Reforms leading to higher expectations

In its year-end assessment of the Real Estate Sector, ICRA has maintained a negative outlook for the residential real estate (RRE) segment and a stable outlook for commercial real estate (CRE) segment.

Report by ICRA Ltd.

The RRE has witnessed a prolonged downcycle owing to high inventory, muted demand, weak affordability, and declining investor interest. However structural changes over the last two years in the form of Real Estate Development and Regulation Act (RERAD Act) and Goods & Services Tax (GST), along with increased government focus on affordable housing, have raised expectations of demand revival. While these expectations have played out to some extent in certain property segments and micro-markets, a broad-based recovery in demand across the country appears to be some time away. States such as Maharashtra and Karnataka which have seen relatively better implementation of the RERAD Act are benefiting from increasing confidence of end-users. Demand in the premium and luxury category of residential segment are likely to remain suppressed for under-development projects due to the increasing preference for completed properties under the GST regime.

New project launches had been severely curtailed in CY2017 due to the impact of demonetisation and transition issues in RERAD Act implementation. While certain cities like Bengaluru, Mumbai and Pune have witnessed a notable pick-up in new project launches during CY2018, markets like the NCR may take longer for major uptick in project announcement due to existing inventory overhang. Due to the high compliance obligations imposed by RERAD Act, new launches from small developers have reduced, thus market share is being garnered by the larger developers who are better placed to operate under the new regulatory framework. This process of market share consolidation is only likely to strengthen over the coming years.

The residential realty segment has been increasingly relying on non-banking financial companies (NBFCs) and housing finance companies (HFCs) to raise debt financing, owing to the risk perception attached with the segment by banks. The liquidity crunch faced by the NBFC and HFC segment towards the end of CY2018 has impacted the funding availability and cost for many real estate developers. If the current scenario persists for long into the start of CY2019 also, it may cause credit stress in developers who are reliant on refinancing to support balance sheets heavy on land assets or slow-moving inventory.

In the coming year, ICRA expects residential real estate developers to maintain a cautious stance towards new project launches and land acquisition deals, especially due to the constrained debt funding scenario. The upcoming elections in CY2019 may also keep the fresh project launches in check, considering the uncertainties developers may face relating to timeliness of regulatory approvals for projects. With RERAD Act limiting the ability of small-scale developers to launch projects, the industry is likely to see more of development management or joint development model of project implementation. The existing gaps in the implementation of RERAD Act in many states need to be corrected for customer confidence to be fully reinstated and the full benefits to be realised. Demand growth is likely to be sustained in the affordable and mid-income category of projects in Tier 1 markets, especially those where the fresh leasing activity of commercial office space continues to be robust thus creating fresh job opportunities.

As for the CRE segment, ICRA has given a stable outlook. In contrast to the residential segment, the commercial realty sector has been growing at a steady pace and has garnered the major share of the institutional investors’ interest in the real estate space over the last 4-5 years. Some of the factors that have supported the growth prospects for the sector include stable demand for office space from various multi-national and domestic corporations, calibrated supply of stock, a more organised industry structure and availability of adequate capital for projects, backed by healthy investor appetite for rental yielding assets.

Most of the tier 1 markets have seen stable levels of fresh leasing and supply additions, resulting in either a declining vacancy (in cities like Bengaluru and Pune) or a status quo in vacancy levels (in cities like Delhi NCR and Mumbai). The Hyderabad market is in the midst of a boom in office space absorption with resolution of earlier political uncertainties and relatively lower costs along with high quality of living indices. Nonetheless, with significant supply of stock lined up over the medium term, occupancy levels and rentals in this market may come under pressure if the current demand trends are not sustained. The upcoming sunset clause for SEZ units will result in some bunching up of SEZ stock completions during CY2019, which may temporarily create pressure on the vacancy in certain markets like Bengaluru and Chennai.

Some of the other key trends that have been witnessed in the commercial segment include strong interest from institutional investors in building commercial real estate portfolios, consolidation of office spaces by large tenants resulting in increased demand for large-format office parks, healthy rental appreciation in certain micro-markets in cities like Bengaluru and Hyderabad, which has encouraged some amount of speculative construction, rapid growth of co-working format of leasing, and the expected launch of the first Real Estate Investment Trust (REIT) in the country by Embassy and Blackstone.

Going forward, ICRA expects similar demand and supply levels to continue in the major cities, which will support a further expansion of the asset portfolios of the established incumbents. Developers and micro-markets which have more diversified sectoral exposure would be more resilient in weathering any near-term challenges due to the decline in demand from any particular sector, such as IT services. Apart from the broader macro-economic trends, a conducive political environment, continued favourable investment outlook and improvement in the quality of living indices in the cities would be the key monitorables for the sector. The response to the forthcoming first domestic REIT will be an interesting barometer for the appetite of domestic institutional and retail investors towards this asset class.

