Realty sector sentiment falls on recession fears

The Future Sentiment score, which measures the perception of key stakeholders of the real estate sector over the next six months, has shrunk to 57 in the third quarter from 62 in the second quarter this year, according to a Knight Frank-NAREDCO report released on Thursday.

Rising global uncertainty, recession fears, inflation, tightening monetary policy, and weak economic growth forecasts are the main reasons behind the weakening sentiment, the report pointed out.

That’s not good news for Asia’s third-largest economy as "90 per cent of institutional investors in India's real estate sector come from foreign players," according to Vivek Rathi, director of research at Knight Frank India.

Overall investment in the sector has fallen 25 per cent to $4.2 billion in the nine months ending September, said Rathi. He sees overall investment to be down 19 per cent by the end of the year.

The volume of residential sales and launches declined sequentially in the third quarter from the second quarter. They are likely to shrink further in the fourth quarter of the calendar year, according to the report.

Developers across the country are apprehensive about conversion rates (demand translating into purchase) as a 190 basis points increase in the repo rate during 2022 has resulted into a 70-100 basis points increase in home loan rates so far.

41 per cent of the respondents surveyed in the current quarter expect residential prices to increase in the next six months, versus 34 per cent who said so in the second quarter.

This is, however, an attractive time for NRI investors as the rupee has fallen 11 per cent so far this year.

The Current Sentiment score – a barometer of how stakeholders feel about the current state of the real estate sector – has moderated to 61 in the third quarter from 62 in the second quarter due to the grim global economic outlook and the Russia-Ukraine war.

Commercial real estate, on the other hand, continues to display resilience as leasing has improved while office supply is being ramped up by developers steadily, according to the report.

In the third quarter, 53 per cent of the survey respondents expected office rents to increase, compared with 43 per cent in the second quarter.