With an increasing number of employees returning to office and a robust supply of houses and office space in the pipeline in the forthcoming period, the residential and office sector is expected to witness a better demand than the pre-pandemic years, thereby opening increased investment opportunities, says Shrinivas Rao, a founding member of Vestian Global Workplace Services, armed with over 25 years of experience in global real estate industry.
“On the retail front, improved customer activity and increased investor interest portend fair growth potential for the sector. Investors have also been observed to increase their exposure to emerging alternative asset classes such as data centres and life sciences R&D centres. This development is likely to pick up momentum in the new year. “Additionally, REITs have continued to evolve and, along with fractional ownership, is touted to be a game changer for the real estate sector,” says Mr. Rao.
Shrinivas Rao - one of the pioneers of professional real estate consulting services in India and a keen observer of the changing dynamics of the Asian markets - spoke to The Hindu-Property Plus on the trends and influences that would hopefully see better times for investors, developers and buyers in the New Year.
The residential market of 2022 - was there appreciable business in terms of people buying homes or an appreciable office market that made Bengalurue retain its share of the office space business?
Bengaluru real estate market saw substantial traction in both office and residential markets during the year. The residential market momentum sustained through 2022, with appetite for homeownership undeterred. The city saw new launches and sales in 2022 on a par with the pre-pandemic levels in 2019. While sales in the first nine months of the year were recorded at 37,000 units, new launches were observed to be 35,000 units. With return-to-work in full swing, residential demand is expected to further improve in the city. The recovery in the city’s residential market is chiefly supported by factors such as improving buyer sentiments owing to favourable interest rates, infrastructure upgradation of the city, a growing number of start-ups and unicorns, fresh hiring by IT/ITeS sector, and improving income levels of the millennials.
Meanwhile, the city continued to occupy the top rank in the country in terms of office space absorption. Its office market clocked an impressive 12.7 million sq. ft in the first nine months of the year and is well on its way to surpass the 15 million sq. ft of absorption observed in the pre-pandemic period of 2019. This comes as a remarkable feat, given the uncertainty that prevailed in the office market just two years ago, with the pandemic compelling office occupiers to postpone their office expansion plans.
How far has the effect of Covid on real estate recovery happened? How long do we have to see the consequences where building material costs and apartment costs are seen to be on the rise?
The real estate industry in India has largely emerged out of the pandemic-induced adversities, as depicted by the favourable figures in both residential and office markets. With the pandemic accentuating the need for housing, coupled with low interest rates, the residential market has picked up substantial momentum in the past 18 months. As a matter of fact, the first nine months of the year 2022 saw residential sales across the seven key cities recorded at around 2.3 lakh units, buoyed largely by the RBI’s stand of keeping repo rates unchanged till the third quarter. The office market, too, remained upbeat and the first nine months of the year saw 40.4 million sq. ft of office space absorption, depicting an improvement of 49% when compared to the corresponding nine months in 2021.
What are the other apprehensions?
The current situation marked by global headwinds has impacted the supply chain ecosystem. The rising cost of construction raw materials portends some amount of apprehension. The rising cost of construction would induce developers to increase the price of their products, which, along with increased repo rates, may prove to be an impediment for home buyers. However, we anticipate the increase in repo rate to be a temporary, inflation-curbing exercise that would eventually strengthen the economy and allow the real estate industry to function in a conducive environment in the upcoming future.
With respect to the course that repo-rate would see, people would be interested in knowing more to have their investments in place…
We were expecting the RBI to increase repo rates, given the economic situation of the country. While the real estate market would face an imminent trickle-down effect of the repo rate, it is equally important that the economy continues to grow in a stable and inclusive manner. The repo rate increase is a critical step towards controlling liquidity circulation in the economy, which, in the medium term, would expectedly lead to relative stability, provided the current uncertainty arising out of geopolitical situation subsides. This, undoubtedly, would impact the housing market.
With home loan EMIs set to increase in tandem with the repo rate increase, prospective buyers might be compelled to reassess their buying decisions, particularly first time home buyers who rely mostly on home loans. That said, residential market sentiments are still high and we believe that investment in the right type of property is always a prudent decision. Housing is the quintessential need of every person and residential demand is unlikely to be dispelled. With developers coming up with a number of products suiting budget categories and customer preferences, it would be in the interest of buyers and investors to keep their bearing positive in the forthcoming period.
With land parcels available in Bengaluru, integrated township developments announced by the government will perhaps help negotiate city arterials better and reduce city-clogging?
With increased urbanisation and extensive in-migration for employment opportunities lending substantial pressure, Bengaluru’s infrastructure has been stretched thin in order to meet the needs of the growing population. The city’s faster-than-anticipated commercial development and radial growth owing to the migration of people employed in the IT/ITeS sector has contributed greatly to the current constricted state of infrastructure, particularly the roadways.
While there are a slew of infrastructure projects underway, such as the Metro, suburban rail project and STRR (Satellite Town Ring Road) in order to decongest the city’s roads and provide ease of commuting, the State government has also announced plans for building four satellite towns in Bengaluru and six integrated towns in the State. These towns would expectedly create infrastructure for connecting Bengaluru peripherally and lead to the development of newer growth corridors in the vicinity of the city.
Would 2023 be a good time for investments, given the RE scenario?
While we almost saw global concerns -about the COVID-19 pandemic subsiding (barring the new wave right now), 2022 has seen relative cautiousness with institutional investors, for the major part, opting to wait and watch as developments brought forth by economic slowdown and the Russia-Ukraine war unfolded. The period, nevertheless, has remained positive and saw several important deals being inked in commercial and residential sectors. This implies that investors’ confidence remained fairly consistent. Going forward, commercial and residential assets will continue to hold favourable investment prospects in 2023.