Affordable housing to be among fastest growing segments in 2018: Colliers International


Affordable housing is likely to grow much faster, as compared to office and premium residential classes in 2018, in a year where the property market will find support from improved industrial production and increased infrastructure spending, says a report by Colliers International

The Indian economy, as measured by growth in Gross Domestic Product (GDP), accelerated by 6.3 per cent (Q3 2017), making an improvement from 5.7 per cent (Q2 2017). The growth is likely to exceed 6.7 per cent (FY2017) and be in the range of 6.9-7.4 per cent for the next three years, driven by improvement in industrial production, spurt in consumption levels and increased infrastructure spending, says a report by Colliers International.

In comparison to the traditional property asset classes, such as office and premium residential, Colliers expects industrial warehousing and affordable housing to grow much faster. Developers should make room in their portfolios for other asset classes, such as industrial space, warehousing and affordable housing, to gain an early mover advantage, the report said. However, slow implementation of recent reforms and delays in new infrastructure projects, still represent threats to the Indian economy.

 

Affordable housing to dominate residential segment

“India is in a sweet spot, as a destination for foreign investments. While there has always been very keen interest for Grade A commercial assets, where capital rates continue to become increasingly aggressive, there is huge demand on the warehousing and logistics space, as well as on the affordable housing side. With land prices correcting in the residential segment and RERA giving confidence to investors, foreign investors are starting to look at residential too, albeit selectively,” says Gagan Randev, national director, capital markets and investment services, Colliers International India.

See also: Carpet area increase under PMAY, unlikely to benefit affordable housing

To achieve the mammoth task of ‘Housing for All by 2022’, the government has taken initiatives, including grant of infrastructure status to affordable housing and unveiled the Pradhan Mantri Awas Yojana (PMAY) (Urban) scheme. We expect that private developers’ participation in affordable housing will increase, owing to lower financing cost and income-tax exemptions for developers. Considering both, the demand and supply factors, we expect affordable housing to be the next major growth area in the residential sector, in coming years, the report added.

 

Commercial segment to remain steady

As per Colliers Research, steady economic expansion, persistent loose real monetary conditions and improvement in infrastructure spending, should support the Indian investment property market. Notwithstanding the economic disruption, the commercial real estate market has remained robust in 2017. The market has recorded pan-India leasing volume of about 35 million sq ft (till November 2017), excluding renewals and pre-commitments.

Furthermore, co-working or flexible working spaces, represents about 11 per cent of total absorption, over the first 11 months of 2017 (January-November 2017) compared to last year’s share of three per cent. The office leasing market will remain robust in 2018 and over the subsequent few years, reflecting strong employment growth and economic reforms. However, Colliers does not foresee a further increase in the absorption level, despite strong demand and other factors, such as the quest for workspace efficiency and the advent of flexible office space, which may hold overall absorption volumes at the same level. It has also been observed that several technology and e-commerce companies are exploring expansion in tier-2 and tier-3 Indian cities.

 

Manufacturing and Smart Cities to spur real estate growth

“Given the government’s push for smart cities’ development, firms should consider expanding in the cities where the state governments intend to spur growth, by offering more fiscal and non-fiscal incentives and building crucial infrastructure projects, such as airports and railways. However, occupiers should carefully analyse the talent pool in each city, before making such decisions, since due to increased urbanisation, young talent is migrating towards tier-1 cities and talent acquisition and retention can be a challenge in these cities,” says Surabhi Arora, senior associate director, research, at Colliers International India.

With a vision to put India among the top five manufacturing destinations in the world by 2020, various government initiatives are focussed on setting up superior manufacturing infrastructure in the country. As per Colliers Research, e-commerce logistics businesses are highly optimistic about the rising demand for supply-chain services in India. The growth in the manufacturing sector, rising interest among foreign investors and expansion of 3PL/4PL service landscapes, should drive the demand for large contiguous organised industrial space, at strategic locations in the coming years.

With India forecast to see a notable economic growth in coming years and Indian cities growing at a rate faster than most other cities in the world, we expect property development to continue witnessing robust growth rate in the medium-to-long term.

 

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