Conservative Sentiment Index Signals Cautious Optimism

As the current and future sentiment index of real estate dips ahead of the upcoming festive season amidst high property prices and high interest rates, the sector looks ahead with cautious optimism.

The latest edition of the Knight Frank – NAREDCO Real Estate Sentiment Index Q2 2024 (April – June 2024) report cites that the current sentiment index score has moderated to 65 from its all-time high score of 72 in Q1 2024, indicating a measured outlook among stakeholders. The Future Sentiment Score for this period also recorded a decline from 73 to 65 While both current and future sentiments remain firmly in the positive zone suggesting a continued belief in the sector’s long-term prospects, the scores reflect a more tempered view on recent real estate growth, influenced by election and budget speculations.

The Future Sentiment Index has adjusted from 73 in Q1 2024 to 65 in Q2 2024, reflecting a positive yet more conservative outlook for the near term. This recalibration may be attributed to anticipatory caution around potential macroeconomic developments, including fiscal policies and geopolitical events, that could influence market confidence. Despite this decline, the sentiment remains in positive territory, showcasing the sector’s resilience with notable activity in residential and office markets.

The residential market outlook in Q2 2024 sustains optimism with 63 per cent response rate for an expected rise in residential prices while 51 percent of the stakeholders anticipate an increase in sales with a significant portion of 24 percent respondents expecting stability.

The office market outlook exhibits buoyancy on all key parameters—leasing, supply, and rent—as the stakeholders remain confident of this asset class’s performance in the next six months.

The quarterly Knight Frank-NAREDCO report captures the current and future sentiments towards the real estate sector, the economic climate and funding availability as perceived by the supply-side stakeholders and financial institutions. A score of 50 represents a neutral view or status quo; a score above 50 demonstrates a positive sentiment; and a score below 50 indicates a negative sentiment.

Current and Future Sentiment Scores

Sentiments of Developers and Non-Developers

The Developer Future Sentiment Score moderated from 72 to 61, indicating a more measured outlook. While remaining optimistic, developers have demonstrated caution, having experienced strong sales since the beginning of 2023. Even as markets initially seemed poised for sustained growth with significant tailwinds, the extended uptrend in the industry cycle has led to a more cautious stance.

The Non-Developer Future Sentiment Score (which includes banks, financial institutions, and PE funds)  adjusted from 73 to 68. This shift reflects stakeholders’ careful evaluation, considering the macroeconomic concerns that are weighing heavily.

Residential market outlook

The future outlook for the residential market remains in the optimistic territory, while all stakeholders have adopted a cautious outlook for the next 6 months. As many as 51 percent of respondents expect residential sales to increase in the next six months as compared to 73 percent in the last quarter. Sixty-one percent of survey respondents were of the opinion that residential launches will improve in the next six months while 63 percent expect residential prices to increase in the next 6 months.

Moderated yet optimistic outlook for the residential market

Source: Knight Frank Research

Office market outlook

The office outlook exhibited buoyancy on leasing and supply parameters as survey respondents remained confident about this sector in the next six months. Stakeholders opined that rising demand in India’s office market will bolster new supply as well. Sixty-three percent of respondents expect office leasing to improve, driven by positive business sentiments and economic recovery. Forty-seven percent expect an increase in office supply while 65 percent expect office rents to increase.

Steady but Optimistic outlook for the Office market

Source: Knight Frank Research

Economic Scenario

Based on the findings of the survey 59 percent of respondents expect an improvement in the economic scenario with 51 percent anticipating an increase in funding availability, demonstrating confidence in the financial sector’s continued support for real estate investments.  Stakeholder confidence remains strong and optimistic, with investment levels in H1 2024 nearly matching those of the whole of CY 2023 and expected to rise to  2022 levels.

Source: Knight Frank India Research

According to Hari Babu, President Naredco, despite moderation in the real estate sentiment score, the overall outlook remains positive, with both residential and office markets continuing to show notable activity, signalling ongoing growth and opportunity despite short-term challenges.

Shishir Baijal, Chairman & Managing Director, Knight Frank India says that the recent dip in real estate sentiment score should not raise concerns as the economy remains resilient, ensuring stability.