Real Estate Year End 2020 Review & Outlook 2021
While 2020 has been an unprecedented year globally, it has been able to create certain unique opportunities for the Real Estate sector that are likely to usher in a new era of innovation and digital transformation going forward. The Covid-19 pandemic has necessitated recalibration at a systemic and individual level, including the Real Estate sector, which has shown remarkable resilience in the face of the pandemic. The year 2021 would require us to reimagine the way we have operated so far. Below is a lowdown on how the Real Estate story unfolded in 2020:
Office: Quarterly growth was up by 14% from Q2 2020 – Q3 2020
The commercial Real Estate sector has made large strides in the past decade. Robust occupier interest, ascension of organized Real Estate developers and the emergence of institutional capital have accelerated this growth. The quarterly growth in office space take was up by 14% from Q2 2020 – Q3 2020, with increase in absorption of space from 6.9 million sq. ft to 7.9 million sq. ft. At an overarching level, the future of the workplace has been witnessing a lot of debate, most of which has been centered around how office space would be used and designed, what role would tech play, and what status would the workplace hold in terms of its physicality amid changing work patterns.
The post-Covid-19 new normal has been characterised by the evolution of work patterns, which has altered the way both occupiers and developers have operated so far. While concepts such as wellness, workplace strategies and agility have been around for some time, their enforcement is expected to strengthen and advance further in the coming years. In addition, as operations have commenced in a phased manner, companies could in the future prefer a more distributed workforce. Therefore, it would be reasonable to believe that the workplace would be less centralized and have more widely distributed teams that are appropriately linked through technology.
We are also witnessing a growing inclination towards a hybrid work model, wherein, a portion of the workforce would be able to work-from-anywhere (WFA) with the option to operate out of remote locations on certain day/s of the week. However, a majority of the firms would retain the traditional physical space model as they arrive at an optimum remote working / workforce intensity for themselves.
Retail: Quarterly growth was up by 79% from Q2 2020– Q3 2020
The growth of the Indian retail sector has been marked by rapid evolution in consumer behavior and growing integration of online and offline retail formats over the past few years. Discussion around the transformation of the retail sector has intensified in recent years as the industry adopts new technologies and approaches to fulfill consumer demand. The pandemic has accelerated many of these trends, with e-retail progressing from being a regular habit for a minority of consumers to becoming a new norm of shopping behavior. The quarterly growth in retail space take was up by 79% from Q2 2020– Q3 2020.
Going forward, upmarket and niche grocery stores are likely to expand as Indians become more health-conscious and dine at home more frequently. Within F&B, fast-food players and coffee shops would continue to expand cautiously, with rationalized spaces and a robust home-delivery model. Touchless tech would also be a key trend as retailers increasingly digitize merchandising and transacting mechanisms. The role of brick-and-mortar stores would evolve from just being a point of sale; they would be expected to also serve as platforms to engage consumers and amplify brands. This might require a thorough re-evaluation of the location, design and operation model of retail properties. Within retail stores, CBRE also foresees a change in space densities of fitting rooms, product testing zones, pick-up counters, and stockrooms. This changing nature of the retail store is likely to spur retailers to diversify their store formats and networks. CBRE expects to see a higher number of stores with unique features and product mix – all of which would continue to operate under a cohesive brand culture.
Logistics: Quarterly growth was up by 105% from Q2 2020 – Q3 2020
India’s Industrial & Logistics (I&L) RE sector has witnessed a transformation after 2017 in terms of the quality of assets, mode of operations and type of investments. Despite the pandemic affecting leasing activity, it has shown remarkable resilience. In 9M 2020, 3PL firms and e-commerce operators accounted for more than half of the leasing activity, followed by engineering and manufacturing firms. Hyperlocal delivery gained steam during the pandemic as e-commerce players began sourcing their deliveries from neighborhood stores to meet customer demand. The quarterly growth in warehousing space take was up by 105% from Q2 2020 – Q3 2020, with increase in absorption of space from 2.2 million sq. ft to 4.5 million sq. ft.
