After six months of pessimism in Q2 and Q3 of 2017, positive sentiments have surfaced in the real estate industry, with a current sentiment score of 52 in Q4 2017. The uptick stems from better acceptance of structural reforms, such as the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Goods and Services Tax (GST) that pulled down industry sentiments in earlier part of the year, according to the Real Estate Sentiment Index for Q4 2017 (October–December 2017) by FICCI, NAREDCO and Knight Frank India. The industry’s future sentiments had hit rock bottom in Q3 2017. However, adjustments pertaining to the structural reforms have lifted the expectations, with a score of 64 in Q4 2017 from 55 in the previous quarter.
Commenting on the findings, Samantak Das, chief economist and national director-research, Knight Frank India, said “At a broad level, sentiments of the stakeholders from the supply side have been upbeat, largely courtesy the gradual acceptance of structural reforms like RERA and GST taking shape. While the current sentiment score has moved in the positive zone after being in the red in the previous two quarters, the overall future score has also picked up and reached pre-demonetisation levels. Future sentiments of developers and financial institutions that had taken a hit in the previous two quarters, have also turned optimistic. However, there has been no major change in the economic outlook for the coming six months, owing to the widening fiscal deficit, higher inflation expectations and a resultant halt of further softening of interest rates. On the residential market front, launches are expected to be in the mid and affordable segment, largely because of government policies. Optimism in sales has revived with the industry acceptance of RERA and GST. In the coming six months, the office market will either improve or will hold on to its current reins but will definitely not get depressed. Going forward, we believe that the real estate sector would witness better transparency and participation from organised players, which should further boost market sentiments.”
Key findings of the Real Estate Sentiment Index for Q4 2017
National Capital Region bounces back
The north zone was the only region that recorded negative sentiments in Q3 2017. However, the region has become optimistic, following the expectation of RERA becoming a reality in states of Uttar Pradesh and Haryana. In fact, the newly-formed Gurugram and Panchkula benches of RERA have stated that ongoing projects in the state, will also be brought within the purview of the regulation – a move that is expected to drum up confidence levels in the reeling sector.
Financial institutions and developers optmistic for future
Taking a hit in Q2 and Q3 2017, future sentiments of both, the developers and financial institutions, have sharply recovered in the last quarter of 2017. The score for financial institutions is in fact at an 18 month-high.
Real estate industry stays muted on the economic front
- Expectations from the economy for the real estate industry stood nearly stagnant in Q4 2017, with only 52 per cent of the stakeholders showing optimism, as compared to 51 per cent in Q3 2017 for the next six months.
- The pattern for future sentiments on the funding scenario was also identical.
Optimism resurfaces in the residential sector
- A majority of the stakeholders are hopeful of a spike in residential launches, largely in the affordable housing segment, courtesy of the government’s impetus towards affordable housing over three back-to-back union budgets.
- At least 52 per cent stakeholders in Q4 2017 are hopeful of sales volumes picking up, indicating a significant surge in sentiments over the previous quarter.
- 56 per cent of the respondents felt that residential prices would improve over the next six months.
Office market holds steady
- At least 54 per cent stakeholders in Q4 2017 were hopeful about increase in new office supply over the next six months, up from just 38 per cent in the previous quarter. The level of optimism is highest, since Q4 2016.
- Similarly, 56 per cent stakeholders in Q4 2017 expected appreciation in office rentals, up from just 38 per cent in Q3 2017.