Indian realty sector will see steady growth: Report

Hyderabad: 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, says the 38th edition of the Knight Frank-NAREDCO Real Estate Sentiment Index Q3 2023 (July-September 2023) report.

According to it, the Current Sentiment Score has scaled down to 59 in Q3 2023 from previous quarter’s 63. However, 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.

The sudden outbreak of conflict in Middle-East and the rising regional tensions between nations have weakened the sentiment currently. However, the report expects higher demand in the real estate market during the ongoing festive season. Easing consumer inflation and stable interest rate have given greater confidence to the supply-side stakeholders and financial institutions.

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 segments. 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; and above 50 demonstrates a positive sentiment while below 50 indicates negative.

Scoring the highest in 11 quarters, the Developer Future Sentiment score has inched up from 65 in Q2 2023 to 66 in Q3 2023. The 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.

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 enhanced confidence in the Indian economy. The pause in the RBI rate hike has positively influenced the sentiment of the non-developers.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “Concurrent with the ongoing Russia-Ukraine war, the conflict in the Middle East has created a new geopolitical disturbance into the already challenging global environment which is also suffering from high inflation in the developed economies.”

“Despite all these uncertainties India’s economy continues to exhibit strength. Its improving near-term inflation outlook and resilient economic activity has improved consumer and business outlook for all sectors, including real estate. The scores highlight the heightened demand in the residential sector supported by stable interest rates,” he added.

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 per cent of the survey respondents expect residential sales to increase in the next six months. In comparison, 55 per cent of the respondents were of the same opinion in the previous quarter.

About 72 per cent of the survey respondents expect the residential prices to increase in the next six months, 64 per cent of the survey respondents held a similar view in the previous quarter. In Q3 2023, 63 per cent of the stakeholders were of the opinion that residential launches will improve in the next six months. In Q2 2023, 62 per cent 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.

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 per cent 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 per cent of survey respondents expect office supply to improve in the next six months. In the previous quarter, 47 per cent 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 per cent of the survey respondents expect office rents to increase, whereas in the previous quarter, 45 per cent of the survey respondents held a similar view.

Hari Babu, President-NAREDCO, said, “While the recent geopolitical disturbances have certainly affected the Current Sentiment Index Score resulting in a modest decline, the resilient Future Sentiment Score reflects the enduring confidence in the Indian real estate sector's potential. It is reassuring to note that despite certain challenges, stakeholders across different zones have maintained a positive outlook for the next six months.”

He said, “The significant rise in the Developer Future Sentiment Score, the highest in the past 11 quarters, is testament to the unwavering spirit of the real estate community. Similarly, the growing confidence among non-developer entities such as banks, financial institutions, and PE funds, signifies a strengthening belief in the sector's ability to navigate through uncertainties.”

Hari Babu further said, “The upbeat residential market outlook, propelled by festive fervour and increasing sales and pricing parameters, underscores the sector's resilience in the face of volatility. Equally promising is the buoyancy seen in the office market, with stakeholders foreseeing a surge in demand, leasing, supply, and rents, despite the global economic concerns and recent geopolitical disruptions.”

“NAREDCO is committed to supporting the real estate sector's growth and advocating for policies that promote stability and sustainability. We remain vigilant in monitoring market trends and will continue to work towards fostering a conducive environment for the industry's long-term prosperity,” he added.

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 per cent in Q2 2023, 56 per cent 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 per cent of surveyed respondents expect an increase in funding availability in the next six months. A similar opinion was held by 49 per cent of survey respondents in Q2 2023.

The total amount of foreign direct investment (FDI) received between April and July 2023 decreased by 67 per cent 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.