Housing market down but commercial real estate came out strong in 2019

The year 2019 was one of the toughest years for residential real estate — prolonged slowdown, continued liquidity crisis, scores of bankruptcy cases and so on. 

Commercial real estate was in much better shape, given overall offtake and jump in rentals.

Consultants and developers say next year is also going to be bad for home developers — prices are expected to remain stagnant and sales to move only slowly.

However, branded developers in this space have done well, with launches which had the right pricing, good locations and strong brand. They are also expected to do well in the coming year.

The year saw Lokhandwala Infrastructure developers become insolvent. The promoters of HDIL —Sarang and Rakesh Wadhawan — were arrested in connection with the PMC Bank scam. Experts predict more developers will go bankrupt in the coming year.

While many housing finance companies (HFCs) have stopped lending, DHFL being one, many others have stopped disbursal to borrowers, creating a liquidity crisis in the sector. The Reserve Bank of India has in its latest financial stability report highlighted the stress in real estate. It said system-wide credit losses to lenders – HFCs, public sector and private banks — jumped to 7.3 per cent in June 2019, from 5.7 per cent in June 2018.

Housing                             

Residential sales in 2019 saw modest four to five per cent annual growth, with about 258,000 homes sold in the year, says Anarock Property Consultants. New launches in 2019 saw 18-20 per cent annual growth, at a little  over 230,000 units, it said. About 22 per cent of the supply was in the affordable hosuing segment. Of total sales of 261,000 units in the top seven cities, affordable housing comprised 38 per cent.

“We don’t see much of traction in the primary residential market and it will take another year to see this sector registering substantial growth. Till then, we will be hovering around a modest growth rate or maybe just the run rate  we clocked in 2018,” said Samantak Das, chief economist at JLL.

The central government announced a number of measures to revive the sector, especially in the affordable segment. However, sales at large did not move by much and developers have not come out of the woods, experts say.

In the Union Budget for 2019-20, the government announced an additional deduction of up to Rs 150,000 for interest paid on loans borrowed up to March 31, 2020, for purchase of a home valued at Rs 45 lakh. Further, a goods and services tax rate cut was announced at 1 per cent for affordable houses and 5 per cent for other categories.

The government also set up an alternative investment fund worth Rs 25,000 crore for stalled projects.

Office market

Office leasing went up a little over 30 per cent to cross 47 million sq ft during the first three quarters, surpassing its previous peak of 2018, says a report from CBRE.

“Even though the co-working segment has faced some disruption globally, we continue to witness a lot of traction in this space. In terms of supply, some smaller cities have shown a lot of promise,” Das of JLL said.

An example is in Hyderabad, where JLL sees equal supply coming in comparison to Bengaluru, which is the largest market in India. “So, in the very short term, we might see a slight increase in vacancy in cities such as Hyderabad where supplies are coming in good quantum,” he said.

According to Anarock, commercial spaces attracted the largest number of private equity investment among all classes of real estate, at close to $3 billion funds (Rs 21,400 crore) in the first three quarters of 2019. In the corresponding period of 2018, total inflow within this segment was nearly $2.1 bn, thus rising 43 per cent.

Bengaluru and the Mumbai central business districts (CBDs) are expected to see rises in office rentals during 2020 on resurgent demand from the information technology sector, UK-based consultancy Knight Frank said recently. The CBD of Bengaluru was the best performing market in the Asia-Pacific during the third quarter, with rental growth of 17.6 per cent, according to the Knight Frank Asia-Pacific Prime Office Rental Index. The CBDs of Connaught Place in Delhi and BKC in Mumbai were the seventh and 11th fastest-growing prime office markets in the Asia-Pacific, respectively.

Blackstone and its partner, Embassy, created history when they listed the country’s first real estate investment trust (REIT). “More commercial REITs will be listed in 2020 as more commercial developers will look to unlock the value of their assets to raise capital,” said Anuj Puri, chairman of Anarock.

Retail

Though the leasing of retail properties has come down due to economic slowdown, mall developers Prestige Estates, Virtuous Retail South Asia and Inorbit are looking to their mall spaces in a year or two for tapping the growing share of organised retail.

Overall retail leasing activity reduced by as much as 35 per cent in the top seven cities alone — from 5.5 mn sq ft in 2018 to 3.6 mn sq ft in 2019. 

“The share of organised retail gained ground in 2019. While it currently still accounts for only eight per cent  share of the overall Indian retail market, it is set to reach 13 per cent by 2020-end, on the back of government interventions,” said Puri of Anarock.