COVID-19 2nd wave: Future real estate sentiment index dampens amid coronavirus second wave
With the second wave of COVID-19 raging in the country, the real estate future sentiments have weakened, as industry stakeholders grapple with the pandemic related uncertainties. The six month outlook for real estate has weakened across the parameters of demand, supply and pricing in Q1 2021, even while the sentiment scores continue to remain in the optimistic zone, according to the 28th Edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q1 2021 (January - March 2021) Survey.
The economy’s return to normalcy will depend on the pace of vaccination and the time taken to control the second wave of the pandemic. Apart from the pace of vaccination, government decisions on lockdown restrictions will largely determine the performance of the real estate sector in the coming months, it said.
In Q1 2021, the Future Sentiment score saw a decline from 65 in Q4 2020 to 57 in Q1 2021 due to uncertainties resulting from the spread of a second wave of COVID–19 infections. However, it remained in the optimistic zone.
The South Zone has seen a marginal decline from 66 in Q4 2020 to 63 in Q1 2021, while the score for North Zone has fallen from 58 in Q4 2020 to 56 in Q1 2021. The Future Sentiment score of the West region witnessed a significant drop from 66 in Q4 2020 to 53 in Q1 2021, while the score for the East zone has fallen from 65 in Q4 2020 to 53 in Q1 2021, it said.
The 'Current Sentiment score' recorded a marginal improvement, inching up from 54 in Q4 2020 to 57 in Q1 2021. This improvement can be attributed to the healthy momentum in the commercial and residential real estate segments during Q4 2020 and during January - February 2021.
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’.
Hampered by the second COVID-19 wave concerns, the Future Sentiment score (for the next six months) of stakeholders has fallen acro-1ss regions, even while it remains in the optimistic zone. Similarly, the Q1 2021 outlook of supply side stakeholders reflects caution on the future of real estate for the next six months, even if their scores remain in the optimistic zone.
With the substantial increase in COVID-19 cases since March 2021, the outlook for residential launches and sales has softened in Q1 2021. Even so, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80 percent, across parameters of launches, sales and prices, it said.
Similarly, the second wave of COVID-19 and the resultant mobility restrictions and possible lockdowns in some cities has adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.
On the macroeconomic front, the pace of economic revival appears to have slowed down, with some key economic indicators showing weakening over the last two months. Influenced by the change in macroeconomic developments, stakeholder outlook on the overall economic momentum and on credit availability has turned cautious in Q1 2021, it said.
On the credit availability front, the stakeholder outlook has shifted from positive to observant as 81 percent of the Q1 2021 survey respondents - down from the 87 percent of Q4 2020 - expect the funding scenario to either improve or to remain the same for the coming six months.
“The sentiment of stakeholders remained cautious for both Current and Future Sentiment scores in Q1 2021, owing primarily to the second wave of the pandemic, resulting in economic uncertainties. The real estate sector had seen a strong bounce-back during the last few quarters, which has kept the future sentiment of stakeholders in the positive zone,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
Niranjan Hiranandani, national president – NAREDCO, and founder and managing director, Hiranandani Group said that the dip in the future sentiment score in Q1 2021 mirrors the prevalent market uncertainties on account of the second COVID-19 wave. The ongoing production with uninterrupted supply chains will help the sector to rebound with more finished goods catering the discerning home buyers and the reverse migration of labourers is at bay due to ensure food, shelter and daily wages along with all the safety measures and vaccination shots.
"In the case of commercial real estate, we believe technology (IT-BPM), engineering and manufacturing sectors will drive the demand in 2021. Technology companies will broaden their office portfolio over the next three years as demand for artificial intelligence, machine learning, and robotics is expected to grow significantly, and Indian talent is being considered favourably for high-end R&D activities," said Sanjay Dutt, joint chairman, FICCI Real Estate Committee, and managing director and CEO, Tata Realty and Infrastructure Ltd.