The coming year is likely to see a continuation of this trend as demographic groups that previously displayed resistance towards online shopping have displayed acceptance due to its recently realized convenience and health safety. As a result, maintaining higher stock levels is likely to become a norm which is expected to generate higher I&L demand from e-commerce players and in turn, 3PL firms. Another outcome of the pandemic on the Indian I&L sector has been the diversification of the supply chain, given the disruption caused by the pandemic in both supply and demand. As a result, occupiers are now adapting a modern, networked supply chain ecosystem that lays equal emphasis on resilience, near-shoring capability, sustainability, and agility, thereby ensuring timely and transparent data flow among stakeholders. This digitization is also moving towards warehousing facilities where, going forward, the use of AI, IoT and Big Data would result in the creation of smarter warehouses that would significantly improve supply chain efficiencies.
Residential: Housing sales in Q3 2020 increased by 86% on a quarterly basis
Green shoots of recovery have now been witnessed as housing sales in Q3 2020 increased by a strong 86% on a quarterly basis. The apartment units covered in top 7 cities was 12 thousand units in Q2 2020, however it grew to 22 thousand units in Q3 2020. This was largely due to strong policy support, low mortgage rates, reduction in stamp duty and property registration fee (in a few states), along with incentives and attractive payment schemes offered by the developer community. Last-mile funding mechanisms provided by the government for delayed housing projects have helped in boosting stakeholder sentiments. This has created an enabling environment which has strengthened the confidence levels of end-users and fence-sitters.
Going forward, we expect a gradual improvement in sales across all segments, although mid-income (Rs. 45 lakh to Rs. 1 crore) and budget (less than Rs. 45 lakh) categories are expected to be the key focus areas among homebuyers and to perform relatively better. The two segments together accounted for a share of more than 80% in overall housing sales in YTD 2020 and are expected to dominate residential sales going forward in 2021 as well. In addition, projects launched in locations with developed physical and social infrastructure are expected to see greater traction in the coming year.
Although the demand for ready-to-move-in projects is expected to be stronger, GST rate cuts for residential properties have bridged the taxation gap between an under-construction and completed project, thereby whetting the appetite for under-construction projects. We expect similar policy measures to continue to bolster housing demand. Heightened activity is expected in leading cities such as Bangalore, Hyderabad, Mumbai, Pune and in Delhi-NCR (select parts of Gurgaon and Noida).
Alternate Segments: Flexible Workspaces, Data Centers, Cold Storage Units
The year 2020 has witnessed an amplified interest in alternative asset classes such as flexible workspaces, data centers and cold storage units. We expect this interest to continue into 2021 as well: Flexible workspaces over the last few years have been gaining traction in India. The coming years are likely to witness occupiers adopting a service-oriented role, leading to the growth of space-as-a-service model. Providing customised end-user experience is also likely to gain more ground, which could give a fillip to managed workspace providers.
The rise in usage of smart devices, coupled with increasing amounts of data consumption, has led to a surge in data storage and processing requirements in India, which has further widened the role of DCs. We believe that occupier demand for data storage is likely to increase in the coming quarters, with the country’s DC capacity expected to cross 600 MW during 2020-21. Supply addition in the coming years is expected to be dominated by Mumbai, Chennai, Hyderabad and Delhi-NCR.
The demand for CS facilities is being further fueled by huge omni-channel distribution of Food & Grocery (F&G) across tier I and II cities. Currently, the overall cold storage (CS) capacity in India stands at about 37-39 million tons. CBRE expects the overall CS Real Estate stock to rise to 1,400 -1,500 million sq. ft. and the overall CS capacity is expected to reach 70 - 75 million tons by 2023.
