2021 outlook: Is it wise to invest in Indian real estate market in 2021?

The real estate market in India is one of the pallbearers of the economy, it is the second-highest employment generator in the country after agriculture. The sector is deeply interlinked to as many as 220 allied sectors. The sector accounts for nearly 6-7 per cent of the economy and is set to account for nearly 13 per cent by 2025 if all reform measures announced are executed well. The sector has been one of the biggest wealth creators in the past few decades.   

After temporary shocks in light of structural reforms such as GST and RERA, the enhanced liquidity in the banking system and a restoration of buyer confidence were slowly trickling through in the real estate sector before COVID-19 hit Indian shores. Therefore, the pandemic-influenced slump is, at best, a short-term blip across all sectors of the economy. With the rollout of the vaccine and resumption of normalcy, the real estate market will certainly bounce back with renewed vigor.

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The pandemic may, in 2021, affect buyers' preferences in terms of choice of real estate: larger layouts with higher safety, hygiene, and captive amenities may find their way to more takers. In terms of commercial real estate, satellite offices in non-conventional micromarkets, i.e. outside the CBDs ( Central Business Districts) will be absorbed faster and more effectively.   

With the wide adoption of WFH (Work From Home) across the IT sector, ITeS buildings may face medium vacancies through the first quarter of 2021 but as the threat of COVID is mitigated, we will see greater absorption in Q2 and the second half of the year.   

Atmanirbhar Bharat and the increase in FDI are indicative of a strong recovery of commercial real estate towards the second half of the year. Vacancies in retail, after an all-time high in the pandemic, are already in decline and an increased uptake of the same is to be expected throughout 2021.

Despite the short-term disruptions, India's commercial real estate sector continues to attract interest from occupiers and investors looking at the long-term horizon. With further relaxation provided by the government post COVID, employers and employees are seeking the right balance of in-office and remote working options.

As we move forward, 2021 will see a steady flow of investment as easy liquidity by global central banks will ensure interest rates are low and funds will chase investments with high yields. Following SEBI's amendment of the rules of REITs, one can expect an inflow of investment in commercial real estate that offers lucrative returns as compared to other investment avenues.

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As per a report by Savills India, PE investment in the Indian real estate sector may recover and garner inwards flow to the tune of $6 billion in 2021, up 30% YoY. The improvement in the economic scenario, boosted by positive reform initiatives, will back the growth.. The office space segment has witnessed decent traction for the current year.

With improving growth prospects, real estate prices in the prime cities are expected to stay stable, with upwards growth in certain pockets as demand grows.   

India is among the fastest-growing economies, Indian government preparing for mass vaccination will ensure the economy is on a growth track in one to two quarters. The accommodative stance by the central bank and liquidity measures will ensure interest rates are low in the short to medium term, aiding growth.

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More so, the Maharashtra government is likely to decide on an updated construction premium and levy policy, a move that will reduce the construction cost for developers in the biggest real estate market in India. The decision will help reduce prices and remain consistent with the government's aim of making properties more affordable.

In summary, with a slew of economic and policy reforms and stimulus packages introduced by the authorities, the sector will have a positive outlook in 2021. With improved buyer sentiment, we see a positive impact on the fence sitters who will now come out and invest, further increasing the demand for more dynamic layouts considering the new normal. The industry is hopeful of an impactful budget from the Finance Minister which will not only help the real estate sector but the entire economy.

(The author is CEO of Azlo Realty.)