Realty future sentiment index ascends in Q3 2023: Report

November 3, 2023: The Current Sentiment Score has scaled down from previous quarter’s 63 to 59 in Q3 2023 cited the 38th edition of the Knight Frank-NAREDCO Real Estate Sentiment Index Q3 2023 (July-September 2023) report. 

The sudden outbreak of conflict in Middle East and rising regional tensions between nations have weakened the sentiment currently. Though there is an expression of concern amongst Indian stakeholders on the impact of global economic deceleration on Indian businesses, the current sentiment remains in the optimistic zone (score>50).  

The Future Sentiment Index witnessed a marginal uptick from 64 to 65 on the back of stakeholders’ expectation of continued growth trajectory of Indian economy to support performance of real estate sector for the next six months with expected higher demand during the ongoing festive season. Easing consumer inflation and stable interest rate have given greater confidence to the supply-side stakeholders (real estate developers) and financial institutions (banks, NBFCs, PE funds etc.) towards India’s real estate sector amid rising pressure of evolving global headwinds.

The residential market outlook in the current quarter reflects robustness in residential sales and pricing parameters as stakeholders remain confident of an increase in both. The office market outlook exhibits buoyancy on all key parameters – leasing, supply and rent as the stakeholders remained confident of the performance of this asset class in the next six months.

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 and financial institutions. A score of 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.

Current and Future Sentiment Scores

Source: Knight Frank India |Score >50: Optimism| Score =50: Neutral/Same| Score <50: Pessimism

Sentiments of developers and non-developers 

Highest in 11 quarters, the Developer Future Sentiment score has inched up from 65 in Q2 2023 to 66 in Q3 2023. Pause in interest rate hike for fourth time by RBI and festive fervour driving residential demand are the key drivers influencing optimistic outlook from the real estate developers for the next six months. 

Highest in six quarters, the non-developer (which includes banks, financial institutions, PE funds) Future Sentiment score scaled up from 62 in Q2 2023 to 64 in Q3 2023. The institutional investors who remained optimistically cautious in the past periods have exhibited enhanced confidence in the Indian economy. The pause in the interest rate hike cycle by the RBI has positively influenced the sentiment of the non-developers. 

Uptick in developer and non-developer future sentiment scores 

Source: Knight Frank Research| Score >50: Optimism, Score =50: Neutral/Same, Score <50: Pessimism

Note: Non-Developers includes banks, financial institutions and PE funds

Hari Babu, president-NAREDCO, said, “The Current Sentiment Index Score has experienced a modest decline as a result of the recent geopolitical disturbances, but the robust Future Sentiment Score reflects the enduring confidence in the potential of the Indian real estate industry. It is reassuring to note that, despite certain challenges, stakeholders in various zones have an optimistic outlook for the next six months. The significant increase in the Developer Future Sentiment score is a testament to the real estate industry’s resiliency. On the other hand, the Non-Developer entities, such as banks, financial institutions and PE funds, are becoming more confident in the sector’s capacity to navigate through the uncertainties. 

The positive prognosis for the residential market driven by festive fervour, surge in sales and pricing economics, underscores the sector’s resilience in the adversity of volatility. The buoyancy observed in the office market is also expected to maintain despite recent geopolitical upheavals and concerns on further deceleration of economic growth. NAREDCO is committed to supporting the real estate sector’s growth and advocating for policies that promote stability and sustainability.”

Shishir Baijal, chairman and managing director, Knight Frank India, said, “With the conflict in the Middle East, a new geopolitical disturbance has been introduced into the already challenging global environment, concurrent with the ongoing Russia-Ukraine war. Despite uncertain global economic environment owing to conflicts and high inflation in developed economies, India’s domestic economy continues to exhibit resilience. India’s improving near-term inflation outlook and resilient economic activity has improved consumer and business outlook for all sectors, including real estate. The heightened demand in the residential sector supported by stable interest rates, coupled with strong occupier activity in India’s office market has been instrumental in a robust outlook for the realty sector for the next six months.” 

Residential market outlook reflects robustness in residential sales and prices

As per the report, the Residential Market Outlook reflects enhanced optimism on account of expected acceleration in residential sales and prices in the next six months. In Q3 2023, 60% of the survey respondents expect residential sales to increase in the next six months. In comparison, 55% of the respondents were of the same opinion in the previous quarter. About 72% of the survey respondents expect the residential prices to increase in the next six months, 64% of the survey respondents held a similar view in the previous quarter.

In Q3 2023, 63% of the stakeholders were of the opinion that residential launches will improve in the next six months. In Q2 2023, 62% of the stakeholders held a similar view. With most of the developers introducing new launches in this festive season, stakeholder expectations for new project launches in the next six months largely remained similar to the previous quarter. 

Strong future outlook for residential market

Source: Knight Frank Research

Office market outlook exhibits buoyancy on all parameters

A looming threat of recession coupled with the impact of new geopolitical disturbances in developed markets, led stakeholders to opine that India will remain a favourable investment and operational expansion destination, which will provide a fillip to office leasing, supply and rents. In Q3 2023, 52% of survey respondents expect office leasing to improve in the next six months. In the previous quarter, half of the survey respondents held a similar opinion. 

In terms of office supply, 49% of survey respondents expect office supply to improve in the next six months. In the previous quarter, 47% respondents held a similar opinion. With strong leasing volume continuing, outlook towards new supply has also strengthened in the near term. 

In Q3 2023, 54% of the survey respondents expect office rents to increase, whereas in the previous quarter, 45% of the survey respondents held a similar view.

Buoyancy in office market outlook 

Source: Knight Frank Research

Economic scenario resilient  

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. As compared to 55% in Q2 2023, 56% of survey respondents in Q3 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 third quarter of 2023, 44% of surveyed respondents expect an increase in funding availability in the next six months. A similar opinion was held by 49% of survey respondents in Q2 2023. The total amount of foreign direct investment (FDI) received between April and July 2023 decreased by 67% in the previous year, signaling instability. As a result, the study indicates a decline in the attitude towards fresh investment inflows during the ensuing six months.

Source: Knight Frank India