Outlook
In these extraordinary times, RE stakeholders have an opportunity to structurally reimagine their strategies to ensure sustained recovery. Doing so would require shifting from traditional approaches and embracing new, transformational methods — which would be accelerated by widespread tech adoption, sustained policy impetus, and accelerated investor interest. We believe that with stakeholders becoming increasingly interconnected and inter-dependent, they would need to jointly develop their RE strategies going forward. In the long term, most businesses would have to relook at their space design from a technological and social distancing perspective to streamline sanitization methods being deployed currently. Another potential shift in long-term occupier strategy would include a stronger preference for buildings with wellness and sustainability features. Overall, we expect demand for Real Estate to remain robust and the sector to emerge resilient in the future.
Rakesh Reddy, Director, Aparna Constructions & Estates
The Real Estate sector of India is pegged at $180 billion and poised to grow to $1 trillion by 2030. It contributes 11% of the GDP and is the second largest employer in the country. 2021 is likely to be a promising year for the sector. While the revival at the national level stood at 79%, markets like Hyderabad, Chennai and Bangalore witnessed close to 100% revival in consumer demand in just 1-2 months into the unlock. In fact, Hyderabad witnessed the fastest recovery with a 145% increase in project launches in September 2020 as compared to June 2020, accounting for over 40% of new launches across major metros.
As per data collected at the end of September 2020, Hyderabad also had the lowest level of unsold inventory at 27,510 units; the city recorded an increase of 10% in unsold inventory due to high volume of launches during the quarter. As of Q3 2020; its unsold inventory was only 4.6% of the national unsold inventory across eight metros, and the unsold inventory is expected to clear within 18-24 months, indicating a positive year ahead. Today, home buyers are looking for properties that provide value additions like premium amenities, smart technology and social infrastructure, which will lead to increased demand for premium properties. In 2021, more and more developers will invest in automation, artificial intelligence, and big data to improve efficiency and mitigate risk; thereby improving consumer experience.
However, for long-term growth of the sector, it requires a strong impetus from policy makers. Recently the Reserve Bank of India had asked the lenders to link the loan rates with repo rates so that the EMI burden can be further reduced on consumer home loans as well as give them more access to capital. It will also reduce the debt repayment burden on developers. The need of the hour will be to ensure that the transmission of these rate cuts is implemented with immediate effect. Similarly, revisiting the credit structure in 2021 can boost the sector tremendously; allowing ease of financing is also crucial. The government should also look at reforms like FDI relaxations which will attract more investment into the sector. All these initiatives will lead to a steady demand generated through urbanisation, rising household incomes, and the incentivization of affordable housing.
The government’s initiative to provide funds for stalled Real Estate projects is a positive step as the sector has been facing an acute liquidity crunch. The upcoming budget should reflect the far-reaching magnitude of the Real Estate sector and grant infrastructure status. This will lead to financing being available to the developer at lower interest rates, and in turn, make homes more affordable. Apart from regulatory changes, structured financing impetuses have to be considered in the upcoming budget. The realty sector requires demand-generating measures that will curtail the slowdown in economic growth. This includes tax relief measures which will increase disposable income for homebuyers, as well as the removal of tax surcharges for purchasing homes. Expanding the availability of income tax deductions for home buyers can incentivise new buyers and widen the market opportunity. To provide relief to individual taxpayers, the government has proposed a simplified personal income tax regime wherein income tax rates will be reduced for individual taxpayers who forego certain deductions and exemptions.
The government should rationalize the GST rates levied on the construction materials, especially cement and other raw materials, which will bring down the burden of construction cost and the overall pricing. All these measures will ensure easier financing and surplus funds in the hands of potential homebuyers, which will increase demand in 2021.
The Real Estate sector in India has been facing headwinds from the past few years. The situation became tougher owing to the Covid-19 situation across the globe. Construction activities were brought to a sudden halt in the first quarter (Apr – Jun) due to the lockdown and the uncertainty over jobs and livelihoods robbed the market of its potential buyer-base - leading to near zero demand. Post lockdown sales trajectory gives some hope but is yet to touch pre-Covid levels in most cities across the country.
