Sales to investments: Win some, lose some for real estate in 2024

Industry expects housing supply to increase next year

The year was a mixed bag for the real estate industry as housing supply slowed down but record investments came in. Industry experts believe that demand will stabilise as sales are likely to be lower compared to 2023.

 

The top seven Indian cities in the first nine months of calendar year 2024 clocked a supply of 322,000 new houses: 2 per cent less from the year before, according to ANAROCK Research. Supply is projected to be lower in the fourth and last quarter as well.

 

As many as 130,000 houses were sold in Q1 2024 – a record – but the numbers fell in quarters later. “The fourth quarter addition of 2024 will probably account for lesser sales than (Q4) last year,” said Anuj Puri, chairman of ANAROCK Group.

 

Slowdown season

 

The industry attributes the slowdown in supply and sales to elections, delay in approvals (especially for developers in South India), business stabilising after the post-pandemic boom, existing inventory, and reduced affordability.

 

“With officials being busy with the general elections held earlier this year, several launches have had to be deferred due to delays in approvals and other procedures. The monsoon immediately followed Q3 (of calendar year 2024), a traditionally slow period for real estate,” said Abhishek Kapoor, group chief executive officer of Puravankara, a real estate company headquartered in Bengaluru.

 

Average housing prices in top eight cities increased 11 per cent in 2024 from the year before, according to Colliers India. Affordability in the sector has declined since 2022 due to price hikes and stagnant interest rates, according to JLL.

 

“With rising cost pressures, affordability issues can impact the segment more as compared to the office and industrial and warehousing segments,” said Vimal Nadar, senior director and head of research at Colliers India.

 

Puri, of ANAROCK, said that any future price increases will affect sales. Kapoor, of Puravankara, provided a different perspective. He said: “We may see an increasing trend of decrease in unit sizes, thereby bringing ticket values down, aligning with people’s income levels.”

 

According to Colliers there are around a million unsold units in the top eight cities: It is one reason for developers being “cautious” about new launches. 

 

According to India Ratings and Research (Ind-Ra), residential real estate companies' pre-sales are declining in Tier-1 cities and that may prompt them to increase supply gradually. ANAROCK said that at the start of FY25, the top 11 listed developers announced 253.16 million square feet (msf) of new housing supply over the next few years. Of this, 57.15 msf (23 per cent) of units were launched in the first half of FY25, reflecting a strong launch pipeline over the next few quarters in 2025.

 

Increased supply and a gradual rise in prices are expected to stabilise real estate demand in 2025, while a potential rate cut is estimated to improve affordability, except in Delhi National Capital Region and Bengaluru, according to JLL.

 

Industry experts expect sales to stabilise in 2025. However, Vikas Anand, associate director at Ind-Ra and Research, believes that while rate cuts and easing inflation may support real estate sales, other factors may hurt growth. These factors include forecasts lowering estimates for India's economic growth, slower pace of rate cuts by the US Federal Reserve (Fed) causing reduced foreign capital inflows, a weak rupee, and a potential increase in inflationary pressures.

 

Record investments

 

Despite tepid launches and sales, 2024 saw institutional investments in real estate attain a historic high of $8.9 billion. As much as 45 per cent of the investments were in the residential segment, breaking a decade-long dominance of office. Foreign institutional investors accounted for 63 per cent of total investments, according to JLL.

 

“Notably, domestic investors gravitated towards residential properties, while foreign investors maintained their preference for office and warehousing assets,” said Samantak Das, chief economist and head of research and REIS, India, JLL.

 

Puri said that an expected rate cut by the Fed, preference for stable, rent-generating assets, ample liquidity, elevated asset prices, and healthy demand have revived international investors’ interest in Indian real estate.

 

Warehousing and office segments are estimated to attract investors’ interest on the back of manufacturing activity, third-party logistics, e-commerce, and global capability centres. Hrishikesh Parandekar, senior partner at Alpha Alternatives, said that retail and hotel segments saw muted investments and there may be better opportunities in 2025.

 

In 2024, investments in the real estate investment trusts (REITs) reached $800 million, tripling from 2023. Anand said that the surge reflects a growing interest in recurring and assured income-generating assets, as REITs offer liquidity, diversification, and stable returns.

 

“There's going to be a very good story for a new REIT of a large variety to get listed. However, as the existing REITs continue to build capacity and add investments, it's not as if there's infinite space for lots of new REITs to keep coming in,” said Parandekar.

 

Experts believe more small and medium REITs will be listed in 2025.

 

QIPs lead

 

Qualified institutional placements (QIP) comprised 57 per cent of the total investment volume in real estate in 2024, enabling developers to raise $2.7 billion.

 

Parandekar said that residential developers use the good times to raise equity and deleverage, because their balance sheets are fairly leveraged otherwise.

 

“That's the trend that you will continue to see. A combination of deleveraging when the markets are good and more capital comes with the ability to do more projects. However, it will be tricky now. It's already been tricky over the last few months,” he said, adding that he expected capital-raising in 2025 will be lower.