India’s residential real estate sector is witnessing a phenomenal price rise, banking on new infra-additions, better urban transportation, and rising urbanisation. Backed by higher disposable incomes across major cities, and changing consumer preferences, demand for home-buying continues to strengthen and this momentum is expected going forward, says Sankey Prasad, Chairman and MD, India & Middle East, Colliers.
He, however, does not believe that there is a housing bubble that is pricing out genuine home-buyers; and making way for investors.
In an interview to businessline, Prasad talks the ongoing debate on price appreciation leading to a ‘bubble’, factors that will continue to drive demand for residential real estate including luxury offerings, and the commercial real estate market outlook.
Price appreciation for residential markets is phenomenal, upwards of 100 per cent in select regions. Isn’t there a bubble happening?
I wouldn’t think honestly that there is a sort of a bubble there. The Indian real estate market is booming. Prices are increasing due to solid demand urbanisation and growing income. Property prices are rising quite quickly.
In Delhi, the residential markets saw a 46 per cent surge, which is the highest in India. Commercial offices are up 20 to 22 per cent and retail shop experienced a rise to 30 per cent appreciation. Land being a limited resource, it has seen appreciation up to 100 per cent; and between 10 to 50 per cent in other regions. People believe prices will keep increasing, leading to speculative buying. But if demand slows down and prices keep rising, then you see the bubble forming, characterised by high prices, low demand and excess supply. I don’t see such a housing bubble in India.
Here, people are earning more money than before in cities. Demand for homes also will always be higher than the supply here. In India, rapid economic growth coupled with limited development in some areas, has led to a surge in property prices.
Many are now investing in real estate. And while cash flow has increased, infrastructure development hasn’t kept pace. Investors, including private equity, are now looking at a residential tool.
And luxury residential real estate seems to be the buzzword….
Earlier people used to think of affordability. But there is a paradigm shift, which underscores evolving priorities of the urban dwellers. It is also more about experience than buying a home. Today the upper-middle class is at the forefront of this trend (buying luxury). And, rising disposable income is another reason. Add to it easy financing. Global exposure has also changed people’s perception of home buying.
Nowadays, developers are (also) targeting the upwardly mobile middle class with luxury offerings at accessible price points, coupled with flexible payment options.
Going forward if you’ll ask me what’s going to be the norm, it’s going to be satellite townships, which is going to attract a lot of investments with infrastructure developments around these projects. And I’m sure property values will appreciate.
Plus, COVID-19 has accelerated the desire for self-sufficient communities.
What aided residential real estate demand in 2024?
Residential sector has been thriving more on the strong domestic economy. Like for example, urbanisation is something that we know is growing, infrastructure-led development, especially in key cities (has helped), improved connectivity, metro expansion, expressways & arterial roads, and so on. In all cities, infra-addition continues to create new residential and office market demand.
Additionally, government focus on manufacturing clusters – through push for ‘Make-in-India’ or the ‘China +1’ phenomenon – is happening. That means, in these hubs there are land parcels at comparatively affordable prices. Plus these clusters are aiding the concept of developing a nodal city. So, I think that residential demand is going to continue.
Impact of urban consumption slowdown is not really evident in residential real estate sector then?
This (urban consumption slowdown) is quite cyclical from my perspective. But I would still think that this will not have a major impact. There could be steps taken probably, to enhance the labour productivity and address the sagging wage growth. And corporate India, I think, would have to prepare to live with a little lower profitability in the near term to boost the demand.
We also have to adapt to the new realities of the changing consumption patterns, particularly the shift away from traditional to tangible, or you call it as intangible digital products.
Also there is a concern that the cyclical slowdown can deepen if other parts of the global economy slow down. So if business and consumer confidence start falling elsewhere, of course, they will have an impact on our shores.
Does this slowdown impact commercial real estate offtake?
Demand has scaled up in the last two to three years. There is increased Grade A space uptake in Bengaluru, Hyderabad and Mumbai; far higher than 2023. Post COVID, there has been a realisation of the requirement of space which moved away from the 50 square feet per person to 75 sq ft and now 100 to 125 sq ft.
And I feel that this year will be another great year. Already in the first nine months office space leasing is at around 46 – 47 msf. And if you look at the new supply across the top six cities, it increased by 14 per cent y-o-y to almost 37.4 msf led by Bengaluru and Hyderabad.
What is the outlook for commercial real estate?
The space uptake by domestic firms or the global capability centres (GCCs) across sectors, has scaled up office demand. Availability of skilled talent and cost arbitrage compared to other major global markets, have created a favourable position for most of the domestic as well as multinational companies. Office market is stable.
The GCCs, financial sector, and healthcare are leading the way, while (space take up by) IT may not fall among the top five, at present.
Vacancy levels has remained at range about 17 per cent at Q3 2024. With average rent rising annually by 6 per cent to Rs 101.3 per sq ft / month.
E-commerce has seen a sharp rise. Has that impacted retail space uptake?
At this moment looking at the way that the REITs – primarily the first REIT is performing – I do not see that the retail is going to be impacted by the new segment. But yeah, the historic mom-n-pop stores might see stress. The typical ‘mall-culture’ may not be something that you’ll see going forward. So retail will definitely start evolving on lines of developing countries like Singapore where it is sold as an experience, more like street shopping but within the ambience of a mall. Like in the Dubai Mall, for example, they’re modifying it every day to change to the needs from being just that typical mall kind of store to opening it up into so many other areas of retail experience.
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Published on December 14, 2024
https://www.thehindubusinessline.com/news/real-estate/indias-real-estate-market-thrives-amid-strong-demand-urban-growth-and-luxury-shifts-says-colliers-sankey-prasad/article68981585.ece