The Government has announced relief measures to aid businesses through these challenging times - be it the loan moratorium, lowering of repo rate resulting in lower interest rates for home loans, approval of projects of Rs. 12,079 crores under SWAMIH fund, and so on. The one-time loan recast has kept almost 95% of the developers out of its ambit due to Standard Account criteria while ECLGS Scheme and increase of safe harbor limit from 10% to 20% in the circle rate and selling price are welcome steps. There are indicators that point towards recovery in the sector, at a less than desired pace. However, the steps announced by the GOI and RBI mitigate the Covid-19 impact to a certain extent and do not address the prolonged problems of the realty sector, which has been ailing due to the challenges created by an array of factors over the past few years. The Government approach to the issues faced by the RE sector needs to be balanced both on demand and supply fronts.
2020 has been a roller coaster ride for the Real Estate industry. The lockdown adversely impacted the sector, resulting in stoppage of construction work and less disposable income with potential buyers due to layoffs and salary cuts. However, we all powered through this pandemic and witnessed a silver lining with a resumption in construction activity. And the extension in project completion deadlines, reduction in stamp duty and timing of the festive season encouraged a boost in sales and regained the confidence of potential homebuyers. Considering the work from home situations, we’re seeing an increase in demand for ready to move-in and larger configuration at micro-markets like Thane & Mulund. We look forward to seeing steady growth in the residential and commercial segment with the help of innovative digital marketing, construction technology and timely government reforms.
The Real Estate sector has witnessed a revival in sales and demand, which are expected to grow in 2021. The pandemic has led to reverse migration to Tier-II cities so demand for homes in these regions is expected to see a positive fillip in the coming year as these cities offer low-cost and relatively larger unit areas, besides lower cost of living, tranquility, and clean air. The ultimate change, however, can only be brought about by consolidated efforts of the industry players, and the trend has already begun.
We are entering 2021 with high hopes. Housing sales saw a sharp recovery in the second and third quarter in all top cities compared to the preceding quarter. With this, it is further expected that the sector will exhibit healthy growth in the future. The pandemic has played a part in shaping sentiments, tastes, and preferences. There is an emerging trend of settling into townships due to the availability of a plethora of amenities available within the vicinity. Integrated urban areas with spaces that are multi-purpose for use will gain more momentum. There will continue to be increased focus on sanitization, hygiene, cleanliness and wellness in apartments and on creating work-from-home office spaces.
While it was being extensively predicted, immediately after the announcement of the nationwide lockdown, that this year for the Indian Real Estate sector will be the year of its greatest fall, the outcome was quite the opposite, with the month of November 2020 recording the highest number of residential registrations in almost a decade. The two most crucial reasons for such an unprecedented recovery was the RBI’s decision to drastically reduce the repo rates that prompted the banks to reduce their lending rates for homebuyers; the second was the decision of various state governments to temporarily reduce stamp duty charges. The reduction of borrowing cost and transaction cost had the highest impact on developments that were ready-to-move-in, as such homes anyways do not attract GST and the reduction in stamp duty charges ensured negligible tax cost for homebuyers.
Going forward, we believe that post April 2021 there will be a period of slowdown, after this phase of panic buying until March 2021. We recommend the stamp duty charges be restricted to 3% for another 12 months post the date defined by the state government of Maharashtra. We would also urge states across the country to consider reducing stamp duty charges temporarily to make buying property lucrative. On the other hand, we sense the government at the centre is wanting to bring lending rates closer to levels at which the west lends and it is this that the Modi-led government believes will be the next leg of growth. We would also like the government to announce the 10% deviation in circle rates for all categories of homes and not restrict it to just homes uptil Rs.2 crores as this will help further reduce the unsold inventory levels in the luxury home segment. We expect the GDP growth to turn positive in Q4 this financial year.
