Supportive measures from the government, RBI and the resultant pick-up in end -user demand has helped boost sentiment and given a fillip to the real estate sector. In fact, for the first time in 2020, the 'Current Sentiment Score' entered the optimistic zone at 54 points in Q4 2020, a significant jump of 14 points over the previous quarter.
A score of above 50 indicates ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score below 50 indicates ‘Pessimism’.
According to the 27th Edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q4 2020 (October – December 2020) Survey, for the first time in 2020, the 'Current Sentiment Score' entered the optimistic zone at 54 points in Q4 2020, a significant jump of 14 points over the previous quarter. It was at 40 in Q3 2020.
The October-December 2020 quarter continued to see an improvement in the business momentum. Office space leasing grew as global players began acting on their pending and anticipated lease plans encouraged by the news of multiple potential COVID vaccines. Traction in the residential segment continued in Q4 2020 on the back of festive discounts, pent-up demand and low home loan interest rates.
The 'Future Sentiment Score’ also witnessed a robust surge to 65 points in Q4 2020 from 52 points in Q3 2020. It was at 52 in Q3 2020, mirroring the strong recovery expectations prevalent in the market.
Stirring demand and festivities of Q42020 gave a strong fillip not just to the real estate sector but also to the economy at large. The improvement in high-frequency indicators recorded since September 2020 continued in December 2020 as well. Goods and Services Tax (GST) collections in December 2020 are at a record high whereas the Purchasing Managers’ Index (PMI) for manufacturing recorded a fifth straight month of expansion.
This economic growth environment has raised the market’s expectations of recovery in the coming six months and is reflected in the climbing Future Sentiment score, Knight Frank India said.
Geographically, the western part of the country saw the sharpest jump in future sentiment index. This zone’s Future Sentiment jumped to 66 in Q4 2020 from 47 in Q3 2020. With respect to stakeholders, both developers and non-developers (which include banks, NBFCs and PE funds) recorded an improvement in Future Sentiment score in Q4 2020.
The West Zone has seen the highest jump in the Future Sentiment score, climbing to 66 in Q4 2020 from 47 in Q3 2020. East zone stakeholder outlook also saw a substantial leap in future sentiments, jumping to 65 in Q4 2020 from 50 in Q3 2020. The Future Sentiment score for the North region went up to 58 in Q4 2020 from 55 in Q3 2020 while that of the already bullish South region improved marginally to 66 in Q4 2020 from 65 in Q3 2020.
In Q4 2020, the Future Sentiment index for all regions is higher than Q4 2019 (pre-COVID level). This reflects the strong optimism prevailing in the sector as we enter 2021, Knight Frank India said.
On the macroeconomic front, 82 percent of the survey respondents opined that the economy would grow further in the coming six months as opposed to the 57 percent respondents with the same view in Q3 2020. Similarly, the share of survey respondents with the opinion that economic health will worsen in the next six months went down substantially to 7 percent in Q4 2020 from 31% in Q3 2020.
In terms of credit availability, 87 percent of the Q4 2020 survey respondents believed that the funding scenario would either improve or continue to remain the same over the next six months.
Further, 77 percent of the Q4 2020 survey respondents were of the opinion that residential sales would increase over the next six months, up from 66 percent in Q3 2020. With regards to the office market, 60 percent of the Q4 2020 survey respondents, up from 47 percent in Q3 2020, believed that office leasing activity would increase over the next six months.
The outlook of supply side stakeholders has moved into the optimistic zone in Q4 2020 for both developers and non-developers (non-developers include banks, financial institutions and PE funds).
Developer sentiments picked up on the back of resolving supply-side challenges and growing demand. The Q4 2020 performance of residential market across the top eight cities in India was encouraging, as sales velocity returned to pre-COVID levels. Office transactions also grew in the last quarter of 2020 with occupiers beginning to execute their pending and future lease plans. This jump in demand has strengthened the developer outlook of real estate market for the coming six months, it said.
Fueled by the increase in residential sales and the pick-up in office transactions, real estate lending of banks and financial institutions also received a fillip. Accordingly, the future outlook of non-developers i.e. the financial stakeholders of the real estate sector improved in Q4 2020. Their Future Sentiment score jumped to 63 in Q4 2020 from 50 in Q3 2020, moving into the optimistic zone for the first time since Q4 2019, the Sentiment Index said.
“Both the Current and Future Sentiment scores in Q4 2020 have seen a great surge in the latest survey backed by a revival in both residential and office market real estate that has been highly encouraging. The sector saw a lift in the market's mood and increased stakeholder expectations of a stronger recovery in the next six months,” said Shishir Baijal, chairman and managing director, Knight Frank India.
“As we begin our journey into 2021 with a positive outlook, it is important to closely watch the performance of the key economic indicators in the coming months to check the sustainability of the growth seen in the last two quarters of 2020. Equally crucial is the development of the vaccine and its widespread availability for the masses. As these two factors will largely determine the performance of the real estate sector in the coming months,” he said.
“As reflected in the 27th Knight Frank - FICCI - NAREDCO Real Estate Sentiment Index Q4 2020 Survey, it was the resurgence that was powering optimism in real estate. The survey mirrors recovery expectations of not just real estate, but the economy. Investments in real estate over the recent past reflect positive sentiments on part of investors, domestic as also global, on the resurgence in the Indian economic growth story,” said Niranjan Hiranandani, National President - NAREDCO and ASSOCHAM and Founder and MD, Hiranandani Group.
“Stakeholder outlook for the office market has improved substantially in Q4 2020 as leasing activity gained momentum. The residential market outlook has revived further in Q4 2020, across all parameters, reflecting the increased traction in this segment. The impact of renewed consumer demand for residential realty has resulted in high levels of registration data, these transactions have lifted market sentiment,” he said.