The year 2023 has been marked by major global economic shocks such as the Russian-Ukraine war, NATO tension, stressed US-China relations, energy and food crisis, cyber-attacks, and climate risk. These shocks have led to significant geo-political reorientation. It has also resulted in an impending economic downturn in western economies, placing the global economy in a very vulnerable position. COVID-19 is another polarizing issue with many economic and social ramifications. India’s GDP and economic growth rate have also been adversely affected by these global tensions.
Indian real estate sector demonstrated sustainable growth outlook amidst such high-tension events. India’s economy was propelled by a strong capital market, a growing manufacturing sector, PLI schemes, government support for multi-modal infrastructure development, disinvestment to boost Capex outflow, sustainable consumption, improved employment, favourable demographics, robust foreign, institutional, and domestic investment. Due to this, the Indian real estate industry, which has a multiplier effect of 270 allied industries, has achieved record business.
The Indian real estate industry was able to quickly adapt to emerging global market dynamics and helped it gain a competitive edge. Reviewing some of the major trends that shaped the real estate landscapes as a result of geopolitical changes as follows:
Domestic Economy- India’s conducive domestic scenario played a vital role in bolstering real estate growth. The corroborated measures by the government and regulatory bodies like policy restructuring, fiscal and monetary stimulus, disinvestments, subsidizing, and tax stimulus have boded well for real estate. Such growth enablers are fueling demand for residential, commercial, and industrial real estate across India.
Consumption Patterns – The industry experienced a radical shift in consumer behaviour after the pandemic menace. Increasing income of affluent middle-class facilitated lifestyle-oriented consumption. Developers projected record high sales in the mid & luxury housing segments underscoring the importance of multi-purpose, wellness-centric and privacy driven living. There has been a notable increase in first-time homebuyers due to stable interest rates, availability of branded housing stock, and new developments with lifestyle amenities. Soaring home rentals have nudged rent-favored consumers to become homeowners.
Investment Mindset – The shift in consumer mindset from saving to investing has also curated new trends in Indian real estate. The gloomy geo-economic scenario with high interest rates, market volatility, and financial fluctuations makes investing uncertain. India’s strong economic rally has nudged investors to prioritize investment in physical assets. Hence, investors are now focusing on investment-grade A assets in the residential and commercial segments.
Bullish Capital Market – The robust performance of India’s capital market has proven to be an additional source of income for consumers. Increasing disposable income nudges consumers to invest in better housing and lifestyles. Individuals can leverage capital gains by investing in real estate, a wealth-generating asset. This has enhanced liquidity in the market and provided developers with additional funding to fuel new property developments.
Debt Deleveraging- Players in the Indian real estate market have exercised debt-deleveraging to streamline cash flow and maintain a healthy balance sheet. Realty market witnesses an uptick in economically viable projects because of increased financial prudence.
Optimistic Business Outlook- There is a surge in land acquisition activities by developers to increase their market share in response to the steady demand from consumers. Due to the emergence of last mile connectivity, developers are transforming new hinterlands into emerging economic corridors. Hence, the business outlook for FY 24 appears promising.
Robust Credit Borrowing- A strong credit market under the auspices of stable interest rates will continue to drive the real estate business in FY 24. Thus, developers are able to invest in new projects, increase inventory levels, and drive the real estate market forward.
Supply catchup- The real estate supply in the India is actively catching up with the sustained demand. This has resulted in a more balanced market, with stable property prices and increased options for homebuyers and investors.
New Funding Avenues- In recent years, there have been several new business funding avenues available in the market. These include initial public offerings (IPOs), alternative investment funds (AIFs), fractional ownership, real estate investment trusts (REITs), infrastructure investment trusts (InvITs), and private equity. These funding avenues have provided developers with alternative sources of capital, allowing them to invest in new projects and explore innovative business models.
Rentals and Occupancy Rate- The back to office phenomenon has reignited the commercial rental market. We are witnessing a surge in the occupancy of office space as companies resume operations and diversify their footprint across geographies. Consequently, office rentals and new FRPs have increased, providing an impetus for commercial real estate.
Demand from Non-IT Sectors- The demand for real estate in India is not limited to the IT industry. Non-IT sectors, such as healthcare, education, R&D, Pharma, Renewables, Ecommerce, and BFSI, are also witnessing significant growth and contributing to a strong demand uptick for office space. This diversification in demand is encouraging developers to cater to a wider market and create customized spaces.
Rise of Tier 2 Cities- The rise of tier-2 cities has gained significant momentum in recent years. These cities, located outside major metropolitan areas, offer affordable housing options, lower cost of living, and easy access to major cities. They are also attractive to companies looking for cheaper labor costs. Tier-2 cities are becoming increasingly popular for businesses and people alike.
To conclude, the real estate industry will face both opportunities and challenges in the year 2024. It is imperative that industry players recognize domestic trends such as rapid urbanization, a mushrooming middle class, population density, rapid infrastructure developments, digitalization, and sustainability as they set their future business goals. Furthermore, the housing industry must focus on providing affordable housing solutions to meet the needs of its growing population. The upcoming India’s general election 2024 will play a crucial role in defining the industry’s future strategy.
Further, to ensure the long-term viability of the industry, it is crucial for the industry to invest in workforce training and development. External shocks such as trade wars, currency fluctuations, and geopolitical tensions should also be monitored closely. Thus, the industry is very hopeful about robust performance of the Indian real estate industry in the ensuing calendar year 2024.
(By Dr Niranjan Hiranandani, Chairman-NAREDCO National & MD-Hiranandani Group. Views are personal)