Housing real estate in 2018 and outlook for 2019
Honey Katiyal, CEO & Founder, Investors Clinic shares with Realty Plus his thought on the happenings in the real estate industry and the also adds his views on the developments expected in 2019. He states that the Real estate investors has also started looking at the sector with transformed dynamism, wherein the sector showed much progress as a preferred asset class for investment for NRIs.
Rising investments in commercial and industrial market in 2018
Growth in the commercial real estate sector is directly co-related with India’s growth story. As per IMF’s projections, India’s GDP will go up by 7.3% in 2018. That’s impressive indeed. It means more economic activity that will ultimately require more commercial real estate. I think that’s exciting.
In the past 3 years, the average absorption of commercial real estate is close to 40 million square feet, and this year as well the numbers are going to remain the same. The demand for Grade-A office spaces is vibrant. Also the rise of co-working spaces has bolstered the growth in a big way. Today, budding entrepreneurs and start-ups can easily access high-quality office spaces with world-class amenities and that has thrown open a new league of leasing opportunities for commercial real estate companies.
From investment perspective, the segment leads the charts with an average yield between 5-8% a year, which is way ahead than 2-3% annual rental yield from residential real estate. Plus, this segment is much more organized and therefore a safe haven for investors. It is no surprise why investors are taking more interest in this segment. Be it Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs), Private Equity (PE) players or retail investors, all the investor groups are keen to participate in this growth story more closely.
Recent observations in Private equity and emerging trends across various stages
From March-November 2018, PE players have invested around $5 billion in the real estate sector and a considerably large part of it has gone into commercial real estate. In 2017, the total PE investment in real estate sector was pegged at $7 billion, which is the highest volume of investment in this decade.
The advent of Real Estate Regulatory Act (RERA) has infused a sense of confidence in investors and the market is consolidating as expected. I believe that Real Estate Investment Trusts (REITs) will bring about a massive change in the way funds are channelized into this sector. The smaller ticket size of investment will open up this market for huge number of retail investors who would be able to grab a pie in high-quality realty investments by professional organizations, just the way mutual funds industry works.
Impact of Festive Season on Real Estate
As the clouds of confusion and uncertainty that emanated from changes in the regulatory framework began to clear in the later part of the year, the home buyers who had been sitting on the fence finally got an opportune time to realize their dreams in during the festive season.
After RERA, the number of new project launches across the country has gone down by a significant extent and that ways availability of property is going to be quite limited. Buyers too have realized that there is no point waiting further. Whatever price corrections had to happen, happened in the past quarters and there was hardly any room for further revisions. The best part was that during the festive season, especially during AkshayTritiya, Navratri and Diwali, developers came up quite positively with lucrative offers and it was a win-win situation for both the sides.
Comment on NBFC liquidity crisis in 2018
Every cloud has a silver lining. A situation of crisis always presents an opportunity to learn from the mistakes, put the house in order and improvise. In a vibrant economy like India, no crisis can prevail for long. We have resilience to overcome all kinds of challenges; we have done it time and again and have weathered the worst of local to global recessions swiftly.
The NBFC liquidity crisis too was a learning experience. The NBFC industry is now coming back on track having learnt that certain fundamentals need to be treated in a sacrosanct way. Diversification of portfolio, quality of assets and systems and processes are important than ever and asset liability management is something that cannot be compromised under any condition.
Certainly, the liquidity crunch is not going to be resolved overnight and this may take a year or two to regain strength, but the scenario is now getting better. I feel we have left the worst behind.
As far as housing and real estate sector is concerned, lending is going to contract and companies would feel the pinch. Developers would need to open up and explore more channels to raise capital and I think that is not impossible.
This content was originally published here.