Indian realty sector’s future sentiments plummet to 39-month low

India’s future real estate sentiment index for Q3 2017 (June-September 2017), has fallen to 55, reaching its lowest point in the past 39 months. With a slowdown in the economy and the impact of recent reforms, a majority of the stakeholders felt that residential launches and sales are likely to worsen or remain steady, in the next six months, says the report by FICCI-NAREDCO-Knight Frank India.

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Commenting on the findings, Samantak Das, chief economist and national director – research, Knight Frank India, said: “Although unprecedented reforms were initiated with great intentions, the sentiments of the supply-side stakeholders in real estate, are at an all-time low. Reforms of high magnitude were bunched together, to propel the industry into an era of transparency and efficiency in the last year. However, with passage of time, a more matured and thoughtful impact of these reforms has sunk in among the stakeholders. As a result, the future sentiment score has come down significantly to 55 in Q3 2017 compared to 62 in Q4 2016, when demonetisation was announced. The intensity of the subdued sentiment is more profound in the northern and western markets of the country. The residential sector, which decides the trajectory of the real estate industry in the country, is likely to be under continued pressure for the next six months. The office market is relatively better off, with a majority of the stakeholders opining either a steady or improving leasing environment.”

Overall findings

The future sentiment score in Q3 2017 (55) has reached its lowest point over the past 39 months, indicating a significant decline in optimism pertaining to the sector’s future performance. This indicates that the true impact of demonetisation and structural reforms, such as RERA and GST, have finally sunk into the industry.
The score was also drastically lower than the future sentiment score of 61 in the demonetisation-hit quarter of Q4 2016, when the industry was bullish about the future of the sector.
While the future score has not yet entered the pessimistic zone, no revival is expected over the next six months.
Hovering in the pessimistic zone, the current sentiment score (46) in Q3 2017 also fell for two back-to-back quarters.

Regional sentiment scores: NCR lowest, west slips, other regions hold on

Hit by prolonged crisis in the National Capital Region (NCR), one of the largest real estate contributors in the northern zone, the north region recorded the lowest future sentiment score of 41.
The future sentiment score in the western zone (53) has been on a constant decline and lowest over the past 39 months in Q3 2017.

Real estate industry starts to lose hope on the economic front

Only 51 per cent of the stakeholders opined that the economy will be better in the coming six months, as against 62 per cent in Q2 2017.

Only 49 per cent of the stakeholders have opined that the funding scenario will be better in the next six months, as opposed to 67 per cent in Q2 2017.

Residential sector in the rough

A majority of the stakeholders felt that the residential launches and sales were either likely to worsen in the next six months or hold steady at their current levels, which itself is abysmally low.
73 per cent of the respondents opined that the residential price appreciation will either worsen or remain the same, in the coming six months.

Office market holds steady

The office market showed a much better future trend than the residential sector, in Q3 2017. A majority of the stakeholders foresee the office market to either improve or maintain the present levels, over the next six months.
Nearly 82 per cent of the respondents opined that office rentals would either remain the same or increase in the next six months.

“While sentiments are largely transient in nature, the prevalent mood in the industry reflects that it has finally come to terms with the short-term adverse impacts of the structural reforms that became a reality over the past 12-odd months. There is also an evident slowdown in the economy with a steady decline in business performances and the dwindling of capital expenditure to worrisome levels. Going forward the next 12 to 18 months are likely to be the ‘under observation’ period for the real estate sector. Industry stakeholders should spend the period, in reorienting businesses in line with the new order,” said Shishir Baijal, chairman and managing director, Knight Frank India.

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