priced above Rs. 50 lakhs.

Residential Performance of MMR
Residential Performance of MMR (Source: Knight Frank India)

In the Mumbai Metropolitan Region (MMR), a number of factors contributed to this city’s residential market recording a growth of 10% YoY to 30,042 units in H2 2020. A reduction in Stamp Duty combined with the historic lows of interest rates on home loans as well as a host of discounts and offers propelled this surge. Demand fuelled by the festive season also helped fuel the rise in demand. An interesting observation has been the growth in demand for bigger homes driven by the fact that people now find themselves needing the additional space due to the changed dynamic of working from home.

Gulam Zia, Executive Director – Valuation & Advisory, Retail & Hospitality, Knight Frank India said, “The stamp duty cut has emerged as an undisputed win-win situation for all stakeholders. Homebuyers in the mid and higher income groups have made most of this lower stamp duty window with relatively expensive markets of MMR and luxury segments recording the highest jump in sales after the cut. We believe that this momentum is likely to continue till the lower stamp duty regime exists.”

Office Market Performance

According to this latest report the office market in the top eight cities recorded transactions of 22.2 mn sq ft in the July – December 2020 period. While there was temporary inactivity in Q2 due to the lockdown, as normalcy returned gross leasing revived to 31% of the quarterly average of 2019 in Q3 2020, eventually surging to a staggering 115% in Q4 2020. 

Performance of India Office Market
Performance of India Office Market

The office transactions in Q4 2020, across 8 Indian cities, grew by a massive 271% to 17.5 mn sq ft as against 4.7 mn sq ft in Q3 2020. Bengaluru, Hyderabad, Pune and Chennai contributed to this surge with transacted volumes of 459%, 640%, 919% and 227% respectively. Across H2 2020 Bengaluru saw a surge of 8% YoY to 7.5 mn sq. ft. in leasing activities.

On the other hand, while Mumbai’s residential market performed relatively well, its office market witnessed a very tepid year on the whole. This was expected as 2019 was an exceptionally good year which saw record high transactions of office leasing. However, despite a very slow year, H2 2020 saw business districts like BKC and off-BKC witness growth in leasing volumes of 32% YoY to 0.3 mn sq ft, while Central Mumbai, comprising Parel, Lower areas, Parel, Dadar, Prabhadevi witnessed growth of 24% YoY to 0.09 mn sq ft registered growth.

Rajani Sinha, Chief Economist and National Director Research, Knight Frank said “There has been a very strong resurgence in office demand in Q4 2020, despite most corporates adopting to Work From Home during the pandemic. Going forward, as things return to normalcy, corporates will experiment with hybrid work models. So even while they give more flexibility to the employees to work from anywhere, that will not result in lower office demand.”

Knight Frank Affordability Index
Knight Frank Affordability Index (Source: Knight Frank India)

Specific takeaways from the H2 2020 India Real Estate report by Knight Frank India:

  • The government’s various policy interventions helped revive the real estate sector. These initiatives include the cut in repo rates, extension of RERA timeline, one year extension for NBFC loans to commercial real estate projects in select cases, and more specifically the reduction in stamp duty in Maharashtra.
  • Across markets, in home sales, Mumbai and Pune lead the way with the highest volume of sales driven in large part due to the stamp duty cut in the state.
  • The mid and high-end segments performed much better as the perception of bigger homes grew. With more people working from home the appreciation for additional space has grown.
  • There has been a further correction in prices across most markets with Mumbai and Pune witnessing the biggest 4 year changes at -16% and -17%, respectively.
  • Home loan rates are at a multi-decade low while Knight Frank’s affordability index is at the best decadal level. 
  • In the office sector, there has been a resurgence in office demand despite remote working gaining prominence. Pre-commitment activity remains strong.
  • QoQ office transactions improved across markets with Bengaluru, Hyderabad, Pune and Chennai witnessing 459%, 640%, 919% and 227% growth, respectively.

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