Harish is an accomplished business transformation expert with tremendous experience in real estate advisory. He also has hands-on knowledge in areas like; stockbroking & wealth management, institutional equities involving both start-up and growth organisations. Harish has a successful track record of over 20 years in building profitable businesses across diversified segments including new markets identification. He is known for providing stability and sustainability across the business cycle.
It would be an understatement to claim the COVID-19 pandemic shook the entire world economy. From education to hospitality and finance to real estate, all the industries witnessed a noticeable shift in both consumer behavior and consumers’ demands.
Multiple factors are responsible for driving this change. During the first phase of the pandemic, we observed a severe financial loss across other investment classes like equities, gold, and mutual funds. However, it was only the real estate industry that remained resilient and adaptable enough to weather the storm. People in the metropolitan cities, who were renting apartments, were treated unfairly by the housing societies during the pandemic, which majorly triggered the need to own a house.
Consequently, the residential real estate demonstrated a dramatic bounce-back across the top seven property markets in India. This took place amidst the second wave of COVID-19 that altered consumer sentiment throughout all the sectors, thereby impacting the economy. While 2020 was a complete fiasco as the developers and investors were figuring out how to deal with the crisis, 2021 proved to be a year of recovery, revival, and records. Consumers were no longer willing to compromise and their preferences swiftly inclined towards quality homes, reputed developers, and timely delivery. This change in mindset has certainly provided an extra edge to listed and credible real estate companies and developers.
It is interesting to notice that the sales volume for residential real estate increased by as much as 71% year-on-year in major cities, with 2,37,000 units in 2021. Thus reaching 90% of pre-COVID-19 levels. In fact, Mumbai and Pune topped the charts in the first half of 2021 in terms of total housing sales. Furthermore, the Mumbai Metropolitan Region (MMR) recorded the highest sales at 76,400 units, which was aided by the state’s two-step stamp-duty cut. This shows a steady demand for housing, despite the pandemic-related setbacks.
The cuts in interest rates offered by lenders for home loans, increased hiring in the IT and ITeS industry, demand for larger homes, economic revival after the first wave, and discounts offered on properties by developers are major reasons that have led to a boost in sales. What has further contributed to rising volumes is the fact that homebuyers remained active even during the second lockdown, particularly from April to June 2021, and developers coped with the burden of increased stamped duty.
Not only the residential market, the pandemic, and the post-pandemic phase has also accelerated demand on the commercial front, specifically for data centers, warehouses, co-working spaces, and distribution centers. In present times, with companies considering re-opening of offices in a phased manner, they are figuring a way out around segregated timings for their employees. This has already boosted the demand for co-working spaces and the property rates around such projects.
The real estate market is also undergoing a digitization wave and players are left with no choice but to adapt to the new normal. From virtual site visits to online payments, developers are getting accustomed to using innovative technological practices and tools across different stages of business operations. Digital walkthroughs have proved to be the biggest game-changers for both developers and buyers, with industry pioneers building more layers to the complete marketing experience. These trends and the unforeseen scenario have certainly opened new pathways for the industry to grow in the coming years.
As we get closer to the new financial year, here’s an outlook into a potentially-optimistic future of the real estate industry.
The way forward for the real estate sector
The residential real estate segment has found a firm ground
After a lengthy phase of collapsing and then stabilizing, residential property rates are likely to grab the upward graph. A recent report published by Knight Frank estimates approximately 5 percent capital value growth for the residential real estate market in the country in 2022. Several demand and supply-side factors, analyzed over the past few years, have put pressure on residential prices. This impulse will continue beyond 2022 as potential homebuyers’ preferences will stick towards bigger houses, attractive pricing, and better amenities.
Owning a house is no longer a matter of investment but a necessity, given the push that a luxury residence is supposed to offer in the broader perspective of work-life choices. As a result, there has been a fast-paced growth in the premium housing segment. Homes with leisure amenities like terraces, courtyards, sea-facing balconies, gardens, and parks in the vicinity are in high preference among residential property buyers. The work-from-home culture and hybrid work model have changed the demands for home buyers. Investors in this day and age want to create a lifestyle that can seamlessly accommodate the remote-working notion, whilst not eliminating the ease of luxury living.
Foreign investments will lead the way
Considering the fast pace of urbanization, higher disposable incomes, and greater influx of NRIs, the luxury and ultraluxury housing segments – with units pricing in the cap of Rs. 1 crore to Rs. 30 crores – have not just emerged significantly in the last few years but are also expected to grow substantially in the near future.
Unquestionably, there is a large and sustainable market for this category, and the positive response towards a couple of recent high-end projects launched in and around Mumbai, Delhi-NCR, and Bangalore bear testimony to this. In fact, the Indian luxury market is on a 20% rise each year, backed by the 1.5 lakh-strong HNI population, which is equally growing at a swift rate, since almost 40% of the investments made by HNIs in India are in real estate. Not only that, the Indian residential real estate market has of-late become very lucrative for NRIs, too, owing to ease in investment norms and increased transparency. With RERA warranting transparency and laws enabling 100 percent FDI in construction, the real estate is and will continue to witness high-worth investments from NRIs and HNIs. Thus, the way forward for premium housing remains positive in view of the fact that this category of customers is relatively least impacted by any economic instability happening internally or externally.
The demand for co-working spaces will uptick
Both established and emerging businesses want to stay flexible on cost components in any event of COVID-19 caseloads. This has offered a great opportunity to co-working space companies to generate revenue from the agility-demanding businesses. This, along with many other factors, will increase the market size of co-working spaces two-fold over the next five years at a CAGR of 15 percent, highlights the CII-ANAROCK report ‘Workplaces of the Future’.
Considered as an excellent option for cost-saving, the concept of having a flexible workspace feels right to most businesses, particularly start-ups. In fact, India is at the pinnacle of co-working evolution with multiple giants operating across different parts of the country. Some of the new entrants, too, have major expansion plans. Currently, around 35 Mn sq. ft. of flexible office availability is accessible in India. Of this, approximately 71 percent of 25 Mn sq. ft. is dominated by large operators. About 3.7 lakh flexi seats are presently spread across the major Tier I and Tier II cities across the country. The optimistic expansion plans by these co-working companies and pandemic-prompted need to reform workspaces foretell a great future for this innovative asset class.
To sum up
Looking at the current trends facing the real estate market in India, the future of the industry looks prosperous and is certain to do better in the ongoing decade. Other dynamics will continue to influence the different touchpoints of the real estate industry, like; buyer behavior, prices, cost of raw materials, and demographic shift. From a buyer’s perspective, there isn’t a better time than now to invest in the real estate market.