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Published on: Dec. 29, 2021, 3:06 p.m.
Real estate: On a stronger pedestal
  • Residential real estate market in 2021 showed a definite upswing; Photo Sanjay Borade

By Arbind Gupta. Assistant Editor, Business India

The year, 2021 could easily be seen as the beginning of a new decade where the residential market is going to rule the domestic real estate sector. Having been sluggish for a period of over six to seven years, the residential market bounced back strongly in the second half of the year whereas the first half struggled due to pandemic-afflicted challenges. Though commercial real estate witnessed some green shoots, its recovery remained slow and the Omicron variant poses a further challenge.

While Covid-19 has posed a massive challenge to the commercial segment of the business, for the residential segment it has proved to be a ‘blessing in disguise’ as the home buyers realised the significance of owning their own homes. In fact, the lockdown-induced WFH scenario acted as a trigger for the sector where despite inherent demand, the buyers had remained non-committal for a much longer period of time.

Experts believe that the market had been awaiting the much-needed trigger for an extended period of time and now having got one it has bounced back smartly. Moreover, most of the factors have been quite favourable for the purchase of properties by actual homebuyers. The real estate market currently has one of the lowest interest rate regimes even as property prices have hardly moved up in the last few years. States like Maharashtra and West Bengal’s reduction of stamp duties made the entire scenario further attractive.

“2021 has been a period which has ushered in a beginning of a new decade, to be dominated by residential real estate. The last decade was ruled by commercial real estate as we saw emergence of new sub-asset classes. While the pandemic came as a major headwind, it turned out to be a much-required trigger for the residential market where home buyers waited for an extended time frame. While buyers have realised the importance of owning their own homes, the other indicators made the entire scenario quite compelling for home buying and as a result we have seen transaction volumes surge significantly in the last two quarters of the year,” says Amber Maheshwari, CEO, Indiabulls Asset Management Co Ltd.

“The year 2021 was quite eventful for the real estate sector despite the challenges posed by Covid-19 induced issues. If there is one thing we can take away from this year, it would be that the Indian real estate sector is quite resilient and despite all the factors that had, on several occasions, dipped the sentiments, the sector still sees a very promising future and tremendous growth potential in 2022,” avers Ashish Narain Agarwal, Founder & CEO of new-age brokerage firm PropertyPistol.com.

Renu Sud Karnad, managing director, HDFC Ltd is of the view that the positive fallout of the pandemic has been that people want to own their house and also, if possible, slightly larger ones, due to the WFH and education-from-home models. People are more confident about themselves today as everything has opened up in the economy barring very few sectors and economic activity is close to its peak.

“The year 2021 was welcomed with tempestuous memories of the pandemic. The real estate sector was not in a good shape before Covid-19 and was further hit hard by the pandemic. However, timely policy interventions by the central and state governments coupled with RBI’s liquidity measures instilled the confidence which resulted in timely economic revival across sectors including real estate,” adds Karnad.

Phenomenal comeback

According to property consultancy firm Anarock, the Indian residential real estate market in 2021 showed a definite upswing. During January-September 2021, 1.63 lakh units of new residential supply were added across the top seven Indian cities – 27 per cent higher than 2020’s full year supply – and 1.45 lakh units were sold – 5 per cent higher than in the whole of 2020.

“While this depicts a cumulative trend, the Indian residential real estate sector’s comeback after the second wave in Q2 2021 was phenomenal, sharp V-shaped one,” says Anuj Puri, Anuj Puri, chairman, Anarock.

In fact, the third quarter of the year 2021 was really remarkable. Housing sales in Q3 2021 surged 113 per cent y-o-y across the top seven cities – from around 29,520 units in Q3 2020 to nearly 62,800 units in Q3 2021. MMR accounted for 33 per cent of the total sales, followed by NCR with a 16 per cent share. New launches in these cities rose by 98 per cent yearly – from around 32,530 units in Q3 2020 to around 64,560 units in Q3 2021. 