NBM&CW February 2019

Click Here
To Know More / Contact The Manufacturer
Please provide your details we will contact you as soon as possible
Choose Title from the listPlease let us know your name.
Please let us know your Designation.
Invalid Input
Please let us know your email address.
Please let us know your City.
Please let us know your Contact Number.
Please brief your query.
Our other value-added services:

To receive updates through e-mail on Products, Technologies, equipment, please Select the Product Category(s) you are interested in and click Submit. This will help you not only to save time but also to get best quote for right products from many manufacturers of the same category; it helps you to evaluate and negotiate the best price.

Equipment & Machinery
Invalid Input
Building Products
Invalid Input

Deconstructing a slump

The extended lockdown to stem the Covid-19 pandemic has compounded India’s growth woes. Along with external risks such as weak global demand, supply disruptions, and global financial shocks, the economy now faces factory Read More ...

Tectonic Shift in Realty Business Operations

The COVID-19 pandemic has triggered the biggest ever crisis for the real estate sector. This has dealt a crippling blow to real estate marketing which will in turn change the dynamics of brokerage business in the days to come Read More ...

Best Practices in Delivery of EPC/E&C Projects

The economic growth in India in recent years and the clients’ increasing preference for a single-point responsibility under design-build, for their projects, have led to a surge in opportunities in public as well as private Read More ...

5 Technological Innovations Transforming E&C Sector

Precast construction techniques offer a high degree of modularity of designs and application of manufacturing principles for mass housing projects. The quality, safety, and speed of construction are greatly enhanced with precast Read More ...

Infra Development: The Way Forward

Although the Indian economy has been facing macro-economic ups and down due to global economic gloom, it has managed to remain stable, recording moderate growth rate consistently. Braving all the problems beyond its control, it has improved Read More ...

“Nal Se Jal” - SPML Infra Playing Key Role in Developing Water Infrastructure in India

SPML Infra Limited, India’s leading water management company will play a key role in the development of sustainable water infrastructure to realize the vision of “Nal Se Jal”. This ambitious scheme announced by the Finance Minister during Read More ...

Indian Aviation on a Growth Path

The Aviation Industry in India has emerged as one of the fastest growing industries in the country, especially so during the last three years. Introduction of low-cost carriers, FDI in domestic airlines, advanced information technologies Read More ...

Redefining Urbanity with international transport system

Creative Group presents a new vision for Chandni Chowk (a very congested area in Old Delhi) with re-planned interconnectivity, intermodality, and green spaces, that release the current stress above the ground and create opportunities to restore Read More ...

Rapid Transit System in India Making inroads

To quote Mark Walport, “Industrialisation, Mass Transit, and the Internet are technological revolutions that have reshaped lives, nations, and the planet.” The Indian economy is poised to grow at over 7% in the coming years, placing it Read More ...

Attracting Private Investments to Boost Highway Growth in India

Ever since India set out on a path of economic liberalization in 1991, the policymakers for almost three decades remained focused on developing infrastructure to commensurate with the economic growth of the nation. But the task was humongous Read More ...

Transport Infrastructure in Focus

Transport Infrastructure to continue as a key focus area for new Government with massive capital outlay of up to ₹30 trillion expected over next five years. Construction companies are likely to be the major beneficiaries and will witness Read More ...

Real Estate Market Outlook 2019

India continues to retain its position as the world's fastest growing major economy on the back of improved investor confidence and better policy reforms. The IMF's database also suggested that India's contribution to world growth Read More ...

Infra Construction - Positives Outweigh Negatives

For a large part of the current up-cycle which started in CY2016, road work has largely been the biggest demand driver, followed by railways/metro.Notwithstanding the general slowdown in public/private infrastructure work Read More ...

ICRA - Strong demand growth for Mining & Construction Equipment Industry

The Indian Mining & Construction Equipment (MCE) industry is likely to see a moderation in demand growth, which is expected to fall to 4-6% in the medium term, more particularly during CY2019. The basic reason are the policy Read More ...


Israel's Ilan and Asaf Ramon International Airport will service the Red Sea resort city of Eilat and surrounding region. Commissioned by the Israel Airport Authority (IAA), the project was handled from A to Z by design Read More ...

Real Estate

Staving off the triple impact of Real Estate Regulation and Development Act (RERA), Goods and Services Tax (GST) and Demonetization (which had brought the sector to a grinding halt), India's Real Estate is back on Read More ...

New Building Material & Construction World

New Building Material & Construction World
MGS Architecture

Modern Green Structures & Architecture

Modern Green Structures & Architecture

Lifting & Specialized Transport

Lifting & Specialized Transport

Indian Infrastructure & Tenders Week

Indian Infrastructure & Tenders Week