Real estate sentiment for present and future optimistic: Report

February 19, 2024: Consumer sentiment pertaining to real estate sector in India remains optimistic for present as well as the future, shows the 39th edition of the Knight Frank-NAREDCO Real Estate Sentiment Index for Q4 2023 (October-December 2023).

The index shows the current sentiment score remained firmly in the optimistic zone, rising to 69 from last quarter’s score of 59. This increase is attributed to India’s domestic economy continuing its growth trajectory, due to timely interventions by the Reserve Bank of India (RBI). The rise in the Current Sentiment Score primarily stems from the strength of India’s economic landscape, marked by sustained GDP growth numbers and a controlled economic policy environment. 

“Confidence among real estate stakeholders has surged as Indian enterprises, including those in the real estate sector, anticipate further gains from a flourishing domestic economy. The Future Sentiment score, which indicates stakeholders’ outlook, has also increased from 65 in Q3 2023 to 70 in Q4 2023, driven by general optimism about the Indian economy and sustained demand in the real estate sector,” the report said.

The quarterly Knight Frank-NAREDCO report captures the current and future sentiments towards the real estate sector, the economic climate and funding availability as perceived by the supply-side stakeholders like developers and financial institutions. Status quo:50 represents a neutral view or status quo; a score above 50 demonstrates a positive sentiment; and a score below 50 indicates a negative sentiment.

In 2023, it was reported that office transactions in India surged by 15% YoY, resulting in a total absorption of 59.6 mn sq ft, approaching an all-time high. Despite office leasing volumes being slightly lower than the peak in 2019, the strong occupier activity underscored the country’s economic robustness. In the residential sector, even though the Reserve Bank of India’s 250 basis points increase in policy rates from May 2022 to February 2023 and a steady rise in residential prices, the country saw a ten-year high in annual residential sales, growing by 5% YoY to 329,097 units in 2023.

The residential market outlook reflects enhanced optimism on parameters of residential sales and launches, as stakeholders remain confident of the sustained demand momentum to drive activity in the market. The office market outlook exhibits buoyancy on all key parameters – leasing, supply and rents as the stakeholders remained confident of the performance of this asset class in the next six months.

Developer/non-developer sentiment in optimistic zone

The Developer Future Sentiment Score scaled up from 66 in Q3 2023 to 68 in Q4 2023. With the RBI monetary policy committee’s (MPC) status quo on policy repo rate for the sixth consecutive occasion, real estate developers remain optimistic about growth in the sector for the next six months. 

The Non-Developer (which includes banks, financial institutions, PE funds) Future Sentiment Score rose from 64 in Q3 2023 to 73 in Q4 2023. The institutional investors that remained watchful in the past periods, exhibited enhanced confidence in the Indian economy. 

Shishir Baijal, chairman and managing director, Knight Frank India, said, “The real estate sector has witnessed a notable phase of growth in recent quarters, with all major segments, including residential, office space, industrial, warehousing, and retail, demonstrating consistent progress. This growth is underpinned by the country’s stable economic outlook, corroborated by various agencies assessing indicators such as historical performance, ongoing investments, and prospects, all of whom have expressed optimism regarding India’s economic growth trajectory. In 2023, residential sales reached a decade-high, driven by increased transactions in high-value properties. Simultaneously, the commercial office sector experienced its second-best year, with 59.6 million square feet of office space transactions. Thus, the optimism among stakeholders towards real estate, both for the present and the future, is firmly rooted in a prolonged period of growth, which now appears to be sustainable for the mid to long term, bolstered by robust demand trends and fuelled by significant infrastructure development, thereby creating more opportunities for development stakeholders.” 

G Hari Babu, president-NAREDCO, said, “There’s a significant positive shift in Q4 2023 sentiment. The Current Sentiment Index reflects increased confidence, attributed to a stable Indian economic environment. The Future Sentiment also points to optimism about India’s economic growth. Globally, with easing inflationary pressures, there is a balanced risk perspective. Regionally, all zones maintain an optimistic outlook. Developer sentiment shows resilience, and non-developer entities express cautious optimism. The residential market sees increased confidence, and the office sector anticipates growth. This signals a positive trajectory for the next six months.”

Residential market outlook reflects enhancement in sales and launches

In Q4 2023, the residential market outlook reflects enhanced optimism on parameters of residential sales and launches, as stakeholders remain confident of the sustained demand momentum to drive activity in the market. 

In this quarter’s survey, 65% of the respondents expect residential sales to increase in the next six months as compared to 60% in the last quarter. The sixth consecutive MPC pause on the interest rate hike cycle has led stakeholders to believe that steady demand may prevail in the residential sector in the next six months.

In Q4 2023, 71% of survey respondents opined that residential launches will improve in the next six months. 65% of the survey respondents in Q4 2023 expect residential prices to increase in the next six months. However, during Q3 2023, 72% of survey respondents held a similar view.   

Strong Future Outlook for Residential Market

Source: Knight Frank India

Office market outlook exhibits buoyancy on all parameters

The office outlook exhibited buoyancy on leasing and supply parameters as survey respondents remained confident about this sector in the next six months. Stakeholders opined that demand in India’s office market will bolster in the next six months and give a fillip to new supply as well. 

In Q4 2023, 69% of survey respondents expect office leasing to improve in the next six months. In the previous quarter, 52% of survey respondents held a similar opinion. 

62% of survey respondents expect office supply to improve in the next six months. In the previous quarter, 49% of respondents held a similar opinion. With strong momentum in office leasing, the outlook towards new supply has also strengthened in the near term. 

In Q4 2023, 53% of the survey respondents expect office rents to increase. In Q3 2023, a similar percentage or 54% of the survey respondents held a similar view.

Buoyancy in office market outlook 

Source: Knight Frank Research

Resilient  economy

Based on the findings of the survey, stakeholder sentiments on the overall economic momentum have only strengthened with each passing quarter in the past year. In comparison to 56% in Q3 2023, 71% of survey respondents in Q4 2023 indicated an increase in their expectations on economic growth momentum. As India’s domestic economy continues to remain steady, it is anticipated that business and consumer optimism would strengthen further. 

In the fourth quarter of 2023, 57% of survey respondents expect an increase in funding availability in the next six months. The cumulative foreign direct investment (FDI) inflow between April-September 2023 stood at $15.34 billion.

Source: Knight Frank India