Indian real estate is seeing an increased demand in residential, office and retail spaces. In addition to these, the government reforms in place is aiding in the upward growth of the real estate segment mentions the ‘Indian Realty –Charting the growth roadmap for 2022’ report by CBRE South Asia Pvt Ltd and CII. The report has focused on the key trends and projects for the Indian real estate sector for 2022. Mentioned in the detail are the findings for the residential sector.
Residential sector report 2022
According to the report, H1 2022 saw good sales and launch momentum. The sector is likely to witness both sales and new launches to reach a peak in 2022 and cross the 2,00,000 mark. There has been an increase in the property prices across most micro-markets and segments owing to record sales and developers’ decision of passing on rising construction costs to buyers. However, RBI’s monetary tightening to keep inflation in check could result in a rise in financing costs.
- Appreciation in asset prices could be selective going forward
Asset prices have witnessed an uptick because of strong momentum in sales and the developers’ decision to pass on the rising construction costs to buyers. Rising costs are attributed to growing input and labour costs.
- Unsold inventory levels could continue its southward trajectory
According to the report, there is a fall in unsold inventory levels witnessed across most top cities of India, except a select few because of robust sales despite steady new launches. As a result, inventory overhang at a pan-India level is at a six-year low, with average quarters to sell for projects falling from over 15 in 2017 to sub-9 levels in H1 2022.
- Better alignment needed between developers’ focus and buyers’ expectations
While developers are now increasingly focusing on larger ticket sizes ranging over Rs 1-2 crore, demand for units priced at less than Rs 1 crore have continued to dominate sales in H1 2022. Similarly, the share of units sized 1,500 sq. ft. and above has grown in new launches, but sales continue to be led by units sized between 500 and 1,500 sq. ft.
- Strong momentum in land acquisition to continue
Also witnessed is the growing interest in realty segment from both developers and investors. Of the nearly USD 5 billion deployed to acquire about 4,000 acres of land / development sites between 2020 and H1 2022, the residential sector accounted for almost 36%, the highest among all real estate sectors.
Top trends expected to shape residential realty 2022
- Growing dependence on alternate investment funds for financing projects
With a number of mid-to large-size housing finance companies (HFCs) reducing their exposure to the corporate loan book, the report expects that the developers’ dependence on alternate investment funds (AIFs) could continue to grow. Since the cost of raising funds from an AIF is typically higher than that from the HFCs, the overall cost of financing could increase.
- Profit margins could come under pressure
An upward trajectory is expected in financing costs amidst monetary tightening measures being undertaken by the RBI to control inflation. However, the immediate impact would primarily be felt on the new borrowings and would be limited for old borrowings due to the possibility of older instruments being locked in at a fixed cost for a longer period. As a result of the rising financing cost, developers’ profit margins could come under pressure. Developers who would be most impacted could be those operating in the affordable and mid-end segment, as they have already been impacted by rising inflationary pressures.
- Changing product alignment owing to consumer demand
Provision of facilities such as healthcare, daycare and education within real estate projects to increase. This could even extend to EV charging infrastructure in the times to come, given the move towards sustainability.
Key highlights in other real estate segments
- Leasing activity across realty assets has witnessed an uptick in H1 2022 and is expected to grow further in H2 2022.
- Office space absorption outlook revised upward from previous projections and is expected to touch 53-57 million sq. ft. by 2022 end
- RE investments grew by 4% Y-o-Y in H1 2022 to USD 3.4 billion; Investments to touch USD 6 billion by the end of 2022, metros continued to account for a bulk of investments
- Retail witnessed robust recovery due to unleashing pent-up demand and continued strength of e-commerce; Y-o-Y growth of 166% caused leasing activity to touch 1.54 million sq. ft. in H1 2022. Strong supply pipeline lined up for H2 2022.
- Industrial & Logistics (I&L) sector to clock a growth of 12% on an annual basis, with leasing activity remaining range-bound at 28-32 million sq. ft. in 2022
- In H1 2022, flexible space operators accounted for over 6 million sq. ft. of office leasing activity in India. Their stock in India to cross 80 million sq. ft. by the end of 2025.
According to Anshuman Magazine, chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE, said, “The real estate sector in India performed well in H1 2022 amid the evolving market dynamics. As economic recovery continues to gain momentum, we expect a further boost to the leasing activity across the sectors. We estimate alternative segments such as flexible space will pave the way for innovative new age RE solutions and supplement economic growth. Robust policy and regulatory environment will encourage overall infrastructure growth in the long term.”