Dear Reader,
In the recently held annual real estate conclave, real estate consultant CBRE highlighted that the overall equity investment in India’s real estate landscape is set to cross $10 billion in 2024. This is higher than $7.4 billion that was pumped in last year.
The record investments pouring in are based on the unwavering confidence of both global and domestic occupiers in the office property market. The nine months between January and September marked the highest leasing activity, which grew 46 percent from the year-ago period.
What’s driving this interest? India’s economic growth has lured global corporations to set up offshore operations called ‘global capability centres’ (GCCs) that account for the largest share of transactions in office leasing (37-40 percent). Then, there is robust and sustained demand from India-focused businesses -- a growth area, given that the world is betting on India’s growth story. Besides, IT and IT-enabled services and flex spaces continue to support demand for offices. Fresh demand is also coming in from the engineering and manufacturing services sector.
In today’s edition of MCPro, this article highlights that Real Estate Investment Trusts would be beneficiaries of the boom in demand for office property and rise in lease rentals. Higher rentals and expansion in the REIT portfolio improve the profits retained by the REITs, which are then distributed to the unit holders. In fact, analysts forecast a growth of 10-15 percent year-on-year in DPU (distribution per unit) over the next few quarters that could also fuel a rise in REIT unit prices.
On top of this, demand for land is expected to come in from large data centres and the acquisition pipeline in the residential sector. These two segments will also keep the property market sizzling in the near term.
An interesting trend brought to light by realty consultant Anarock Property Consultants is that the time taken to book homes after enquiries is less now than what it was in FY2021. This could be attributed to the increase in branded developers and the regulations brought in by the government to stem the rise in fly-by-night operators that empower buyers to make quicker decisions.
Surprisingly, the realty market boom witnessed since the recovery from COVID-19 has not been busted by the rise in interest rates. Will a rate cut then fuel the realty boom further? At this point, the going is good. Until the recent September quarter, listed companies that have exposure to residential and office property market are coughing up strong revenue growth and profits. In addition, the narratives highlight new launches and portfolio expansion because of confidence in sustained demand. This is mirrored in the stock performance of realty companies. The BSE Realty index returned 36 percent over the last year compared to 17 percent for the Sensex.
That said, there is a lurking fear of slowing global growth and sluggishness seen in the domestic urban economy. Already, signs of moderation in corporate profit growth and cash flows have been seen in the past two quarters (Chart of the Day). This could weigh on office space demand in the medium term.
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