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Indian Real Estate Industry Analysis
Latest update: December, 2019 Underlining India's position as a robust commercial real estate market, its appeal as an established outsourcing hub, is expected to continue to fuel expansion initiatives from corporate real estate occupiers based out of the US and the European Union (EU). With the overall sentiment among corporate space, occupiers having been optimistic in recent times. India will continue to retain its position in the global economy, with better growth prospects expected to support commercial real estate transactions in 2016.
Corporate Office Market
Following a particularly strong fourth quarter of 2015, the first quarter of 2016 was comparatively sluggish as most corporate space occupiers were still strategizing their real estate plans for the year, with limited transaction decisions being implemented during the January–March 2016 period. Corporate office space take-up during the quarter was led by Delhi National Capital Region (NCR) with a share of 31% of total transacted space in the leading cities, followed by Mumbai (23%) and Bangalore (17%). Industry sectors such as IT/ITeS and banking / financial services are likely to remain the dominant demand drivers for office space in the country, with manufacturing / engineering, e-Commerce, and pharmaceuticals being the other active sectors that are likely to generate demand for corporate real estate space. Occupiers are also likely to keep a strong check on space utilization ratios and innovate their workplace strategies. Demand for SEZ space and pre-commitments in projects nearing completion are expected to continue to improve in the coming months.
Rental values were largely stable across most Central Business Districts of leading cities in the first quarter. Furthermore, increased occupier demand in quality IT and SEZ projects in Mumbai, NCR, Chennai, Pune, and Hyderabad, resulted in a quarterly rental appreciation of 2–10%. Office space leasing demand is expected to remain steady in the coming months, backed by new and expansionary activities from technology firms, domestic / multi-national financial institutions, engineering / manufacturing firms, along with the culmination of pre-leased space in newly completed developments.
Residential Segment
In contrast to developments in the corporate office space, demand for residential space remained subdued during January–March 2016 period. Despite price movements remaining stable, home buyers' demand remained low in recent months due to existing high price points coupled with a cautious buyer sentiment. In many ways, the year 2015 was a defining one for the residential real estate segment in India. This was the period when the market began to evolve, along with customer expectations as well as market dynamics. The most important change among these, perhaps, came about in the outlook of the home buyer. Unlike previous years, we were no longer dealing with end-users who were satisfied with offers and property brochures alone. The key words in customer satisfaction for home purchases in 2015 became project delivery, pace of construction progress, and product quality. The inventory of completed and available housing units in most micro-markets of leading cities in the country, moreover, helped home buyers to make their purchase decisions. Much like the home buying process evolved markets around the world, the residential real estate segment in India caught up with the going trend as well, by enabling investors and end-users to take informed decisions with ready products rather than on the basis of launch information and product literature. Apart from the Government's renewed focus on large scale urban infrastructure and development of affordable housing, the Central Bank, for its part, remains accommodative towards further easing of interest rates. These moves could help spur property purchase decisions, propelling the market forward. Several regulation and policy initiatives launched recently—such as the Real Estate Bill—are also expected to boost home buyer sentiments. The residential market is expected to see a qualitative change, going forward. While home buyers will continue to remain discerning in terms of quality products delivered without delays; development firms will likely turn their focus on quality construction and on timely
can only be effected once all states create their respective state level authorities, an effective implementation of this Bill can be a game changer for the real estate and construction sector in India. The Model Building Bye-Laws, 2016, were also released recently and is expected to improve the ease of doing business in the real estate and construction sector in the country. A single-window clearance mechanism, reduction in time for approvals, environmental considerations, and the added influence of Urban Local Bodies and Development Authorities, among other measures, are all steps in the right direction. Coming on the back of the passage of the RERA Bill, it has been among key measures the Government has been trying to implement for the development and regulation of real estate in India. The third positive regulatory announcement was that of allowing 100% FDI in e-commerce. Although it covers only the marketplace model and not the inventory-based model, nonetheless, rise in overseas investments in the e-commerce segment will have a positive effect on the real estate and construction sector. We expect this announcement will specifically benefit the commercial, industrial and logistics segments.
