Commercial real estate to continue its boom in 2020; residential sales may see growth only in H2

The year 2019 was a mixed one for the real estate industry. And it is likely to be the same in 2020, or for most months during the year. While developers continue to sound optimistic, not all is well -- particularly in the residential market.  

First, the bright spots. Commercial, or office real estate boomed in 2019 and is likely to further bloom in 2020. The supply is steadily increasing, so has the absorption rates. Vacancies are down for the top grade buildings while rents in many markets have risen. Unlike the residential side, the office market is characterised by transparency, and in most cases, on-time delivery. Rents could inch up because there is limited ready-to-move-in supply in major markets. Companies looking for larger spaces, of say half a million sq ft, are pre-committing to developers that are starting work now.

Commercial, as also the logistics real estate, would also be buoyed by the depth of India's economy over the mid-term. In 2019, India became a $2.7 trillion economy and now wishes to touch $5 trillion by 2024-25. Logistics real estate is likely to see heavy investments in tech-enabled warehouses -- concrete or low quality steel godowns are now being replaced by steel structures, which are pre-engineered in factories and then assembled at the location. The way India stores is changing, particularly, after GST was enforced in 2017. Fast moving consumer goods companies, consumer durable and other manufacturing firms are consolidating smaller warehouses across multiple states, set up to be tax efficient, into a few strategic but large ones considering India is now a single tax country. From managing single company warehouses, logistics companies are shifting to multi-client, multi-product models.

So, what about residential real estate? The second half of 2019 didn't have encouraging news to forecast a stronger first half of 2020. ANAROCK Property Consultants cited "unrelenting liquidity crisis, lower-than-expected buyer sentiments and faltering GDP growth" as reasons for poor housing growth. Of the 2.61 lakh housing sales in 2019 across the top seven cities, over 56 per cent were sold in the first half itself. Residential sales in the second half of 2019 plummeted 22 per cent against the first half of the year. ANAROCK added that on the supply front, of the 2.37 lakh units launched in 2019, the second half had new addition of 97,000 units as against 1.4 lakh units in the first half.

"Residential growth in 2020 will mainly depend on the swift on-ground implementation of some of the previously-announced sops including stressed funds (of Rs 25,000 crore). If not, it may negatively impact the sector with buyer sentiments derailing even further. And if done timely, these measures will yield positive impact on the Indian real estate in 2020. A major part of the residential growth will most likely unfold in the second half of 2020. And, the financially stronger players will stay ahead in the game," Anuj Puri, Chairman, ANAROCK Property Consultants, noted.  

One segment of the residential market that could witness and sustain some momentum is affordable housing. In 2019, overall new supply in the segment rose 22 per cent -- from 77,590 units in 2018 to nearly 94,530 units in 2019.

Yet another trend to watch in 2020 would be rental housing. Parveen Jain, CMD of Tulip Infratech & Vice Chairman of industry body NAREDCO says that metropolitan places like NCR are becoming a popular destination for renting as it comprises global cities like Delhi and Gurgaon and their expanding subsidiary towns. "As masses from far-off places and other states converge here in search of jobs at all levels and for amenities available here, the demand for housing, and in turn, for staying on rent is ever increasing in the NCR area," he noted.

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