Things are not looking up for India's residential real estate sector. Given India's consumption slowdown across industries, sentiments among real estate sector's stakeholders have only worsened in the second quarter, a survey by consultancy Knight Frank, industry bodies FICCI and NAREDCO found. The stakeholders have downgraded the outlook for the ongoing six months to 'pessimistic' in the Real Estate Sentiment Index Q2 2019.
In a note, Knight Frank noted that "the overall slowdown in the economy, coupled with factors like the NBFC crisis, developer defaults and bankruptcies, have slackened the sentiments of the sector, especially for the residential segment. The situation is further compounded by factors like the ongoing liquidity crisis and a diminutive demand scenario."
Here is a summary of what the Index stated:
- The future sentiment score in Q2 2019 dropped to 52 compared to 63 in the first quarter. The fall suggests that the industry is exercising caution.
- The sentiment score of the developers and the financial institutions for the coming six months significantly plummeted in Q2 2019. Financial institutions have moved into the 'pessimistic' zone at 48 (versus 64 in Q1) while developers were at 52 (versus 64 in Q1). Developers are possibly more optimistic because they anticipate a growing affordable housing business.
- About 74 per cent of stakeholders in the survey opined that the economic situation will be the same or may even worsen in the coming six months, showing low confidence on market situation to be able to elevate the current situation.
- Knight Frank stated that a slowdown in consumption, lower investment and tightening of borrowing ecosystem has further compounded to negativity in outlook. Global rating agencies including International Monetary Fund (IMF), DBS Bank and Asian Development Bank (ADB) have lowered India's GDP outlook.
- About 53 per cent of the stakeholders have opined that the funding scenario may worsen in the next six months with lenders exercising caution in lending to sectors such as real estate, automobile and other consumption driven sectors.
The commercial market, particularly the office market, continues to remain the only ray of hope for the beleaguered industry. The outlook for the office sector remained positive as 83 per cent "respondents say that office supply as well as demand will see positive movement". Stakeholders were also optimistic on rental growth over the next six months.
Niranjan Hiranandani, National President of NAREDCO, noted that "liquidity being the oil of the India's growth engine needs a quick fix resolution enabling Indian Real estate to play its role in enhancing GDP growth in tandem with ample job creation. As known globally, real estate and infrastructure development have proved to be the economic drivers, Indian stands no different."
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