Indian realty: 2022 cheer to sustain in 2023

After recording a gloriously bulling realty market in 2022, there is an all-round conviction that 2023 will not be very different, but for a little tempering on the office space leasing front. Stakeholders cite a renewed sense of ownership amongst consumers post the Covid-19 pandemic, increased confidence tied to income security & growth and strong macro fundamentals at home.

Realtor Kishore Reddy, CMD, MANA Project Pvt Ltd, highlights, “Recessionary fears in developed economies have prompted investors to choose the real estate sector as it seems to be the only industry immune to the current economic slump.”

Data from online brokerage firm PropTiger.com show record new housing sales in 2022 at 3,08,940 units, up 50per cent from 2,05,940 units, the year before, in select top eight cities in India. Saransh Trehan, managing director of another realty developer, Trehan Group, expects this demand to sustain in 2023, driven mainly by end-users, despite rising home loan interest rates.

Credit: DH Illustration

Murali M, CMD, Shriram Properties Ltd sees housing demand percolating to tier 2 and tier 3 cities that are closer to large metros or located in industrial belts with investment potential.

A recent consumer sentiment survey by Anarock, a real estate consultancy and services enterprise, indicates that if home loan interest rates rise above the 9.5 per cent-mark, housing demand contraction is likely. “I expect an overall increase of 10 per cent(in pricing) in FY23, a trend which is likely to continue over the next two years,” Shriram’s Murali M cautioned.

Office leasing in India’s top seven cities rose 46 per cent over previous year, to nearly 39 million square feet (msf) in 2022, according to a recent report by property consultancy Jones Lang LaSalle, India. “Currently, 70 per cent of offices in this country are occupied by foreign companies,” pointed out Arun Puri, chairman of Anarock Group, warning that a recession in the US in 2023 will slow down MNC (multinational companies) leasing in India.

A quick recap

Despite global tailwinds, Indian realty saw much cheer in 2022.

Property prices in the residential segment appreciated by an average of 4 - 8 per cent on the back of increase in construction cost, admitted Vivek Rathi, director for research at the property consultancy firm, Knight Frank India. A cumulative interest rate hike of 225 basis points by the Reserve Bank, since May, exerted additional pressure. Yet, demand remained robust riding on upbeat consumer sentiments.

Moving away from location-specific demands, property buyers demonstrated inclination towards functional homes, with added amenities. “Bigger homes, independent floors and plots were the main sought-after or preferred options of home buyers during the year 2022,” Trehan added.

Commercial realty: A worthy runner-up

The commercial arm of the sector registered a satisfactory performance on the back of strong demand till September 2022. The last quarter of the calendar year saw lukewarm demand influenced by recessionary fears in developed economies. “The last quarter of 2022 was marked by increasing caution and reticence by MNC occupiers,” explained Puri.

While the segment failed to surpass the 47 msf - mark achieved in 2019, Thirumal Govindraj, who is a senior managing director at RMZ Corp, a realty developer focused on commercial space, called it a healthy performance in the light of a continued hybrid work model in many companies.

The percentage of employees working from home has risen from 2019 levels and companies are demanding increased flexibility in terms of office designs and layouts to suit scaling requirements, he added.

Foreign direct investment into the sector, which accounts for a majority of funding into the industry, failed to keep up with 2021 levels. At $5.1 billion, it was down 15 per cent from the year before, Rathi stressed.

State of affordability

A study of top eight cities in the country, by Knight Frank India, pointed to declining affordability levels in Indian markets in 2022, on a year-on-year basis, triggered by increasing home-loan rates. Affordability levels, however, remain significantly better than the pre-pandemic levels in 2019. Ahmedabad emerged as the most affordable housing market in the country, followed by Kolkata and Pune.