Bottom Line: The real estate industry in India is going through what can be described at best as ‘interesting times’.
Policy changes in 2017 led to a lot of expectations of 2018, including easing of teething problems with RERA and GST and a new order of transparency and efficiency.
While 2018 lived up to a fair number of expectations, there were a few misses too, particularly in the case of clarity on GST norms. Key highlights of 2018 were the creation of positive sentiments in the market by way of a robust office space absorption by emerging segments, as well as increase in the number of new launches and sales in the affordable housing sector.
Thus, the year 2018 was mostly a period of work-in-progress, renewing hope for the revival of the real estate sector.
This brings us to the new year – 2019, and as with the previous years, the coming year deserves its own share of crystal gazing. Here are some of the key expectations from the new year:
Office market to remain steady; co-working to gather strength –Office space absorption will continue to rise steadily, backed by strong economic fundamentals and favorable sentiments exhibited by occupiers and investors. Despite the planned supply, healthy pre-commitments of space in under-construction projects will continue to be the norm, leading vacancy rates to remain under pressure in key office markets.
While IT/ITeS and BFSI companies will continue to be the major demand drivers for office space, increased demand is envisaged from co-working and fintech start-ups. Co-working segment is expected to account for a larger share of the market in 2019, portending a major shift in workspace dynamics with technology, innovative space design and flexibility, impacting the preferences of new age businesses.
Affordable housing to lead the way –While 2017 proved to be a period of learning for industry stakeholders, the most potent opportunity was deduced to be in the affordable housing segment and 2018 witnessed a fair revival in the residential market, primarily buoyed by new launches and sales in the affordable housing sector.
Thus, the sector is projected to continue to drive the market growth in 2019, aided by the transparency brought about by policy implementation, thereby augmenting buyer sentiments and bringing back investors into the fold.
Meanwhile, besides the granting of infrastructure status to the segment, the government is also in favour of a substantial GST rate cut on housing and is currently working to build consensus with the states to push this through. These factors bode well for the residential market in the coming year.
Strong growth in warehousing and logistics sector –The country is poised to witness a strong growth in its warehousing and logistics sector in the coming year. The sector has seen a remarkable transition in the past few years, growing from a largely unorganised sector to observing the advent of organised players, reflecting change in the mindset of occupiers.
The fact that the sector is observing large-scale investments evidently emphasizes the trend and this is foreseen to continue. Moreover, with infrastructure status accorded to the warehousing and logistics sector, accessibility to longer tenure financing facilities at a reduced cost of debt will aid in the development of larger, organised logistics parks in the country.
Emerging sectors –Recent years have seen the emergence of newer concepts, such as co-living, student housing and senior living, besides co-working. While these concepts are still at a nascent stage, there exists immense potential for them to grow stronger in 2019. Millennials today, pay premium on mobility and flexibility and do not adhere to a fixed set of notions.
As such, the growing number of youth willing to consider co-living spaces in big cities has gained traction, given the steady growth of entrepreneurship and freelancing in the country. Going forward, while the concept of co-living and student housing holds significant potential to boost the rental housing segment in the country, given the fact that high housing prices across the tier 1 and 2 cities deter the youth community to make a purchasing decision.
The inherent advantages of opting for a co-living rental arrangement, that entails a hassle free, flexible plug and play model, is expected to attract more tenants into its fold and the segment is projected to grow manifold in the forthcoming period.
The year 2019 is expected to witness a number of economic upheavals pertaining to political configurations, across the globe. Among the emerging economies, Argentina, India, Indonesia, South Africa and Nigeria are headed for elections in 2019, as are Canada and Australia, among the developed economies.
In India, a combination of factors is expected to influence its general elections, ranging from issues such as demonetization and GST to a credit crunch affecting asset creation, among others. However, India’s GDP growth is expected to hold strong and this would play an important role in attracting investors to the country. There are also several large-scale, key infrastructure projects underway, the completion of which bodes well for the country.
To conclude, some of the prime factors that could impact real estate in 2019 are – political stability and economic growth of the country, improvement of infrastructure and increased PE inflow into the sector. Also, a balanced rate of GST for the sector and a strict adherence to RERA guidelines will improve buyer sentiments as well as strengthen emerging sectors such as warehousing, logistics and co-living, amongst others. These factors shall infuse positive buyer and investor sentiments into the real estate market, abetting its growth in the coming year.
By Shrinivas Rao, CEO-APAC, Vestian