The current year will be recorded as a year marked by consistent volatility on account of both international and domestic events. On a global front, several factors such as rising oil prices, simmering geopolitical tensions between the US and China, prospects of an escalation in the trade war, and uncertainty in the Middle-east and Europe, have caused recurring stress to the markets.
Domestically, the Non-Banking Financial Institution's (NBFC) liquidity crunch has impacted the stakeholder's sentiments. High crude oil prices coupled with weakening Indian currency asserted pressure on the Reserve Bank of India (RBI) to increase the interest rates. The real estate industry experienced the protracted impact of structural reforms undertaken in the last 24 months, such as Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), and Demonetisation, which collectively changed the way the business is conducted in the country. The Indian real estate sector, while remaining largely optimistic, had its woes to deal with during the year, with various asset classes reacting differently to the global and domestic stimuli.
While we witnessed healthy growth in office, industrial and retail sectors; similar trends were recorded in the niche-segments such as co-working, co-living and student housing. Considering sustained policy focus on the construction of important national highways and industrial corridors, we saw continued strength in logistics and warehousing with growing interest from occupiers and overseas investor community alike.
The residential sector remained subdued. Although the supply side has done well given a healthy uptick in the number of launches, consumer demand has been lacking momentum especially in premium and luxury residential segments. However, there was an uptick in the affordable housing sector – both from supply and demand side which leads us to believe that it would be a key driver for the residential sector in the coming times. Further, the Knight Frank Affordability Index, a measure of how expensive the housing market is, points at rising affordability in several prominent cities. In cities such as Pune, Kolkata and Ahmedabad, the Index was well within the comfort level of the benchmark, while in cities like NCR, Bengaluru, Chennai and Hyderabad, it hovered close to the benchmark.
Going forward, we believe that the commercial sector would continue to perform well, although it might face the interim risk of supply shortage. The sector along with industrial, retail and frontier segments such as co-living and student housing should continue to develop further. Additionally, affordable housing should witness positive movement.
It is important to remember that the secondary and tertiary sectors of the Indian economy have attained a certain level of momentum, from where they will continue the forward-push. Eventually, this should bode well for the residential sector too. As sustained growth takes place in these sectors, increasing financial security over the next couple of years should lead to higher participation in the residential real estate.
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