The residential real estate sector has been facing headwinds for the past few years, primarily due to weak demand. This is reflected in declining sales velocity and subdued cash collections (both in fiscal 2016 and in the first half of fiscal 2017), fewer project launches, and large unsold inventories. Demonetisation has further impacted demand, especially in secondary market transactions and in micro markets with high investor concentration. Demand remains muted as buyers adopt a ‘wait and watch’ mode.
Developers are likely to face funding challenges in the short-to-medium term, which could further delay ongoing projects. In addition to high reliance on non-bank funding, developers with a diversified portfolio are further leveraging commercial assets and resorting to sale of assets to tide over funds crunch. Over the long term, however, demonetisation, along with the implementation of The Real Estate (Regulation and Development) Act, 2016, should improve transparency and support the industry’s growth and end users’ confidence.
Demand is expected to remain muted in the near term and recover gradually over the medium term, with sustained improvement in macroeconomic conditions. In the affordable housing segment, demand is expected to stay strong given the relatively low ticket sizes and impetus from the government’s ‘Housing for All’ programme.
The allocation under the Pradhan Mantri Awas Yojana received a special allocation of Rs 29,000 crore for fiscal 2018, an increase of 38.7% over previous fiscal.
In commercial real estate, vacancies have reduced steadily on the back of increasing absorption over the last couple of years and limited additional supplies. Rentals have also been rising steadily. Occupancy is expected to stay healthy driven by improving business conditions.
The retail sector continues to witness strong traction given the healthy performance of large and established retail malls across the country. Large foreign institutional investors have been scouting for good properties across metros, and large and small cities, given the strong growth potential over the medium term.