Retail sentiment in real estate improves in Q3, but not robust yet

The retail sentiment towards real estate sector has improved significantly in the third quarter of 2020 - be it the current or future sentiments. According to the 26th Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q3 2020 Survey, Future Sentiments scores (for next six months) for the sector are in the optimistic zone at 52 points, up from 41 in the previous quarter. The Future Sentiment Score moved into the optimistic zone for the first time in 2020.

The 'Current Sentiments Score' (for past six months) also recorded substantial improvement to 40 points from the previous quarter low of 22 points. However, it is still in the pessimistic zone. A score of above 50 signifies 'Optimism' in sentiments, a score of 50 means the sentiment is 'Same' or 'Neutral', while a score below 50 shows 'Pessimism'.

"This revival in sentiments is attributed to the remarkable upturn seen in the real estate business, especially in the residential segment, in the third quarter of 2020 as a result of the unlocking process," the report said.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, believes a significant drop in home loan interest rates and festive offers has boosted activities in the sector, resulting into the positive outlook.

"An increase in real estate activities has been a great morale booster for the sector. Quarter 3, 2020 (July-September) saw residential sales volumes increase to 55 per cent of pre-COVID levels, showing signs for revival. Low home loan rates and discounts/ attractive offers for residential homes, have pushed sales velocity in the third quarter. Even while the volumes are yet to catch up to the pre-Covid levels, the spurt has been instrumental in perking up sentiments. Similar positivity is visible for the office sector as well, where we have seen a revival of leasing activities," he says.

Zonal score shows the Future Sentiment Index for South and North zones have seen maximum improvement in Q3 2020. South zone score jumped to 65 in Q3 2020 from 42 in Q2 2020 whereas the North region score jumped to 55 in Q3 2020 from 38 in Q2 2020. At the same time, the East zone score has improved to 50 in Q3 2020 from 40 in Q2 2020. For West zone, the score remains in the pessimistic zone at 47 in Q3 2020, though up from 38 in Q2 2020.

Ram Raheja, Director, S Raheja Realty, says his firm has been receiving increased enquiries about the housing market as most investors are looking at real estate as an attractive investment option at a time when interest rates on other investment avenues are quite low.

"COVID-19 has brought about a drastic shift in the minds of both homebuyers and investors. There is a sense of realisation about real estate being one of the safest, secured and crisis-proof investment class amongst all the other asset classes. Demand and inquiries have been high and we have made considerable sales on our project launched in the last quarter," says Raheja.

According to him buyers and investors both are turning towards real estate in the current times. "We anticipate the sentiment to continue to improve further as the festive season approaches, especially in the luxury housing segment. This is backed by various facts including the pent-up demand due to the recent stringent lockdown, evolution of real estate as the preferred investment class and the need for a bigger and better space given the massive change in work dynamics."

Even fence-sitters are expected to jump the gun as the temporary drop in stamp duty of as much as 4 per cent since the last financial year is working as a major catalyst to encourage home-buyers this festive season. "The stamp duty is set to rise post December 31. Given the higher ticket size of the luxury segment, fence-sitters are likely to take the plunge," he says.

Commercial space

The office sector also resumed operations, at varying occupancies across markets as occupiers took steps to ensure continuity in business operations to their highest potential. On the supply front, 64 per cent of the Q3 2020 survey respondents - up from 55 per cent in Q2 2020 - opined that new completions and project deliveries will either increase or remain at the current levels, over the next six months. With respect to office leasing activity, 47 per cent of the survey respondents expect it to increase in the next six months, a significant increase over the 27 per cent respondents who expected an increase in Q2 2020.

"In the last few years, India's office market has been performing well despite the overall slowdown in the real estate. It has been driven by strong demand for prime office space on rent by corporates of the country and has attracted investors given it generates rental yields of 7-8 per cent as compared to 2-3 per cent in housing segment," says Krish Raveshia, CEO, Azlo Realty.

"With regulatory liberalisation in 2020, the Indian real estate market has opened up making 'Invest-In-India' story more compelling. Growth in Q3 was more than Q2, and growth in Q4 is likely to be more than Q3 with unlocking happening and COVID cases seeing a decrease. Locations like Ghatkopar, Goregaon (E), Andheri are likely to turn to be hot hubs for commercial as businesses move towards satellite offices outside central business districts."

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