#DHRecaps | Real estate highs and lows in 2018

The year 2018 was a veritable roller-coaster ride for the Indian real estate. Despite signs of recovery across segments, the liquidity crunch – further exacerbated by the NBFC crisis – put all industry stakeholders on tenterhooks. Consolidation via mergers and acquisitions was rife in all sectors, completely redefining the concept of ‘financial health’ among players and drawing clear lines on who will survive the heat. This process will continue throughout 2019, as well.

Despite all odds, economic indicators remained positive with India’s GDP growth rate pegged at 7.3% in 2018. CPI inflation, a major concern in the past, remained reined in at a manageable 4.8%. GDP growth and contained inflation are generally considered panacea for most real estate woes. However, it took a lot more than that for real estate to retain even a semblance of an even keel in 2018.

The initial agony of policy overhauls like RERA and GST faded, leaving in its wake a reluctantly more transparent and efficient real estate market environment. While affordable housing took centre-stage in residential, co-working emerged as the new poster boy of commercial real estate. Coming as it did almost at the end of the year, the NBFC crisis put an entirely new spin to India’s ‘cautiously optimistic outlook’ and as of now, it shows no signs of relenting. The Indian real estate sector enters 2019 with a gun to its head. Strong intervention from the government and RBI is definitely called for.

Commercial: Steady growth

In terms of market traction, commercial real estate retained its status as the most buoyant sector in 2018 across major cities. Demand for Grade A office space saw new highs and vacancy levels declined.

India’s first REIT listings, now expected to happen in early 2019, will result in massive liquidity infusions into commercial office spaces. This, in turn, will prompt commercial property developers to focus more on this segment to fulfil demand from occupiers across the IT/ITeS, BFSI, manufacturing and co-working sectors.

As per ANAROCK data, total office absorption across the top seven cities is geared to cross 39 million sq ft in 2018, given that 28.2 million sq ft were absorbed until Q3.

Office supply : The top 7 cities are expected to see over 32 million sq ft of fresh office supply, basis 26.1 million sq ft absorption till Q3 2018. Bengaluru retained its top position in 2018, with more than 8 million sq ft of new supply in 2018. Office absorption in Bengaluru is expected to cross 11 million sq ft by the end of Q4 2018.

Retail: Quality malls push growth

2018 saw further liberalisation of FDI policies, repositioning Indian retail on the global investment map and attracting a large number of global retailers into the country. In H1 2018, private equity investments into Indian retail swelled to over $300 million, denoting a bracing growth of 54% over the previous year.

As per ANAROCK data, the top cities with significant retail growth in 2018 included MMR, NCR, Bengaluru and Hyderabad. New retail supply in 2018 was limited to 5.1 million sq ft. Interestingly, apart from the top metros, Tier 2 & 3 cities played a significant role in India’s retail growth story in 2018.

Affordable homes plays pied piper

The fallout of RERA and GST was still very visible in 2018, but the dust began to settle. With developers and brokers accepting the new market realities and beginning to fall in line, the residential sector began to regain visibility and viability. Transparency and accountability – never the defining characteristics of Indian real estate – became the ‘new normal’ this year, and the market reacted positively. About 81% respondents in ANAROCK’s Consumer Survey, which covers both resident and NRIs, believe that Indian real estate has become more credible and efficient.

Even though sales and new supply picked up Q-o-Q across the top cities, the issue of stalled projects showed few signs of resolution in 2018. However, a number of landmark court judgments strongly indicated that the Indian legal system is awake and aware of the problem. 2018 was a year where consumers, previously held hostage by lack of efficient regulation, finally felt that they are being heard and represented. As is always the case, the process of resolving a problem starts with acknowledging that a problem exists.

Average property prices remained largely static across the top 7 cities in 2018. In fact, average property prices at the pan-India level saw only 1% increase in 2018 as against the previous year, from Rs 5,491 per sq ft in 2017 to Rs 5,545 per sq ft in 2018. At a city-level too, average property prices hovered mostly around the same levels in 2018 versus last year.

Affordable housing, backed by a series of government sops during 2018, kept the residential supply momentum ticking. In sharp contrast to earlier years where the ‘affordable’ tag was considered down-market and avoidable, 2018 saw almost every real estate developer – regardless of market footprint and previous category orientations – eager to take a bite out of the affordable housing pie.

As per ANAROCK data, the new launch supply across top 7 cities is estimated to be 1,93,600 units by the end of 2018 – at 1,46,850 units in 2017, this is an increase of 32% over the previous year despite all headwinds.

Affordable housing accounted for the lion’s share of this supply with over 41% of the new supply coming into this category. Housing sales in 2018 are estimated to be 2,45,500 units if we consider Q4 sales to match those of the preceding quarter – at 2,11,140 units in 2017, this is an annual increase of 16%. Unsold housing stock stood at 6.87 lakh units in Q3 2018. Considering that unsold housing stood at 7,44,000 units in Q3 2017, the decline is a modest 8% over the previous year.

Besides conventional sectors, 2018 also saw the emergence of the alternate asset beyond senior living. Student housing and co-living, barely mentioned or considered in previous years, drew considerable interest not only from industry watchdogs but also institutional funds.

Overall, 2018 was a mixed bag of hits and misses.

(The writer is Chairman, ANAROCK Property Consultants)