Notwithstanding prevailing adverse conditions at domestic and global levels, the sales momentum shown by the residential and commercial real estate in Q3 2022 holds promise for the real estate sector .
This strong demand is reflected through the real estate sentiment index which has declined marginally and continues to be in the favourable range. According to the Naredco-Knight Frank Real Estate Sentiment Index for Q3 2022, the sentiment score has declined by only one point from last quarter to 61. Yet, what is reassuring is that this score is still moderate and optimistic due to the resilience shown by real estate and the economy as a whole. A sentiment score of above 50 indicates positive home buying sentiment . The below 50 score mirrors pessimistic sentiment while the above 50 score reflects optimistic sentiment. . What is heartening is that even the future sentiment score for the next 6 months is mild.
Homebuyers’ sentiment continues to be on upside despite interest rate hikes and price increase. It is a double engine momentum for real estate. Along with end-users, investors are making significant contributions in fuelling residential growth. This is reflected in the current sales numbers. Both housing sales and new launches have already surpassed the full year figures of 2019 with 2.73 lakh units sold and 2.65 lakh units launched.
It is not just residential realty, even the commercial office realty has shown a lot of promise. The office demand has seen a two-fold rise YoY during YTD 2022 at 40.6 million sq ft and is likely to top 50 million sq ft towards the year end. Both office and warehousing demand has remained robust during the third quarter of 2022, leading t0 increased occupancy levels across major markets. The pan-India office leasing has seen 26% increase to 13 million sq ft during Q3 2022 over Q3 2021. Industrial demand at 6.7 million sq ft is highest since Q1 2021.
The investment scenario also remains positive with investment inflows of USD 3.6 billion seen this year so far for three quarters of the year and these inflows are set to surpass the 2021 levels.
Home buyers are not deterred by the rising interest rates and increase in property prices simply because they know well that going forward the home prices will further go up due to more interest rate hikes. NRI investors are particularly active, taking advantage of the rupee depreciation, making home buying attractive for them.
Today due to low FD rates and a highly volatile equity market, real estate remains the favourable asset class for investment. A recent SBI report says that the retail investors earn negative returns because of low interest rates on deposits and taxes on interest earned. Equity market has been highly volatile and indices have turned negative for 2022 amid global sell off. Many investors have been taking the gold route as a hedge against the equity market.
However, real estate remains the most favoured asset class as apart from capital appreciation, it fetches attractive rental returns. There are quite high returns (up to double digit) for commercial real estate. Over the past decade real estate has outsmarted the equity market. Investors use real estate to grow and diversify their portfolios. Also, real estate investments are tax-friendly, Moreover, unlike stock market, real estate investments are more stable vis a vis stock market.
In view of this and in the backdrop of a resilient economy, real estate will continue to fuel demand across various asset classes, ensuring sustainable growth.