Real estate sector’s sentiment turns to ‘cautious optimism’: Report

With residential prices expected to remain contained, while launches and sales are expected to pick pace, real estate sentiments have turned to ‘cautious optimism’, says a report by FICCI, NAREDCO and Knight Frank India

The real estate sector has a positive outlook for the next six months, on account of the stable policy environment after the introduction of structural reforms implemented in 2017, according to the ‘Real Estate Sentiment Index for Q4 2018, released by Knight Frank India in association with National Real Estate Development Council (NAREDCO) and the Federation of Indian Chambers of Commerce and Industry (FICCI). The survey noted that there is general optimism around launches, with the hope of a gradual upward incline. The stakeholders opine that the buyers are still in a ‘wait and watch’ mode, which will dampen sales. Future sentiments for price appreciation, however, remained marginally down, indicating that the sector does not expect any price rise in the coming six months.

The sentiment index broadly captures the overall perceptions and expectations of industry leaders. The report is based on a survey of, besides others, over 150 stakeholders of the Indian real estate sector, including leaders from the development and financial side.

Commenting on the report’s findings, Shishir Baijal, chairman and managing director, Knight Frank India said: “The real estate sector has shown signs of controlled optimism in the recent survey. A majority of respondents remained moderately positive towards the state of the economy for the next six months. However, it should be noted that the sentiments are in a decline, compared to the previous survey period. The respondents expect the real estate sector to witness gradual growth, in the coming six months. The future sentiments for both major asset classes, i.e., residential and office, are expected to be moderately positive. The stakeholders show positivity with regard to new residential launches, on the back of increasing clarity of policy. Nevertheless, the sentiment for pricing remains negative, implying an anticipation of further decline in residential prices over the next six months.”

Overall current and future sentiment score

  • The current sentiment score inched upwards and remains positive in Q4 2018. The slight improvement in the current score, indicates that the dust has started to settle from the implementation of various structural reforms in the second and third quarters of 2017. The score indicates that stakeholders are in a ‘wait and watch’ mode, on the outcome of the long-term policy initiatives of the government.
  • On the other hand, the optimism regarding the future of the real estate sector has come down by three points. Factors such as the looming uncertainty over the upcoming elections, have pulled down the future sentiment score.

See also: Residential sales grew by six per cent in 2018; launches rise by 76 per cent: Report

Residential sector lacks confidence

  • A majority of the stakeholders expressed optimism, regarding new residential launches coming up in the next six months. Nearly 78 per cent of the stakeholders opined that the sector will see new launches in the coming six months, mainly on the back of the mid and affordable segment. With clarity brought about by the structural reforms, notable developers are keen to bring fresh supply into the market.
  • Similarly, a majority of stakeholders believe that residential sales will improve in the coming six months.
  • However, future sentiments regarding price appreciation have remained stagnant, in Q4 2018. About 74 per cent of the stakeholders opined that prices will either remain stagnant or may even drop further, in a bid to attract fence-sitters.

Future sentiment score

  • Although transitory in nature, stakeholder sentiments in the coming six months have taken a slight dip, in our survey findings of Q4 2018.
  • The future scores across the regions indicate that stakeholders are holding their ground and are not as bullish over the outcome of various structural reforms in the real estate sector. The uncertainty over the overall economic scenario and the upcoming general elections in India, have failed to infuse any confidence in the stakeholders.
  • The future sentiment score for the north went into the red, in Q4 2018. This dip in sentiment for the coming six months, stems from the lack of buyer confidence in the market. Accumulating inventory, stagnant prices, sluggish sales and default by reputed developers, have contributed to the dip in the National Capital Region’s future sentiment score.
  • The future sentiment score of the west moved up significantly, compared to the same period in 2018. This can be attributed to the way in which the Real Estate (Regulation and Development) Act (RERA) has been implemented in the west zone, particularly in Maharashtra, which has infused confidence in the stakeholders.
  • Although the future sentiment score in the south dipped in Q4 2018, it still remains in the positive and stakeholders remain positive about the region, for the next six months.

Stakeholder sentiment score

  • Sentiments of financial institutions, regarding the future of the real estate sector in the coming six months, came down in Q4 2018, compared to the same period in 2017. However, on the developer side, even though the future score waned marginally, it still remains in the optimistic zone.
  • The real estate industry’s sentiments, with respect to the economy, does not show any substantial change from 2019, as stakeholders are taking their time, to give a thumbs up to the economic performance of the country, given the current political scenario.
  • Stakeholder sentiments regarding the funding scenario, is upbeat in Q4 2018.
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