Residential and Office Markets Stage Remarkable Recovery in Q3 2020: Knight Frank

Home sales have increased 2.5 times in Q3 2020 compared to Q2 2020, while new launches have increased 4.5 times in Q3 2020 compared to the previous quarter reports Knight Frank India in its latest market update. The leading international property consultancy revealed this not unexpected good news during the launch of its special report – India Real Estate Update (July – September 2020). This timely report also reveals that India’s prime cities have registered an 80% growth in office leasing in Q3 2020.

Residential sales in Q3 2020. Source: Knight Frank
Residential sales in Q3 2020. Source: Knight Frank

It is almost surreal that we are now in the seventh month of the COVID-19 pandemic. There have been various phases of lockdown and then various phases of unlock. After the first couple of months of lockdown, as many people as well as migrant workers left for their home towns and villages, the economy was staring down the barrel. All construction work came to a grinding halt. But after the first stagnant quarter of the pandemic, real estate developers began to report renewed buyer interest in homes, no doubt stirred by the value of a home to wait out the COVID-19 storm. Many developers have also reported a steady pick up in sales which is clearly reflected in Knight Frank India’s latest market update.

Recovery of Residential Market

The period of July to September 2020 or Q3 has seen home sales volume jump to 33,403 units in Q3 2020 compared to just 9,632 in Q2 2020. Similarly, 31,106 new residential units were launched in Q3 2020 compared to 5,584 units in the previous quarter. Developers have displayed their innovativeness and marketing savvy by including various schemes and benefits such as easy payment options, etc. to attract homebuyers during the lockdown. A key ingredient of their success in attracting buyer interest has been various digital marketing platforms. Together, this helped residential sales improve to 54% of pre-COVID levels.

Impact of stamp duty reduction. Source: Knight Frank
Impact of stamp duty reduction. Source: Knight Frank

Stamp Duty Boosts Recovery in Maharashtra

In Maharashtra, the 300 basis point cut in stamp duty has been a big stimulus in boosting demand for residential units. In tandem with the reduction in home loan rates, Mumbai and Pune saw sales double in Q3 2020. Together, Mumbai, Bengaluru and NCR accounted for 56% of the quarterly sales volume during Q3 2020. Shishir Baijal, Chairman and Managing Director, Knight Frank India, said,

Developers have been focusing on liquidating inventory and homebuyers inclined to purchase ready assets have translated into reduced unsold inventory levels in this quarter. Going forward, the festival season will be crucial for developers. This may prove to be an opportune time for end-users with the adequate financial stability to make their investments.”

Increase in Office Transactions

The improvement in residential real estate is mirrored by the sector as well. Social distancing norms and work from home have largely made offices redundant for the time being. The brunt of this was felt in Q2 of 2020 which saw volumes of sales and new completion fall sharply. Business expansion plans were deferred as companies were forced to control costs in an uncertain environment. However, similar to residential, with the unlock commercial has also registered recovery. New completions grew to 126% to 0.33 mn sqm in Q3 2020 compared to Q2 2020. The recovery in office transactions and new completions helped rental values remain stable in Bengaluru (4%) followed by Hyderabad (2%), Chennai (0.5%), and Pune with 0% YoY.

Office transaction in Q3 2020: Source Knight Frank
Office transaction in Q3 2020: Source Knight Frank

As unlock progresses and the economy slowly stages a recovery, the office market is expected to improve. This is also reflected in the recent success of REITs, also seen as an indicator of investor confidence in this space. Rajani Sinha, Chief Economist & National Director – Research, Knight Frank India said,

We expect occupiers to look at office space usage more strategically. This will lead to further innovation in aspects like social – distancing, health benefits, sustainability as well as preparedness for future contingencies.”

The recovery of the residential and office markets of the real estate industry augurs well for the overall economy. As the recovery gains steam during the upcoming festive season, one hopes the various other codependent sectors also gain from real estate.

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