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In 2015, overall property markets are expected to continue edge further into recovery. There are several factors that can be considered as key drivers for the sector in 2015, such as easing pressure of downside risks for rupee and current account deficit, improving export.

For the Indian real estate market, 2014 was an action-packed year. The overall economy represented a tale of two halves. The first half witnessed an uneventful economy coupled with political ambiguity resulted in poorer business confidence while the second half saw overall sentiment rehabilitated explicitly with the formation of a new stable Government. The first budget presented by the new Government was having a slew of measures for real estate. This was the first time in last couple of years when real estate was given so much importance in Union Budget. Perceptibly, the industry reacted positively and started imagining a recurrence of 2009 where formation of new Government followed by a turnaround in market. Taking cues from the overall economic sentiments, the institutional investors both domestic and overseas exhibit increased appetite and enthusiasm to re-engage with the Indian realty business and commercial sector shown positive absorption however, the residential sector has not picked up the way market players expected.

The commercial market saw a few big ticket deals as occupiers started taking long pending real estate decisions. There were strong transaction volumes witnessed in cities like Bengaluru, Pune, Chennai and Gurgaon, on the other hand markets like Delhi, Mumbai and Kolkata remain disappointed in terms of absorption. Total office absorption until 3Q 2014 was recorded at  23.73 million sq ft across the eight major cities in India, which is marginally less than the figure of 25.24 million sq ft for the same period last year. Bangalore captured the lion’s share of the total absorption. Transaction volumes in Bangalore were constituted more than 50% of the total absorption in the top 6 cities of India. Gurgaon at 14% and Pune at 13% reflected the robust demand for Grade ‘A’ office space from technology companies. Also tenants that are expanding took the decision to relocate from their current space and leased larger office spaces with overall favourable rates in these cities. For instance, Flipkart, KPMG and Honeywell together absorbs approximately 5.0 million sq ft in Bangalore alone. Accenture pre-committed to around 0.9 million sqft in Pune and Samsung took up around 0.5 million sq ft in Gurgaon. 

In residential real estate, there was an increase in enquiries for residential properties but transaction volumes have not yet started picking up in most of the cities. Colliers Research data shows that the sales volume in cities like Gurgaon, NOIDA, Mumbai, and Kolkata remained almost stagnant in the last four consecutive quarters, as restricted investor activity pulled down the overall demand. On the contrary Chennai and Bangalore witnessed improved demand.

In terms of new project, developers launched various new projects during festive season to harness the benefit of improved economic sentiments and seasonal demand. Developers were expecting increased traction during the festive season though, the demand in most of the cities remained to lack luster. Interestingly, despite lower demand, developers did not seem to reduce their base selling prices but were offering various innovative payment plans, such as possession linked plans where one has to pay only 10 to 30% up front and the rest can be paid at the time of possession. This shows that market is definitely facing the heat due to unsold inventory. In the secondary market, a substantial discount was available on under-construction properties. The primary reason of this lower transaction volume is unaffordability. Residential real estate prices have traversed the affordability levels in most of the cities due to various reasons such as escalation in input costs, high interest rates and burgeoning land prices. Because of high price points the incentives have not proved to be much of a booster in the current environment. 

Way Forward- 2015

The Indian market is vigilantly enthusiastic with the new government proactive approach and business confidence has already started picking up. Various agencies such as Moody, IMF, World Bank predicted handsome GDP at 6.3 to 6.4% and forecasted Indian outlook as steadily growing at lower risk. Although, it is difficult to forecast the real estate market which is highly sentiment driven in India. In 2015, overall property markets are expected to continue edge further into recovery.  There are several factors that can be considered as key drivers for the sector in 2015, such as easing pressure of downside risks for rupee and current account deficit, improving export.  In commercial real estate, REITs will remain the hottest topic. Real estate funds like Blackstone, Brookfield, Xander and Redfort have already started planning to launch REITs in India. Also large developers like DLF, Prestige Estates, RMZ Corp, Embassy, and Phoenix Mills Ltd. are queuing up to tap into the REIT opportunity. In residential segment while absorption in the luxury segment is expected to remain under pressure due to high price points, the launches in the mid-end and low-end segments will continue to have traction at the introductory prices. What middle income home buyer actual wants is project with basic amenities with the price point which he can afford.  It was observed that even during the recession time, projects with right price point witnessed high absorption level. Overall, capital values are expected to remain stable in most of the market in short to medium term due to ample stock availability in both primary and secondary markets.


About the author

Surabhi Arora, leads the research team in India and has more than13 years of experience in carrying out multi-disciplinary research and analysis in the area of finance and real estate industry. Surabhi specialises in real estate economics, policies, commercial and residential real estate research with in-depth knowledge of market dynamics across major markets in India.

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