Year in Review. Real estate: On revival mode

Structural reforms such as the introduction of the GST and enactment of the RERA Act initiated in the last two years have rewarded the real estate industry in 2018.

While the sector was on the stage of recovery earlier this year, the NBFC crisis and tight liquidity situation, along with hardening interest rates played spoilsport, as a result of which most companies in the sector witnessed stiff correction in their stock prices. After gaining over 90 per cent during 2017, the realty index declined over 30 per cent during 2018. However, the residential segment looks set for a robust revival after tepid demand for the previous 2-3 years. New project launches have picked up and unsold inventories are declining. Commercial real estate has also seen steady traction, given the shortage in its availability.

Also, the structural reforms have helped new segments such as warehousing, affordable housing and logistics parks gain traction. Players such as Oberoi Realty, Sunteck Realty and Phoenix Mills have realigned themselves to tap into newer business opportunities.

Office space demand

Lack of quality work space has made commercial operations lucrative. Companies that have diversified into hospitality (hotels), retail (malls and shopping complexes) and office space rentals(leasing) were able to cushion the impact of residential market slowdown.

Phoenix Mills, for example, reported retail space consumption growth of 9 per cent y-o-y for the January-September 2018 period. The rental income grew 14 per cent y-o-y during the same period. Other realty companies that are predominantly into the residential space, such as Oberoi Realty, Brigade Enterprises and Sobha, also have branched out to the commercial segment (office space).

For instance, Brigade Enterprises launched 6 commercial projects between January and September, with average realisation around ₹5,510 per square feet. Sobha’s realisation, on the other hand, is about ₹7,700 (on an average).

For Mumbai-based companies such as Oberoi Realty, rentals for its commercial buildings such as Commerze II phase I, have increased from ₹123 per sq ft per month (March quarter) to ₹134 per sq.ft per month (September quarter).

Other realty players such as Godrej Properties, Sunteck Realty and Prestige Estates Projects are also expanding their commercial business operations.

Residential segment

After being almost stagnant in the last two years, the residential segment launches revived in 2018, according to the data from JLL, a real estate and investment management services company. This is visible across key metros such as Bengaluru, Mumbai, Pune and Hyderabad.

For instance, Brigade Enterprises has nearly 77 per cent of its developable projects area in the residential segment and the majority of them in Bengaluru. Between January and September, nearly 66 per cent of Sobha’s projects sales were in Bengaluru regions.

Similarly, Godrej Properties launched about five residential projects during the same period in cities such as Mumbai, Noida and Pune.

Also, companies with presence in middle and lower-income housing segment performed better as volumes are robust and project completion is quicker. For instance, Sunteck Realty has been mostly into premium residential housing, but has forayed into affordable housing projects.

COMMENT NOW