Global investors, looking for stable yields and steady returns, are expected to have strong exposure to India's new-age realty assets such as data centres, cold storage, co-living and other emerging portfolios in 2022, saidRamesh Nair, CEO, India and MD, Market Development, Asia, Colliers, in an interview. Excerpts:
What are the factors that would bring back recovery for the Indian realty sector in 2022?
The year 2022 is expected to see growth in real estate, after facing pandemic-led shocks in 2020. Economic activity is in full gear, with GDP growth pegged at 9.5% for 2021-22. The fast pace of vaccinations is encouraging occupiers to bring back employees to offices. Buoyed by the growth in e-commerce and the need for same-day delivery, the warehousing sector is likely to see increased traction over the next few quarters.
Technology will continue to be the predominant theme across the realty sector. On the residential front, sales momentum is expected to continue in 2022. Low home loan rates, stamp duty concessions and realistic prices will give confidence to homebuyers and fence-sitters. Large deals are back in the sector and this trend will push up the absorption by 15-20% in 2022 over last year.
What is the cumulative business loss of the Indian realty industry on account of COVID-19?
The construction and real estate sectors came to a grinding halt on the back of the nationwide lockdown and a series of restrictions announced in the past two years to contain the spread of the virus. Reverse migration of labour added to developers’ woes. Negligible purchase and sale transactions were reported. The sluggish business environment exposed developers to a severe fund crunch. The loss of output in the sector can be gauged from the fact that gross value added (GVA) from construction contracted by a sharp 8.6% during 2020-21. At the same time, financial and professional services, which include real estate, shrunk by 1.5% during 2020-21 compared to 7.3% during the previous year (pre-COVID).
Could you give us a sense of expected foreign fund flows into Indian realty by 2025?
Investment inflows from foreign PE investors have visibly increased during the last two years and is likely to grow in the next 3-4 years.
Over the next three years, we expect more foreign investors to enter the Indian market. We anticipate more capital to be deployed in build-to-core mixed-use, office and warehouse assets as more investment platforms are formed between global private equity funds and local developers.
Also, over the years, global private equity (PE) players, sovereign wealth funds and pension funds have gradually increased their footprint across asset classes led by reforms and relaxations in FDI and the real estate sector. With the increase in digital adoption and e-commerce during the pandemic, warehousing and data centres have been drawing strong investor interest in recent times. Moreover, the success of the listed REITs has provided a new route for investments. Hence, the institutional investments have shown resilience despite the pandemic and this momentum is likely to continue in 2022 as well.
How are realtors coping with post-COVID changes in customer behaviour?
It is true that the pandemic triggered a massive reverse migration in the country. This only exacerbated the distress of developers who were already grappling with business challenges. However, the market started looking up with the unlocking of the economy and resultant improvement in the business environment. Developers now have recalibrated their products and pricing strategies to align with the evolving homebuyer preferences. They adopted a more flexible and amenable approach for serious homebuyers. They were timely in doling out lucrative offers, discounts and freebies during festive periods, thus clocking higher sales.
Are buyers wanting increased comfort levels at homes as they are staying and working from home?
The pandemic has reinforced home ownership and the desire to own a house is perhaps stronger than ever before. The combined impact of historically lower interest rates (6-7% from the highs of 11-12% a decade ago), realistic pricing and attractive offers of developers has created an affordable symphony in the market. With hybrid work and education model, there is a greater demand for larger apartments, gated communities replete with amenities and wellness features. Homebuyers are now placing emphasis on layouts to ensure the presence of balconies and an additional room for work and kids’ classes.
Could you give us a realistic view on office space uptake?
After facing a slowdown due to the second wave, office leasing rose by 89% QoQ in Q3 2021, with 10.3 million sq. ft. of gross absorption, the highest volume recorded since Q1 2020.
We expect the optimism to further strengthen over the upcoming quarters in 2022. Large deals are back in the market, and occupier confidence is returning. However, there is some uncertainty looming around due to the new Omicron variant. Developers and occupiers are likely to remain cautious in taking decisions during the first quarter of 2022.
