Photo courtesy: Parth Savani
The year 2022 can well be labelled as a year of great recovery and growth for real estate - both residential and commercial. Despite Covid and the Ukraine war disruptions, housing has shown remarkable buoyancy. While affordable housing has been a major gainer due to ‘Housing for All’ policy and massive push by the Pradhan Mantri Awas Yojana (PMAY), what’s more significant this year is that luxury real estate has also given good performance, especially with the rise of luxury vacation homes. The return of investors has aided the momentum generated by end-user demand.
Despite rising home loan rates, residential realty has been continuously making strides. According to leading real estate research and analytics agency PropEquity, there is a 24% rise in residential sales in Q3 FY23 in top 9 Tier 1 cities. Total home sales were close to 1.9 lakh units. There was also a double digit (11%) increase in new launches. That the health of residential realty is continuously improving is also evident from the stock of unsold homes significantly going down. As per Q3 statistics, the stock of unsold housing units went down by 12% at the end of September 2022.
There have been a number of factors driving residential growth, the prominent being the post-Covid sentiment of home ownership. Tier 2 and 3 cities which have always been strong drivers, are providing new momentum as 2022 has seen reverse migration to these cities. The affordability of homes is another prominent factor for driving residential growth. With higher income growth and marginal increase in home prices over the last two years and interest rates still within tolerable (single digit), residential property is still affordable. The traction gained by residential realty is also due to this premier segment attaining higher ROT and capital value appreciation.
The buoyancy in housing demand is also reflected by the increase in bank credit growth and rise in housing price index. RBI’s Housing Price Index is up 4.5% YoY in the quarter ended September 2022. According to an RBI report, bank credit for housing including priority sector lending rose by 16% YoY in September 2022 as against 12.2% a year ago. The outstanding housing loan stood at 18.08 trillion in September 2022. Deepak Parekh, Chairman, HDFC, says that in the next five years, home loans will double to USD 60 billion. Housing demand will get a major boost with the Centre deciding to infuse additional Rs 28,000 crore this financial year to ensure completion of the targeted rural dwellings. This fund inclusion would be over and above Rs 20,000 crore that had been allocated for PMAY- Gramin in FY23 budget.
Property consultancy firm Anarock has painted a rosy picture for residential real estate in 2023. It says that the residential real estate sales in top 7 cities in 2022 are likely to be the highest in the last 8 years, with over 3.6 lakh units, surpassing the previous high of 3.43 lakh units in 2014. Already in the first nine months of the current year, both housing sales and new residential launches have broken the pre-Covid record. Says Anuj Puri, Chairman, Anarock, “Considering the current trends and continuous momentum maintained by residential realty, housing will be at historic high levels in 2022, holding great promise for 2023.”
Like residential real estate, commercial realty has also been continuously gaining traction. This is reflected in the commercial office space absorption in Q3 2022, which according to JLL, stood at a 3-year high of 30.3 msf. Healthy supply pipelines with strong commitment from occupiers have been driving commercial office realty. The gross leasing of 7 top cities of Bangalore, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai, and Pune stood at 35.5 msf with YTD change of 88%. The rising trend of co-work spaces and SCOs (shop cum office) are driving demand for office real estate.
With the economy gaining strength, and businesses coming back to normalcy, the Modi government is giving a lot of emphasis on manufacturing, which is boosting industrial realty. With foreign institutional investors and domestic investors bullish on investing in commercial real estate due to high returns, office realty will show greater promise in 2023.
On the retail real estate front, real estate companies are in expansion mode due to rising demand for shopping malls. “India’s mall stock has seen an incremental supply of 15.5 msf across 16 malls since January 2020. The existing Grade A malls have over 95% occupancy, indicative of demand for quality real estate,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India. The outlook for retail real estate is quite positive. There is a likelihood of addition of 8-9 msf of retail real estate space in the next one year as retailers expand to new markets with growing popularity of both malls and high street retail.
The newer real estate asset classes viz. student housing, senior housing, co-work, co-living, warehousing, and data centres, which offer higher ROI, are showing great promise for growth. All in all, real estate has emerged as an attractive asset class for investment. According to Knight Frank, private equity in real estate went up to USD 2.8 billion in April-September period. What is really encouraging is that along with foreign institutional investment, domestic investment in real estate has also been increasing due to higher 8% yield in commercial property and up to 4% yield in residential property. NRI investments have seen a jump due to strengthening of dollar against rupee. They are stepping up investments in luxury housing and vacation homes. More than 70% NRIs are preferring residential realty investment over stocks, gold, and FD.
Going forward, with an improving economy and moderating inflation due to softening crude oil and food prices, the property market is set for a further boost in 2023. Keki Mistry, Vice Chairman & CEO of HDFC, aptly sums it up, “Due to improved affordability, favourable demographics, increasing urbanisation, and rising aspiration, long-term structural demand for housing and real estate is here to stay.”