We have started to witness a considerable revival in the consumer sentiments in the past quarter. The current pandemic has made people realise the importance of owning and living in their own homes and want to upgrade to greener, more luxurious, and well protected homes. Condominium demand is expected to be healthy in most of the metro cities. There will be a shift in demand for not just larger homes, but homes that offer a bouquet of lifestyle offerings. Also, with home-loan rates being at an all-time low, we expect the demand and inquiries to continue in the next financial year. India, being a major investment destination for global corporations, will see a rise in investment, and the realty sector would have the opportunity to reap the benefits -both in commercial and residential developments. We see a number of NRIs either moving back to India or looking at investment options here. This will boost the demand for homes starting from mid-segment housing to luxury and super luxury homes.
Bolstered by the revival of economic activity and government initiatives, the Real Estate sector witnessed a turnaround in the festive season. We foresee this momentum to sustain in 2021 due to anticipated economic stability and the revival in customer sentiment. We also expect that 2021 will see consolidation of the industry in favour of organized developers, leveraging of technology to enhance customer experiences, and customer-centricity as the key objective of developers. In the commercial segment, the high-street concept has gained momentum as compared to malls and this will continue in the coming year. The residential segment is already on the path to recovery owing to the pent-up demand and the need to invest in well planned, spacious homes amidst extended work from home. The mid- segment in the range of 85 lakhs to 1.5 crores will witness the highest demand in the residential segment. We recorded sales worth Rs.2500 crores from Apr-Nov 2020 and expect to close this year with a 10% increase in revenue in 2020.
Infrastructure
Kshitish Nadgauda, Senior VP & MD - Asia, Louis Berger
As far as infrastructure development is concerned, the status quo was largely maintained with most of the ongoing projects continuing to be executed across all sectors, albeit at a slower progress rate on account of the nationwide lockdown. New projects were either stalled or experienced a longer tender and award cycle. It is worth noting that the economy had slowed down even before the pandemic which necessitated diversion of critical resources towards containment of the same. Funds had to be diverted to social and health-related causes. The economy started to show signs of a modest recovery in September, with new infrastructure projects beginning to come online towards the end of the year.
In 2021, with the country now largely open for business, barring some restrictions on international flights, the government must give the economy a solid boost with a generous stimulus package for large infrastructure projects. The government needs to boost infrastructure spending across all sectors, but with a focus on de-densification of urban settlements through low-cost housing programs and through the establishment of greenfield development nodes with state-of-the-art infrastructure away from existing urban centers. Such development nodes would need employment-generating investments. The Government must therefore reassess the policy framework towards attracting more FDI across diverse sectors. Healthcare infrastructure must also be given a boost so that any reoccurrence of a pandemic in the future could be better handled, and without crippling the economy.
Vinayak K Deshpande, Managing Director, Tata Projects
Driven by the pandemic and resulting lockdown, we migrated to new digital tools and processes both on and off ground to improve efficiency. We embraced remote working methods and learned to operate with minimal overhead expenses. These measures helped us to enhance our performance amidst crisis; in fact, we built a greenfield hospital comprising 550 beds in a short period of three months.
Infrastructure projects have long gestation periods ranging from three to six years, therefore, short-term disruptions did not have a major impact on the overall industry during 2020. If India has to attain the government’s goal of becoming a $5-trillion GDP by 2024 – then we have to look beyond challenges of 2020 and grasp opportunities in 2021. As most infrastructure projects are government funded and the nation needs good quality infrastructure to keep accelerating India’s progress – the forthcoming year and mid to long-term scenario looks promising.
In the year ahead there will be increased deployment of machines at project sites for timely completion, and enhanced adoption of technology. We have used drones for undertaking stringing operations at our power transmission projects which led to reduction of time and costs while lowering the need for manual intervention. We have started using digital technologies such as 3D & 4D Building Information Modelling (BIM) across many of our projects. Such technology adoptions are expected to increase across the industry in 2021.
NBM&CW January 2021
