As far as funding is concerned, the survey findings suggest that the stakeholders feel that the flow of funds to the sector will improve in the coming six months.
The slew of corrective measures by the government to boost demand and infuse liquidity such as the creation of Rs 25,000 crore Alternative Investment Fund (AIF), GST rationalisation, partial credit guarantee scheme for NBFCs has helped improve real estate sentiments in the country that has now turned to optimistic after two quarters, according to a joint report by Knight Frank-FICCI-Naredco.
After staying in the pessimistic zone (below 50 mark) for two consecutive quarters, the 23rd Knight Frank–FICCI–NAREDCO Real Estate Sentiment Index Q4 2019 survey shows that the current sentiments of the real estate stakeholders in India have revived to the optimistic zone of 53 in the October-December quarter of 2019 (Q4 2019).
The survey indicates that the future sentiment score, that had gone in the red for the first time in the preceding quarter of Q3 2019, has also bounced back to 59 in Q4 2019. Though in the optimistic zone now, the qualitative outlook of stakeholders remains cautious, with a majority of them opining that the sector will remain at the same levels as previously even while it will not go down further in the next six months.
The real estate industry’s sentiment regarding the economy has remained cautious in the fourth quarter of 2019. While 35% of the stakeholders opine that the overall economic situation will be the same in the coming six months, 37% are of the opinion that the trends will get better.
As far as funding is concerned, stakeholders have taken a positive stance for the coming six months. The survey findings suggest that the stakeholders feel that the flow of funds to the sector will improve in the coming six months
A score of over 50 signifies ‘Optimism’ in sentiments, a score of 50 means the sentiment is 'Same' or 'Neutral', while a score of below 50 shows 'Pessimism'.
"The real estate sector sentiments have shown improvement in its current as well as expected outlook for the market in Q4 2019. This optimism is significant in the wake of the continued downslide in India's overall economic performance. Even while the sector is working towards finding its balance, especially in the residential segment, steps by the government have kept the sector stable in 2019. However, we expect the market to remain cautious and sensitive to even the smallest change as large-scale demand is yet to pick pace," said Shishir Baijal, Chairman and Managing Director of Knight Frank India.
OFFICE MARKET OUTLOOK: THE BRIGHT SPOT
Outlook regarding the office market for the coming six months is on a positive side, which also corroborates the current market trends, which saw an all-time high transaction of 5.6 mnsq m (60.6 mnsq ft) in 2019, signalling the robustness of the market, the survey said.
The future sentiment score regarding the leasing activity is strong with 88% of the stakeholders opining that leasing activity will either improve or remain the same, it said.
Maintaining the positive momentum, a majority of the stakeholders have opined that new supply will enter markets across geographies. According to Knight Frank Research, the supply momentum was strong in 2019, with close to 5.7 mnsq m (61.3 mnsq ft) of office space getting delivered during the year.
As many as 91 percent of the stakeholders expect rents to either remain at the current levels or firm up in key office markets.
The sector's optimism is far pronounced for the office sector, which has been growing strength to strength in the past few years, reaching historic highs in 2019.
"In the next 8 – 10 quarters, if the office, other commercial including retail, warehouse and logistics and the residential sector continue to show positive growth, despite the pace of growth of Indian economy, we can expect the real estate sector to show upward curve of revival. The sector, therefore, needs to start making adequate safeguards to ensure that the demand for all segments stays positive," said Baijal.
ZONAL FUTURE SENTIMENT SCORE – NORTH AND WEST CONTINUE TO SHOW CAUTION
The future sentiment score for North moves to optimism after two consecutive quarters of pessimism. Inching to 54 in Q4 2019 from 48 in Q3 2019, the stakeholders in the region are somewhat positive as regards the coming six months.
Sentiment score for West which had gone in the red for the first time in the preceding quarter has moved up to 55 in Q4 2019. Stakeholders in the West are also in a wait and watch mode and are awaiting the implementation of the AIF that will boost market sentiments in the current credit crunch.
RESIDENTIAL MARKET OUTLOOK: SECTOR SEES GREEN SHOOTS OF RECOVERY
Around 74 percent of the stakeholders have shown a positive outlook for the coming six months maintaining that residential sales will either improve or remain the same but will not go down further, the survey said.
Around 79 percent of the stakeholders opined that residential prices will remain at the same levels or drop further in the coming six months.
A slew of measures announced by the government like AIF for last mile funding of affordable housing, rationalisation of GST rates, along with liquidity support to HFCs and NBFCs have acted as a shot in the arm for the sector. However, the survey suggests that more targeted solutions are required to further revive the sentiments and invigorate demand.The real estate sector has been under pressure for over three years now. Weak demand, inventory overhang, developer defaults coupled with worsening of NBFC crisis has dried up funding for the sector, which in turn has increased borrowing cost and impacted finances for the already strained sector, the report said.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.