In the office segment, according to a Knight Frank report, new completions during Q3 2021 picked up significantly with 11.9 million sq ft getting delivered with a 67 per cent growth. Bengaluru, Pune and Hyderabad accounted for 73 per cent of the new completions with Bengaluru seeing the most space delivered at four million.

For the January-September 2021 period, new completions grew by 6 per cent as compared to the corresponding period of the previous year. During the second wave of Covid-19, new completions had taken a major hit due to the non-availability of labour.

“As far as the office sector is concerned, in 2021, the leasing activity gained momentum and witnessed decent growth. Net absorption across the top seven cities is yet to reach pre-Covid levels. With office demand making a significant comeback post the pandemic, new office completions across the top seven cities have also improved. We believe that the demand for office space is set to strengthen,” says Venkat Narayana, CEO, Prestige Group. 

“We witnessed a strong comeback of the residential sector post the second wave. Almost every city recorded a quarterly growth in new launches and sales were more than doubled (QoQ), which also helped in declining inventory overhang. We believe that the Indian residential real estate will achieve record performance going forward and we expect housing demand to remain strong in the coming years. All in all, CY2021 was a remarkable year in spite of the challenges. We believe that CY2022 will be an interesting year for the sector as it is set to register record high sales and launches across the cities,” adds Narayana.

“The real estate sector recorded a smart recovery despite the pandemic exigencies in 2021 with segments like residential outperforming others. The disruption caused by the pandemic is slowing settling and the real estate market is expected to gain back its rhythm in the next two to three quarters, albeit, the threats of the new variant should be adequately contained with minimum disruption in the early part of the new year. Should we be able to continue at this pace, the real estate sector will see adequate recovery to match or indeed cross the pre- pandemic levels,” states Shishir Baijal, Chairman and Managing Director, Knight Frank India.

Reviewing the performance of the market during 2021, Ashish R Puravankara, managing director, Puravankara Ltd says: “Indian real estate was characterised by its indomitable spirit and resilient recovery in 2021. The residential segment, in particular, has been the torchbearer for the sector’s unprecedented growth. Now, more than ever before, the market is positioned to benefit customers and developers in equal measure. Riding on the heels of rapid digitisation, decadal low-interest rates, and favourable government policies, residential real estate has reclaimed its stature as an investor favourite.”

With WFH and online schooling the new normal, there was a high demand for larger houses and as a result, mid-segment (units priced between Rs40-80 lakh) and high-end (units priced between Rs80 lakh-Rs1.5 crore) did well. Altogether, around 65 per cent of the supply between January-September 2021 came in these segments. As per Anarock’s latest consumer sentiment survey, there was a clear rise in the preference for properties priced over Rs90 lakh. 

Along with apartments, a huge demand for plotted developments and villas led many developers to increase their focus on the non-apartment segment. Luxury and ultra-luxury segment fared well as the net worth of the target group for luxury offerings was not severely impacted by the pandemic. These buyers proactively closed deals to take advantage of the market conditions (subdued demand, stamp duty reduction, developer discounts). Villas, farmhouses and second homes were in demand as buyers looked to purchase properties that offered superior social distancing and lower infection risk in less populated, greener environs. Also, with WFH being the new normal, people could work from anywhere, says an Anarock report.

Upward pressure

The residential segment is likely to witness around 5 per cent capital value growth in 2022 as many of the supply and demand-side factors, assessed over the last decade, have started putting upward pressure on house prices. The residential sales momentum is expected to continue in 2022 as prospective homebuyers’ preferences for bigger homes, better amenities and attractive pricing will keep them interested in sealing the deals.

With physical offices here to stay, portfolio optimisation and hybrid working are expected to be the dominant themes going forward, driven by incremental demand from IT/ITes firms and the rebound of flexible office operators. The recovery in the office sector and flight-to-quality trend is expected to keep rents stable to increasing in 2022. Transactions for the warehousing segment, riding on the boom of the e-commerce sector, are projected to grow at a CAGR of 20 per cent from 31.7 million sq ft in FY21 to 45.9 million sq ft in FY23.

