Real Estate Market Outlook 2021

Most of our predictions for the real estate industry in the year 2020 fell flat on the floor, as COVID 19 devastated the shear backbone of the human health care system & leading to the sinking of the global economy. Massive lockdown across the world left everybody baffled as to how the human race would win the war over the pandemic and life return to normal. And, Our country was no exception.

We saw lockdown one after the other as the government kept ‘Lives over Livelihood’ as its first priority. The economy, which was already crawling for the last couple of years, experienced a major jolt, and almost all the industries catering to the essentials were severely hit.

The Real Estate Industry especially, which was struggling due to liquidity crisis, low demand, and regulatory framework, suffered substantially in 2020. Here is when the Government pulled out all stops. It supported the industry in all possible ways and helped it tide over this untoward crisis by infusing liquidity, extending delivery timelines, reducing interest rates, etc.  Hence we saw some form of revival in the second half of 2020.

Will the momentum carry on in 2021? 

We can make calculated assumptions. One factor that brings back confidence is the discovery of the VACCINE to fight COVID-19 VIRUS.

2020: The Year that Was

The first half of the year saw sluggish sales in residential space; commercial leasing which had hit an all-time high in 2019, also saw a declining trend, as a result of the new norm of WORK FROM HOME, Co-Working, Co-Living, Student Housing. Malls too saw negative growth.

One bright spot in the Real Estate Industry in 2020 was WAREHOUSING. Thanks to the improved rail, road infrastructure and the use of e-commerce, this space witnessed massive growth.

The second half of 2020 brought in some cheer to the industry. Starting August, the market started witnessing increased inquiry, especially in the residential space. Ready to move in inventory has been getting absorbed at a fast pace. In fact, the market saw extremely good sales in residential real estate. Other verticals like commercial, retail in malls, student housing, etc. are still to revive.

Interestingly Tier 2 & Tier 3 cities have witnessed increase sales and also price appreciation. Sales of plots in suburbs of metro have also found increased interest. People are preferring to build their small homes on a piece of earth or buy a villa rather than live in a high rise wherever possible.

Reduced interest rates (6.7 to 7.5 %), various policy initiatives by state governments have also aided the ailing industry in times of COVID.

Overall the industry has witnessed increased investment in the second half of 2020 and we all wish the momentum to continue.

Market Outlook 2021 

We are entering 2021 with a lot of good news such as the following:

1. Vaccine for Covid 19, which will instill some confidence and motivate people to return to the normal course of life. This should bring the demand back.
2. Low-interest rates – Thanks to the stand taken by the government and policy initiative by RBI the affordability of people has increased which should further aid in increasing demand.
3. Prices are at an all-time low. The government has played a major role in pushing the developers to offload inventory to generate cash flow for completing and delivering projects. The developers have softened the prices and this has visibly seen inventory go off the shelf in the second half of 2020.
4. Initiatives by state governments to support the industry. Maharashtra Government reduced the stamp duty for a stipulated time period to motivate people to buy.
5. Curtailed NCLT, IBC filings for the time being.
6. Additional delivery time by RERA. 6 months more to facilitate delivery.

All in all, there have been Supply-side and Demand-side initiatives in these tough times, which have given a breather to the industry.

Here are some projections – 

A)      Residential Real Estate:  

Sales in the affordable category, especially Ready to Move in, will be the most favored choice of consumers. Luxury Housing Sales will remain muted. Sales of plots and independent villas will be the new preferred product category. Tier 2 cities will be the new focus area for the consumers, especially cities where infrastructure is good and there is good digital connectivity (WIFI). We will see increased sales volume in Tier 2 cities and the chances of prices appreciating are high. Metros will see muted sales and stagnant prices.

The important thing to note: The share of Industrialist/ Corporate Developers will increase and the Regional developers who are under heavy debt will soon succumb and be bought over or go to NCLT or IBC.

B)      Commercial Real Estate:    

There is a significant visible drop in office space absorption in 2020 and 2021 will be no different. We are into a new format of Work from Home, which is soon becoming the WAY TO GOING FORWARD. Productivity has not dropped, however, the quality of life has become better. People can spend more time with friends and family. The hassle of driving to the office has disappeared. Virtual meetings and setting accountability digitally is gaining ground. The expenses at corporate and personal levels have come down increasing the profitability. A new hybrid way of using office space will come in, the need for a larger space and a clean environment will dominate the current compact design.

Most of the large corporates worldwide have announced WORK FROM HOME until JUNE 2021. The growth in business will be muted, and hence new demand for commercial space will take a back seat for now.

One space, which will see good absorption in the coming months, is SPACE FOR DATA CENTREs.

I AM NOT SAYING commercial office space will not get absorbed but the volumes in the near future will remain low for now.

C)      WAREHOUSING:

This is the lone segment on way to massive growth. E-Commerce will drive the need for large storage spaces. New farm Law will add to the need. I see this space as the growth engine of the Real Estate Industry in the immediate future.

D)      Student Housing:  Shared Living will find no takers. 

E)       I see the possibility of shared working space like Wework come back into the flavor. 

Few more observations 

1. Launches:
   1. Affordable Housing will see fresh launches, plotted development, Villa Community categories will see new inventory buildup especially in Tier 2 & Tier 3 cities.
   2. Commercial Office Space will not see much of fresh launches especially in Q1 & Q2 of the calendar year 2021.
2. Retail standalone space will see increased attraction compared to Shopping Malls.
3. Data Centres will be in the flavor.
4. Home Loan rates will slowly increase as the Government will be forced to tame inflation, which is close to 8% at present. This will work against the demand side.
5. The Government has little room to give tax benefits for the reason for managing the Fiscal Deficit.
6. Unemployment is at a very high level and it will take time before people are back to earning and reviving their spending cycle.

We have good enough reason to be prudently optimistic for the REAL ESTATE MARKET in 2021!