YEAR ENDER/ REAL ESTATE. Will 2022 be the year to drive more occupancy for India’s real estate?

After three tough years, India’s real estate sector is hoping that 2022 will be the turnaround year. With Covid–19 being accepted as a part of the new normal, 2022 is expected to see less volatility than previous years.

Pent-up demand and low interest rates could drive up residential sales – mostly mid range and luxury home sales; in the immediate quarters. Growth rates could slow down because of base-effects, say some.

Commercial real estate, mostly office spaces, could take least 3-6 months, if not more, for increased uptick; especially, with rising Omicron cases delaying back-to-office plans. New asset classes in commercial real estate – warehouse and data centre – would drive investor interest in 2022.

Residential Sales

Data from ANAROCK Group shows, residential unit supply between January and September 2021 was at 1.63 lakh across the top 7 Indian cities (Delhi NCR, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Pune) – a 27 per cent increase over 2020 full year.

On the other hand, sales stood at 1.45 lakh units, or 5 per cent higher than in the whole of 2020.

Sequential analysis show supply of units in July -September to be at 64,500 or a 1.8x rise over April to June period of the year; while sales saw a 2.6x jump to 2,800 units.

“The Indian residential real estate sector’s comeback is a sharp V-shaped one,” Anuj Puri, Chairman, ANAROCK Group, told BusinessLine .

Cost Pressure

Price increases are expected to be range-bound in the 5-15 per cent segment (at the end-user level) as developers do not want to spook demand, which is primarily end-user driven now. In 2021, there was a 3 per cent rise in September-quarter ending on the back of an increase in raw material costs.

According to Dhaval Ajmera, Director of Ajmera Realty and Infra Ltd, the NRI investments in the residential market will happen as it becomes resilient to the pandemic-led uncertainty and better foreign exchange conversion rates. “Share of ready-to-move-in homes has increased with people not wanting the uncertainties of under-construction projects,” he said.

Reports suggest PE investments, which increased to $420 million in January –September 2021, was higher than the whole of 2020.

Average home sizes have gone up by 26 per cent, as work from home continues.

Real Estate Stocks

Realty stock rally has been pronounced too.

The S&P BSE Realty Index ( broad indicator of real estate stock performance) was at 1,423 on March 27, 2020 (during Lockdown); and stood at 4028 in mid-December of 2021.

Listed developers like Brigade Enterprise saw sales bookings grow by 59 per cent to ₹1,310 crore in Apr-Sep; Godrej Properties' saw sales bookings jump 18 per cent to ₹3,072 crore during the period; Lodha sold properties worth ₹3,000 cr; (on track to reach the ₹9,000 cr target for FY22); while Sobha Developers reported sales of over ₹1,700 crore for these six months.

Commercial Real Estate

Large office parks reported physical occupancy in the range of 10-15 per cent as of September 2021. But with Omicron cases on the rise, absorption will continue to be slower. Demand is expected mainly from IT / ITES and global MNCs.

Recovery in rental income is expected to be up to 75 per cent of pre-Covid rentals for FY22 (April 2021 to March 2022), which was around 45-50 per cent in FY21. During FY23, rental income is likely to be “in line or better than” the numbers achieved in the pre-Covid year.

“While the risks of subsequent waves of pandemic impacting business operations will remain, strong recovery trends underscore the long-term growth potential. Assets with strong liquidity profile and financial flexibility are expected to fare well, despite temporary disruptions,” Mathew Kurian Eranat, Vice President & Co-Group Head, ICRA Ltd said.

Occupier confidence has improved in the latter half of 2021; and, gross absorption in 2022 (calendar year) should be about 15-20 per cent higher than 2021.

“Office spaces will continue to remain a dominant sector, but residential and industrial and warehousing will strengthen in 2022 aided by strong business fundamentals,” Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers, said.

$1 billion industrial investments

Industrial segment is likely to see investments inching towards $1 billion in 2021, led by large global players buying ready and greenfield warehousing projects. Apart from data centres, the life sciences sector is also garnering interest.

As per a recent Colliers survey, industrial and logistics assets will be the most sought-after assets in the APAC region, with more than 20 per cent of investors anticipating capital value gains of 10-20 per cent in value-add assets in 2022, supported by tailwinds and large-scale economic transformation.

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