Current Residential & Office Markets Weak: Reveals a Report Jointly Developed By FICCI and Knight Frank India

The real estate sentiment index is jointly developed by FICCI and Knight Frank India. The objective is to capture the perceptions and expectations of the industry leaders in order to judge the sentiment of the real estate market. The index is based on the quarterly survey of key stakeholders including developers, private equity funds, banks and NBFCs. The survey was conducted during October-November 2013.

The report comprises of two parts. Part I elaborates on the India Real Estate Sentiment Index while Part II elaborates on the India Real Estate Overview. Talking about the India Real Estate Sentiment Index, the findings of the report state that the current real estate sentiment score stands at 33 implying that stakeholders feel the current real estate market is somewhat worse compared to six months back. Future sentiment score reflects a neutral view indicating a status quo in the coming six months. On the economy and residential sector front, stakeholders perceive that the present residential and office markets are comparatively weaker than what they were six months back. Majority of the respondents are optimistic about the economic scenario and expect improvement in the next six months. There is an evident optimism for the residential sector be it launches, sales volume or price appreciation in the coming six months. Office sector on the other hand is expected to be pessimistic in the coming two quarters. Credit lending/funding situation appears worse now compared to six months back and is not expected to improve in the near future.

Speaking about the findings, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, "Notwithstanding the economic risks associated with the impending general election, stakeholders expect an economic expansion during the next six months. However, we believe that political compulsions will supersede any economic urgency leading to a delayed economic expansion during this period."

On the zonal sentiment score, current sentiment is pessimistic across all zones. Respondents from the east and south are slightly more optimistic about the future compared to the other zones and expect the real estate development to remain stable. Coming to the stakeholder sentiment score, the real estate has worsened compared to six months back. Developers are of the opinion that the condition of the Indian real estate market will not deteriorate in the next six months. Financial institutions, however feel that the real estate market is still not bottomed out.

Talking about the India Real Estate Overview, seven major cities like National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Pune, Chennai, Bengaluru, Hyderabad and Kolkata have been considered to represent the Indian real estate scenario. Unit launches and absorption on the residential index show that project launches and absorption peaked in 2010, post the Global Financial Crisis (GFC) and have been trending down since then. Drastic fall has been witnessed in the last three quarters of 2013. For the absorption in office space index, office space leasing volume picked up post GFC and peaked in the year 2011 and has been trending downwards since then. Despite a contraction in the office space demand, overall absorption numbers are still significantly ahead of 2009 levels.

The report further states that, Mumbai and Pune are forerunners in price appreciation during 2009-2013. Pune shows the maximum appreciation amongst the IT/ITeS driven markets of Bengaluru, Hyderabad and Chennai. Hyderabad has substantially underperformed compared to other markets. Office markets in India have seen minor appreciation compared to residential markets. Bengaluru office market has seen the maximum rental appreciation during the analysis period. Mumbai office market has managed to sustain the rentals with marginal appreciation of 7% since 2009.

Dr. A. Didar Singh, Secretary General, FICCI said, "We wish to see the real estate sector back to a high growth track and accelerating investments in the sector is the key. There is a need to nurture and maintain a positive state of mind amongst the stakeholders. A healthy macro-environment is a precondition to attract higher investments to cater to a huge demand for housing. Sentiments reflect optimism in next six months which would have a significant bearing on business environment and growth."