The Indian real estate sector presents a promising landscape characterised by resilience and positive indicators in 2024. Reports, including Knight Frank’s ‘New Horizon Outlook 2024’, highlight a surge in demand in the residential market, notably in regions with escalating logistics supply. Affordable housing thrives, supported by low non-performing assets in home loans and potential interest rate adjustments. In the commercial sector, steady growth is observed, with a nuanced rebalancing in the office space domain.
Investor confidence is on the rise, indicating a return to mid-single-digit growth in 2024. Stable mortgage rates, rising property prices, and a focus on homeownership contribute to a positive market sentiment. Despite these optimistic trends, challenges such as rising interest rates and geopolitical uncertainties persist. However, with a projected Compound Annual Growth Rate (CAGR) of 9.2%, the Indian real estate market is poised for sustained growth.
Residential turf
In the residential real estate market, projections indicate a substantial 43.7% surge in logistics supply across the Asia-Pacific (APAC) region, with India positioned at the forefront. Mumbai, a perennial focal point for real estate, is anticipated to lead with a significant 5.5% year-on-year price growth in its prime residential market. This growth is attributed to robust economic indicators and consistent demand, making it a key contributor to the overall positive sentiment.
Affordable housing emerges as a significant driving force, underpinned by favourable factors such as low non-performing assets in home loans and the potential for interest rate adjustments.
Government initiatives play a pivotal role by indirectly benefitting residential markets around industrial zones, creating a symbiotic relationship between economic policies and real estate dynamics.
Commercial and office spaces
This segment stands as a bastion of strategic evolution. Reports, including insights from Deloitte, affirm a trajectory of steady growth in the commercial sector. While not experiencing the same explosive surge as the residential market, the commercial domain is characterised by a fine rebalancing, as articulated by Deloitte’s insights on upgrading existing office spaces and repurposing underperforming assets. Cities with thriving technology hubs, notably Bengaluru, continue to be pivotal in shaping the commercial landscape. Bengaluru’s prominence in the Information Technology sector positions it as a magnet for investments. The city is also a generator of demand for commercial spaces.
Foreign investment largely shapes the commercial landscape, with India poised to attract significant inflows in 2024. Private equity giants and sovereign wealth funds are eyeing Grade-A office spaces and investing in high-quality commercial projects, underscoring the international recognition of India’s potential and stability.
The rise of Real Estate Investment Trusts (REITs) further amplifies the positive trajectory of the commercial sector. Offering institutional investors a transparent and liquid pathway to participate in real estate, REITs enhance liquidity and transparency, contributing to the sector’s attractiveness. The data points in the commercial domain support this positive narrative.
Deloitte’s prediction of a 2-3% rise in Grade-A office rents in major Indian cities during 2024 reflects the rise of this segment. Additionally, the estimation that the Indian warehousing market will absorb 35-40 million sq.ft. of space in 2024 further underscores the robust commercial real estate outlook.
Overall market sentiment
Restored investor confidence heralds a return to mid-single-digit growth. This resurgence is fortified by discernible market adaptability and strategic measures that have instilled faith in the minds of investors.
Favourable dynamics further augment the positive sentiment. Stable mortgage rates, meticulously shaped by regulatory measures and monetary policies, create an environment conducive to sustained growth. Simultaneously, the upward climb in property prices is indicative of a demand-supply equilibrium, enhancing the allure of real estate as a robust investment avenue.
Challenges ahead
One significant challenge on the horizon is the prospect of rising interest rates, potentially impacting the affordability of real estate. As monetary policies evolve, it becomes imperative for stakeholders to monitor interest rate dynamics and assess their implications on the purchasing power of homebuyers, especially for those entering the market for the first time.
Geopolitical uncertainties emerge as a key factor affecting investor sentiment. In a globally interconnected economy, international events and conflicts can reverberate across financial markets, influencing the decisions of real estate investors. Navigating these uncertainties requires a strategic approach that considers both local and global factors shaping the investment landscape.
Construction cost concerns stand as a persistent challenge for developers. The rising costs of raw materials, including steel and cement, introduce a delicate balance for developers in maintaining project viability, timelines, and budgets. Mitigating these concerns involves strategic planning, cost-effective sourcing, and adopting innovative construction methodologies.
Looking beyond 2024
The evolution of regional dynamics, insights into varied property types, the dynamic investment landscape, and future projections are key focal points in this forward-looking analysis. Regional variations emerge as a crucial consideration, with cities like Mumbai and Bengaluru continuing to play pivotal roles in defining real estate trends. Mumbai’s prime residential market is anticipated to witness a 5.5% year-on-year price growth in 2024, driven by strong economic indicators.
Bengaluru remains a key player in attracting investments and generating demand for commercial spaces. Tier 2 and 3 cities are poised to witness significant investment, particularly in warehousing and logistics infrastructure, contributing to increased demand for residential properties around industrial zones.
Insights into property types offer a multifaceted view of the future landscape. Luxury real estate continues to garner demand, with high-net-worth individuals showing sustained interest in properties offering exclusive amenities. The retail and hospitality sectors are expected to recover, with prime locations and innovative concepts becoming instrumental in navigating changing consumer preferences and online competition.
India’s online housing market is expected to reach a market size of $30 billion by 2025, underscoring the increasing significance of digital platforms in real estate transactions.
The writer is Director, Eros Group.
