india real estate: Realty sector future sentiment score scales up in optimistic zone

Real estate industry stakeholders are confident about India’s real estate sector’s performance over the next six months for both the office and residential sectors backed by the resilience shown by the Indian economy, showed Knight Frank-NAREDCO Real Estate Sentiment Index January-March 2023.

The current sentiment score, while safely within the optimistic zone, has seen a marginal dip from 59 in December quarter to 57 in March quarter. This is mainly on account of stakeholder perception of the global recessionary environment and the risk of a future global downturn still exists.

The Future Sentiment Score – that depicts the industry’s perceptions and expectations, has increased from 58 in the previous quarter to 61 in March quarter on account of the resilience of India’s macroeconomic indicators and improving domestic consumer confidence.

Despite the uncertainty on the global stage, stakeholders are optimistic about the Indian economy and the real estate sector’s performance for the next six months.

The developer’s future sentiment score has moderated from 62 in the December quarter to 61 in the first quarter of 2023. The developer fraternity is optimistic about the next six months as the underlying demand for real estate as an asset class remains strong.

While housing affordability is a concern due to interest rate hikes in recent times, the performance of the residential sector has boosted developer sentiments for the next six months.

“The domestic consumer inflation has softened in many major economies including in India in March 2023. Coupled with strong macroeconomic statistics, India remains largely resilient to global challenges while consumer confidence remains high. This is reflected well in the current sentiment index score that continues to be in the optimistic zone for seven consecutive quarters,” said Shishir Baijal, CMD, Knight Frank India.According to him, in the last four quarters, the RBI has raised the lending rates by 250 bps after a long period of stable rates, despite which, demand for real estate, especially residential, has strengthened in the country, boosting the confidence of the stakeholders of real estate sector for future sentiments. As inflation remains contained, we expect the real estate sector to remain buoyant.”

Interestingly, the non-developer segment including banks, financial institutions, and private equity funds, future sentiment score increased from 55 in December to 61 in March quarter.

Institutional investors, who remained watchful in the past periods, indicated enhanced confidence in the resilience of the Indian businesses to bounce back. The pause taken in the interest rate hike cycle by the Reserve Bank of India (RBI) in its April policy meet impacted them positively and fortified their commitment to investments in India.

“Moving into the second quarter of 2023, the Indian economy and real estate sector are showing resilience and an optimistic outlook despite the possibility of a global economic slowdown. Although the Current Sentiment Index Score has decreased from the previous quarter, we still have confidence in India’s real estate market due to the rise in the Future Sentiment Score,” said Rajan Bandelkar, President of NAREDCO.

The residential market outlook in the March quarter reflects optimism as stakeholders remain bullish on all parameters – sales, launches, and pricing for the next six months. Compared to the past quarter, the percentage of stakeholders who expect growth has increased this time in all parameters – sales, launches and pricing.

In March, the percentage of survey respondents that expected residential sales to increase rose to 48% as compared to 41% of the respondents in December. The stakeholders are hopeful that the current demand momentum will sustain in the next six months in the residential segment, with the pause in the interest rate hike cycle.

In March, 61% of the survey respondents expect residential prices to increase in the next six months. In comparison, during the December quarter, 47% of the survey respondents held a similar view.

In the first quarter, 45% of the survey respondents are of the view that office leasing will increase in the next six months. In contrast, 39% held a similar view in December. Despite global headwinds, stakeholder sentiments remained upbeat towards office leasing on account of strong demand from flex, engineering, and BFSI companies.

In the March quarter, 43% of survey respondents expect office supply to improve in the next six months. In the previous quarter, 50% of survey respondents held a similar opinion. Around 38% of the survey respondents expect office rents to increase, whereas, in December, 30% of the survey respondents held a similar view.