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Outlook 2021 – Real Estate: Siddhart Goel, Senior Director, Research (India), Colliers International

Outlook 2021 – Real Estate: Siddhart Goel, Senior Director, Research (India), Colliers International

Outlook 2021 – Real Estate

Through 2020, the Union government announced a series of reforms to revitalize the economy and many of these targeted various facets of the Indian real estate sector, ranging from increasing funds for affordable housing, to incentivizing banks to disburse more housing loans, and removing hurdles to make information technology (IT) firms more competitive. These measures have given a much needed boost to the real estate sector as we enter the New Year, 2021.

Office Sector Outlook

After a challenging Q2 for Indian real estate, demand in the office sector picked up Q3 onwards, as occupiers started closing previously delayed deals. We foresee demand for office space to continue to improve significantly over the next 6-12 months. The year 2020 witnessed commercial office gross absorption of about 34 million square feet across the top six cities in India, a fall of about 41% from 2019, which saw demand at an all-time high. The gross absorption during the year that was marked by the pandemic was at a six-year low. However, demand picked up during the second half of the year as occupiers gained confidence to finalize deals that were stalled during the year and started planning for returning to ‘business as normal scenario’. Gross absorption during the second half of the year rose 25% over the first half of 2020. Colliers predicts leasing activity to improve in 2021 as offices and businesses record higher employee attendance, especially as the Covid-19 vaccines become available more easily. Employers and their employees still believe in the importance of a workplace, even if the definition changes. We believe that gross leasing will pick up in 2021 to around 40-42 million square feet.

Residential Sector Outlook

On the residential front, since Q3 2020, a slow improvement in enquiries from homebuyers has begun. The increased enquiries have been a result of (a) pent-up demand over the last few months, and (b) increased affordability of homes. We believe that a prolonged revival of the market in terms of housing sales is likely to depend on economic revival and improved employment prospects. As per Oxford Economics, India’s GDP is likely to return to positive year-on-year growth post Q2 2021. The agency expects GDP to rebound in 2021, growing at 9.2% next year, after falling by about 10% in 2020. We also believe that reforms like lower stamp duty in states like Maharashtra and Karnataka, extension of interest subsidy on loans, increasing the differential values between the circle rate and agreement rate from 10% to 20% for primary residential units will boost sentiment in the market, and could steer homebuyers who are on the fence about buying properties. On the supply side, developers will continue to focus on finishing under construction projects as demand is highest for these and most new launches will be in the affordable and mid segments.

Retail & Hospitality Sector Outlook

The retail and hospitality sectors continue to face headwinds, which also translates into lesser demand for their real estate. This will continue into 2021 and we can expect a gradual increase through even 2022 before the situation improves to pre-pandemic levels in 2023. However, there is now increasing demand for organized industrial and warehousing parks across locations, including in the smaller towns and cities. This momentum is expected to continue over the next few years as there is a huge demand-supply mismatch. Also, the emergence of data centers as an asset class is expected to fuel developer and investor interest for the medium term.

In terms of challenges, except for the large and established developers, others will continue to face liquidity issues as access to funding remains restricted. Also, construction challenges in terms of availability of raw materials and labor will remain as all industries are not back to operating at full capacity and labor has not returned completely to the major cities. The Central and State governments have their work cut out before them as they try to enthuse the real estate markets though various initiatives. However, dependence on tried and tested methods is not prudent in the current unusual circumstances and they need to come up with more out of the box solutions than just reducing stamp duty or introducing ‘work from anywhere’ policies. Further, these policies should target a 2-3 year horizon at the very least to not only bring back the Indian real estate industry to acceptable levels but to set it on a path of sustained growth as the industry has witnessed uneven growth in most of this last decade.



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