Realistic pricing key to market revival in 2017: Colliers International’s India Property Outlook

The number of new launches in the residential market in 2016, fell by 34% over the previous year, indicating a waning interest of buyers in the primary market. In this scenario, the key to revival lies in realistic pricing, according to the ‘India Property Outlook 2017’ by Colliers International

Residential real estate sector

In 2016, about 89,000 residential units were launched across the six major cities in India, which is 34% less than the units launched in 2015.

Out of the total new launches, Bengaluru (Bangalore) accounted for 28%, Mumbai for 25%, Pune for 23%, the National Capital Region (NCR) for 15% and Chennai for 9%. The decrease in the number of new launches indicates the waning interest of buyers in the primary market.

The certainty of implementation of the Real Estate (Regulation and Development) Act (RERA) and consumer activism in the form of various protests over timely completion of projects, have pushed developers to focus on completion of existing projects. Institutional investors maintained a strong interest over 2016, in financing of Grade A residential projects under-construction, helping developers to complete their existing projects. We expect a similar trend, at least in H1 2017.

Although many forecasters predict a decrease in capital values, we maintain our earlier prediction that capital values will remain stable in the primary market, while due to a few distressed deals, the secondary market may see a correction of 5%-7% in 2017. We advise buyers intending to purchase for self-use, to look out for options, as they can obtain attractive discounts and feasible payment plans.

In the wake of demonetisation in November 2016, many banks have cut home loan rates to 8.25%-9%, which is the lowest level in the last eight years. The government has also announced an interest subsidy of 3%-4% for first-time affordable housing buyers in 2017. The 2017 Union Budget should also bring more incentives for home buyers, in the form of tax cuts and interest subsidies. In addition, while Indian interest rates are at an all-time low, various economists predict another modest cut over Q1 2017, which will further reduce home loan rates and hence, the cost of buying. All these initiatives should help entice buyers back into the residential market.

See also: Ready properties to see more demand in the short term: Colliers International

We expect demand for quality stock in areas with good connectivity and social infrastructure, to revive in the near term, especially in mid-segment housing. However, realistic pricing will be the key to an early revival as right now, both, buyers and sellers are hanging on in the hope of achieving optimum prices.



While the Mumbai residential market started 2016 on a promising note, by Q4 it had been rocked by the demonetisation drive. In the wake of demonetisation, the gap between buyers’ and sellers’ expectations has widened and so, we expect market activity to remain slow for some time.

We anticipate a more active H2 2017, as the gap between buyers’ and sellers’ expectations narrows again.

The market should also be stimulated by a probable further cut in Indian interest rates and the implementation of the RERA reforms.



We expect dull demand and a limited number of new launches in H1 2017, as weakness persists in the market after the demonetisation move. Contrary to the general perception of a significant price correction, we do not believe that prices will crash.

Prices will largely remain stable, although a more noticeable correction of 5%-7% in emerging micro-markets such as Dwarka Expressway and Golf Course Extension Road, looks probable due to the high inventory available in the secondary market.



The entry of reputed developers is likely to boost market sentiment in the short term. With land prices escalating, we will see more strategic partnerships between developers and private equity players.

We anticipate that the equity infusion will revive stalled projects and Noida will continue to see significant completions in 2017.



With the state government gearing up to implement the RERA, end-user confidence is strengthening. Although sales have come down moderately, Bengaluru was one of the major cities to be least impacted by the recent demonetisation drive. Buyers are likely to delay their purchase decisions for a time, but we predict a revival in demand shortly.


Office sector

Office absorption witnessed sustained momentum, with Grade A absorption for the nine major cities in India totalling 41.6 million sq ft (3.9 million sq metres) in 2016, up 3.5% y-o-y and indicating robust leasing demand from occupiers.

The technology sector continued to drive the market with a 58% share of total leasing volume. Bengaluru remained on a high growth trajectory and maintained its leading status among the key cities, by retaining a 31% share of leasing volume last year, followed by Delhi-NCR on 18% of the total. Hyderabad and Chennai stood on 13% each, while Mumbai, Pune and Kolkata accounted for 14%, 9% and 2%, respectively.

In 2016, 27.2 million sq ft (2.53 million sq metres) of new office space was released into the Indian market. This was insufficient to cope with the very strong demand, especially in markets such as Bengaluru, Hyderabad and Pune and resulted in a significant fall in vacancy levels and an increase in office rents in most of the micro-markets in these cities.

In the technology-driven markets like Hyderabad, Bengaluru, Pune and Chennai, we anticipate that the demand-supply gap will remain a concern in the coming quarters. While a few Grade A office buildings are likely to see completion towards end-2017, we expect upward pressure on rents, at least over H1 in these markets.

Tenant appetite for higher quality offices, has been reflected in new leases being executed at above-market rates, in select Grade A buildings in these cities. Expecting a similar trend in 2017 as well, we think there will be a slight shift in demand, to cities such as Gurgaon and Noida, due to the availability of quality supply. With 10%-12% annual growth in the IT sector likely to persist till 2020, demand for office growth should remain strong for the next few years in the technology-driven markets.

In traditional commercial markets such as Mumbai and New Delhi, we expect average rents to stay stable or decline slightly over 2017, with rents under pressure in older and strata-titled buildings in particular.

However, limited new supply in prime locations means rents may move upwards in the top areas in these cities, over the next few quarters.

As more companies realise the importance of adopting a flexible working strategy at the core of their business plans, use of co-working space is gaining popularity in India, as well. This trend was pioneered by start-ups, entrepreneurs and freelancers, to fulfil their need to work in a suitable cost-effective environment. Now, large occupiers have also started exploring this option for their transitional office requirements. We believe this trend will pick up further in 2017.


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