Key Challenges Faced by India's Realty Sector
Despite positive policy initiatives for the sector and a robust macro-economic growth story, a number of issues continue to plague India's real estate market. The most important among these is perhaps the awaited passage of the Land Acquisition Bill. Stringent land acquisition norms currently hinder the development of large scale infrastructure and urban development schemes. A political consensus has to be reached and uniform policy across states has to be implemented for faster project execution. Sustainable development of our urban built environments is another key challenge. It is important to ensure that our cities are SMART. This could be achieved by enhanced focus on mass transit systems, Green construction methods, creation of Green spaces, and
sustainable technologies for managing water, waste and energy resources, among other aspects. Despite the directive for a regulatory authority for the sector under the RERA Bill, decentralized implementation under the aegis of a central planning authority may pose a challenge. The responsibility for implementation must rest with state governments and city municipal authorities, however, with an effective monitoring mechanism in place. Private participation is yet another challenge, especially for Affordable Housing and large scale infrastructure creation. Policy and process barriers should be addressed to increase private participation in key infrastructure projects. This will bring in the necessary capital and management experience needed for successful project execution. Lastly, the ease of investment flows into the sector from overseas as well as domestic sources is an area that would need careful attention for further development of the sector. Overall, however, the abundance of a technically skilled workforce and India's demographic and economic dividend have created immense opportunities for a thriving real estate market. Furthermore, these factors are likely to help override most concerns posing as challenges for the growth of India's real estate sector.
Outlook
India will continue to retain its position as a bright spot in the global economy, with better growth prospects expected to support office space leasing in 2016. Even though the global economic scenario remains muted, India's appeal as an established outsourcing market will still continue to fuel expansion initiatives from corporate firms based out of the US and EMEA. Positive domestic macro-economic sentiments are likely to propel leasing from domestic corporate firms as well. Additionally, reforms such as clearance to REITs, relaxed foreign investment norms in the real estate sector, and the implementation of the RERA Bill (which also covers the commercial segment) might work towards enabling ease of doing business in the country; while supporting corporate entities entering or expanding their footprint across leading cities. The Government's recent GDP growth announcement, moreover, is expected to impact consumer sentiments positively. Coupled with targeted Government initiatives, this is likely to boost real estate growth in the country—particularly in the residential segment. Several cities continue to face subdued home buyer demand, resulting in unsold inventory levels. Against this backdrop of improving economic growth, therefore, it is imperative that the Central Bank
o Terraced house (a. k. a. townhouse or rowhouse ) – A number of single or multi- unit buildings in a continuous row with shared walls and no intervening space. o Condominium (American English) – A building or complex, similar to apartments, owned by individuals. Common grounds and common areas within the complex are owned and shared jointly. In North America, there are townhouse or rowhouse style condominiums as well. The British equivalent is a block of flats. o Cooperative (a. k. a. co-op) – A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Semi-detached dwellings o Duplex – Two units with one shared wall. Detached dwellings o Detached house or single-family detached house Portable dwellings o Mobile homes or residential caravans – A full-time residence that can be (although might not in practice be) movable on wheels. o Houseboats – A floating home o Tents – Usually temporary, with roof and walls consisting only of fabric-like material. The size of an apartment or house can be described in square feet or meters. In the United States, this includes the area of "living space", excluding the garage and other non-living spaces. The "square meters" figure of a house in Europe may report the total area of the walls enclosing the home, thus including any attached garage and non-living spaces, which makes it important to inquire what kind of surface area definition has been used. It can be described more roughly by the number of rooms. A studio apartment has a single bedroom with no living room (possibly a separate kitchen). A one-bedroom apartment has a living or dining room separate from the bedroom. Two bedroom, three bedroom, and larger units are common. (A bedroom is a separate room intended for sleeping. It commonly contains a bed and, in newer dwelling units, a built-in closet for clothes storage.) Other categories Chawls Villas Havelis The size of these is measured in Gaz (square yards), Quila, Marla, Beegha, and acre.