E-commerce share in total transactions is projected to increase to 36 per cent from 31 per cent during this period. The Indian Data Centre market will continue to grow at brisk pace. The market currently houses an estimated 445 MW of critical IT capacity, and with a significant 290 MW addition in 2022, the total count will scale up to 735 MW by the end of next year.

“Commercial office leasing is likely to regain pre-pandemic levels of activity by the end of 2022 and early 2023. Residential segment, meanwhile, will benefit from renewed end user interest in recent times. Similarly, warehousing and data centres are expected to witness a high degree of activity on account of increasing E-commerce and 3PL requirements and data localisation regulations as well. While the exemplary pace of vaccination has created a strong sense of security in the business environment, it is very critical that the initiatives at policy level continue to bolster the supply-side and demand for the next few quarters. The sector, however, will need to remain prepared for unpredictable events, and will have to incorporate caution in all near term plans,” says Anurag Mathur, CEO of property consultancy firm, Savills India.

“The year 2021 has been in action with incentives by developers, record low interest rates, increased affordability, improving economy, employment, and added savings saw improved demand for homes. The sales rhythm will continue for the year 2022 with improved market fundamentals. With the RBI keeping the repo rate unchanged for the ninth consecutive time, homebuyers can still continue to enjoy the low-interest rates. The year 2022 will mirror the investment scenario of 2021,” says Manju Yagnik, Vice Chairperson, Nahar Group.

“At Embassy, while premium projects dominated launches towards the end of this year in continuation of the festive season, the luxury segment also witnessed an upward trend in Q3 and Q4 FY20-21. We anticipate that this demand will remain buoyant, due to the segment being driven by its HNI and UHNI end-users who are looking to invest their wealth in a safe asset class,” says Reeza Sebastian, President, Residential Business, Embassy Group.

“With home becoming the epicentre of all activities, people have realised the importance of owning a home, leading to a sustained trend in demand for residential real estate. There is an upsurge in interest for ready homes that are bigger, better with decks/balconies and have a high-level of service and security. Health and wellness have also become an important aspect and hence there is a preference for well-managed integrated developments,” says Prashant Bindal, Chief Sales Officer, Lodha Group 

“While the pandemic posed a challenge to the real estate sector in 2020, the year 2021 witnessed a huge recovery thanks to pent-up demand. The job market seems to be looking up amidst the mass rollout of vaccinations and with people returning to offices, we expect the momentum in 2022 to continue as real estate investment is still being viewed as a safe investment option. Overall, we witnessed a lot of people turning to invest in their own homes and moving away from the rental space. Being one of the pillars of the economy and the second-most elevated business generator sector in the country, real estate will remain buoyant and a harbinger of growth in the coming year,” says Deepak Goradia, Vice Chairman and Managing Director, Dosti Realty.

“India’s real estate sector is in the midst of an up-cycle that can be expected to continue well into 2022, provided there are no further pandemic-driven disruptions. Shifts in homebuying preference in India that first emerged in 2020 have continued to strengthen in 2021.  Homes today are solving problems well beyond shelter and security. Community living in gated communities also continues to find favour.  Organised developers known to deliver added value have gained both market share and consumer mindshare this year. The value and premium housing segments will remain a priority for us, owing to the revival in demand in these segments over the last few years – a trend we expect will continue in 2022 and beyond,” states Arvind Subramanian, MD & CEO, Mahindra Lifespace Developers Ltd.

“As 2021 comes to a close, the industry can be expected to witness further upward momentum. Over the past two years, India’s real estate narrative has been shaped by resilience and constant adaption. Focusing on the residential sector, the pandemic has led developers to look at innovative solutions to attract new generation of homebuyers. With growing concern around wellbeing and sustainability, the residential segment can also witness an increase in demand for sustainable housing. These projects will focus on reducing the overall environmental impact, along with offering future-ready design and facilities,” says Anshuman Magazine, Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE.

All in all, the year 2021 was an eventful year for the domestic real estate sector where residential sector after six to seven years of sluggishness recovered smartly. On the other hand, the commercial real estate market continued to suffer due to pandemic-related challenges.

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