Sanjeev Kathuria, Founder, Author & CEO, Torbit Consulting
Last year turned out to be one of the best years for the real estate industry, with residential, commercial and warehousing properties sold and leased like hotcakes, especially in Tier 2 cities. All stakeholders including financial institutions and developers did well. The customers got an opportunity to realize their dreams. The year 2024 has started on a promising note as all stakeholders in the industry – government, financial institutions and developers are in a good position and are optimistic and forward-looking.
Residential Real Estate
In view of the low interest rates prevailing till early 2023, and supporting government policies, boutique or what we call affordable housing did very well. Later despite the rise in interest rates, residential realty performed well. This year, housing in Tier 2 cities will do wonderfully well, especially in plotted developments. The residential segment in metro cities will see a little slower growth. There are specific reasons for that. Because of the high home prices and high interest rates, homes have gone out of the affordability range of customers. The volume of sales in metros will remain stable or go down a bit. The prices may not rise or drop.
There is a bullish outlook for Tier 2 cities. Last year, we saw huge housing sales in these cities. Reputed developers like Godrej, Tata, and many more sold their properties overnight. Tier 2 cities are expected to do well. this year as absorption and sales will be high. Investors will gain from property appreciation. Housing in Tier 2 cities will do wonderfully well, especially in plotted developments.
Post-covid luxury housing has gained currency in comparison to affordable housing. At present people are opting for luxury homes and the demand for luxury homes is higher than boutique/affordable homes . Luxury housing saw decadal-high sales last year. This year the demand for absorption of luxury housing will be good because of fewer inventories available across the country. Luxury housing will rule the scenario and do much better than boutique housing. We will see a lot of absorption with new launches and will also see price appreciation.
Office Real Estate
In view of the anticipated layoffs by global giants like Microsoft, Google, Twitter etc, absorption will be stable or slow. On the domestic front, the IT industry is in a dire state with limited even new job opportunities and a shift towards hybrid work models even in established companies. This shift to hybrid models reduces the need for physical office space , impacting commercial real estate.However, Grade A office spaces are likely to perform well. Key players including DLF, Max, Embassy, known for creating Grade A office spaces are expected to thrive. These distinctive office spaces are likely to be quickly absorbed. So, we will see a low inventory of these spaces, especially in major cities like Bangalore, Hyderabad, Pune, and Gurgaon. The Grade B office space will grow slowly.
Retail Real Estate
Retail commercial spaces and larger malls are expected to perform well while smaller format malls may struggle. The high street retail segment is projected to do well, driven by tech advancements and significant investments in technology. The large corporations like Tatta, Mahindra, and Prestige Group will gain dominance, benefiting from lower capital lending rates, compared to smaller players who get funding at higher interest rates, making it challenging for them to compete effectively in the market. High street retail will do much better while multiplexes will see lower footfall.
There are promising times ahead for the hospitality sector . Especially in view of the government’s focus on tourism , particularly religious tourism, hotels will do well. The thrust on tourism will also boost holiday/vacation homes.
This will be a booster year for Alternate Realty. The data centre segment will emerge as a bright spot in real estate. It will be the biggest inventory builder across the country attracting huge investments. For the last five years, money has been pouring into logistics and it will continue to flow. Warehousing will do well with stable lease rentals on the strength of spurt in industrialization and retail, especially e-retail.
The ‘Make in India’ initiative of the government has put industrialization on a fast track. MSMEs that are already making significant strides , are expected to thrive with an expected surge in their numbers. These enterprises manufacture a wide range of basic tools and machinery including items as small as nuts and bolts. Whether it is Foxconn, Tesla or Apple, the entire India including Tier -2 cities, is experiencing a wave of industrialization. Amidst this, we will see rapid growth in industrial land parcels. Large industrial/corporate players could acquire 500-1000 acres of land for corporate farming, dominated by corporate biggies like Ambani and Adani. In Tier 2 cities, these prime land parcels may well see the interest of the investors. All this will be boosting industrial reality.
Despite the positive outlook, there are concerns about over-valuation across the board which need to be addressed Developers need to offload their inventory, improve cash flows, accelerate construction and deliver projects promptly if they wish to remain competitive.