According to the 28th Edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q1 2021 (January – March 2021) Survey, the onset of the second wave of the pandemic has influenced the future sentiments of the real estate stakeholders in the country.
In Q1 2021, the ‘Future Sentiment score’ saw a decline from 65 in Q4 2020 to 57 in Q1 2021 due to uncertainties resulting from the spread of a second wave of COVID – 19 infections. However, it remained in the optimistic zone. The ‘Current Sentiment score’ recorded a marginal improvement, inching up from 54 in Q4 2020 to 57 in Q1 2021. This improvement can be attributed to the healthy momentum in the commercial and residential real estate segments during Q4 2020 and during January – February 2021.
Hampered by the second COVID wave concerns, the Future Sentiment score (for the next six months) of stakeholders has fallen across regions, even while it remains in the optimistic zone. Similarly, the Q1 2021 outlook of supply side stakeholders reflects caution on the future of real estate for the next six months, even if their scores remain in the optimistic zone.
With the substantial increase in COVID cases since March 2021, the outlook for residential launches and sales has softened in Q1 2021. Even so, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices. Similarly, the second wave of COVID and the resultant mobility restrictions and possible lockdowns in some cities has adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.
On the macroeconomic front, the pace of economic revival appears to have slowed down, with some key economic indicators showing weakening over the last two months. Influenced by the change in macroeconomic developments, stakeholder outlook on the overall economic momentum and on credit availability has turned cautious in Q1 2021.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said “The sentiment of stakeholders remained cautious for both Current and Future Sentiment scores in Q1 2021, owing primarily to the second wave of the pandemic, resulting in economic uncertainties. The real estate sector had seen a strong bounce-back during the last few quarters, which has kept the future sentiment of stakeholders in the positive zone. With the central government refraining from a second nationwide lockdown, the sector would be hoping to hold onto the progress made so far. As some regions have already announced movement restrictions, it will be imperative to observe the key economic indicators in the coming months to check the sustainability of the growth that the sector has already achieved. The speed at which the inoculation drive is conducted, and the intensity of local restrictions placed will be proportional to the growth of the real estate sector’s growth in the coming months.”
Dr. Niranjan Hiranandani, National President, NAREDCO and Founder and Managing Director, Hiranandani Group said “This growth ride is on account of the pent-up business momentum in lieu of fiscal impetus and regained consumption demand. This optimistic sentiment led to record hit property registrations and uptick in sales velocity. Also, as the influx of PE and FDI investment is on rise in FY 2021, the sentiment remains bullish for the Indian economic outlook and growth of Indian real estate is imperative due to its multiplier effect on 270 ancillary industries and employment generation. The dip in the future sentiment score in Q1 2021 mirrors the prevalent market uncertainties on account of the second COVID wave. However, there is no cause of worry for the Industry as it is well geared to mitigate the risk on ground. The ongoing production with uninterrupted supply chains will help the sector to rebound with more finished goods catering the discerning home buyers and the reverse migration of labourers is at bay due to ensured food, shelter and daily wages along with all the safety measures and vaccination shots. The business continuity plan is coping up with alternative digital platforms and leveraging innovative technologies to keep the sales momentum unhampered. Therefore, there will be a positive growth in the long run for Indian real estate.”
A score of above 50 indicates‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score below 50 indicates ‘Pessimism’.
ANNEXURE – 1
Overall Sentiment Score: Future Sentiment & Current Sentiment
Future sentiments dampened by second COVID wave
Source: Knight Frank Research; Please note: Data for 2018 is available for Q1 and Q4 only.
Future Sentiment Score
• The Future Sentiment score (for the next six months) has fallen from 65 in Q4 2020 to 57 in Q1 2021, echoing the present market uncertainties on account of the second wave of COVID.
• The rising rate of COVID infections from mid-March 2021 has recreated the fears and concerns of March 2020 when the COVID pandemic first broke out. Despite the ongoing vaccination drive, state governments and local bodies have had to impose curfews and restrictions at varying degrees to curtail the fast-growing infection rate. Mobility restrictions are back in some states and these developments have caused many offices to return to the work-from-home mode, for the time being.
Current Sentiment Score
• The Current Sentiment score (for the past six months) has inched up marginally from 54 in Q4 2020 to 57 in Q1 2021.
• The current sentiments were supported by a bounce back in commercial and residential segment that we had seen in Q4 2020 and in the first two months of 2021.
• However, the severe spread of the second wave of COVID infections has marred the sentiments of the industry in March 2021.
Zonal Future Sentiment Score
• Due to the second Covid wave, the Future Sentiment score (for the next six months) of stakeholders has declined across regions.
• The South Zone has seen a marginal decline from 66 in Q4 2020 to 63 in Q1 2021, while the score for North Zone has fallen from 58 in Q4 2020 to 56 in Q1 2021.
• The Future Sentiment score of the West region witnessed a significant drop from 66 in Q4 2020 to 53 in Q1 2021, while the score for the East zone has fallen from 65 in Q4 2020 to 53 in Q1 2021.
Future optimism softens across regions
Source: Knight Frank Research
Stakeholder Future Sentiment Score
• The Future Sentiment score of Developers has seen a significant fall from 67 in Q4 2020 to 54 in Q1 2021. With the fear of lockdowns, developers appear to have accounted for the likely challenges in their outlook for the next six months.
• Non-developer sentiments have improved marginally from 63 in Q4 2020 to 64 in Q1 2021.
Developer outlook weakens, Non-Developer sentiments improve marginally
Source: Knight Frank Research Note: Non-developers include banks, NBFCs and PE funds
Sanjay Dutt, Joint Chairman, FICCI Real Estate Committee and Managing Director and CEO, Tata Realty and Infrastructure Ltd. said “2020 was the year that changed everything, and 2021 will be the year where change will become ‘better’ through resilience, digital insurgency, and innovation. While 2021 may not evade all the challenges of a pandemic-affected economy, the planning and implementation for a sector-wide recovery have already been laid out. Backed by positive economic fundamentals, healthy demand and quality supply infusion across sectors, India’s real estate sector is prepared for robust growth. The report reflects a positive sentiment towards Q1, 2021 (January – March 2021) with demand cycles moving and restoration of the economic activities across the country. Also, a gradual shift in buying patterns has been witnessed where residential buyers are looking for additional space to meet ‘work from home’ purposes etc. On the supply front, limited new supplies were introduced in the quarter. The reduction in the number of launches in the past year or two is helping RTMI inventory being exhausted at a faster pace. In the case of commercial real estate, we believe technology (IT-BPM), engineering and manufacturing sectors will drive the demand in 2021. Technology companies will broaden their office portfolio over the next three years as demand for artificial intelligence, machine learning, and robotics is expected to grow significantly, and Indian talent is being considered favourably for high-end R&D activities.”
ANNEXURE – 2
Economic Scenario and Availability of Funding
Economic outlook wavers, Credit availability stance turns observant
Source: Knight Frank Research
• Influenced by the change in macroeconomic developments and the second wave of COVID, stakeholder outlook on the overall economic momentum has faltered marginally in Q1 2021. 85% of the Q1 2021 survey respondents – down from the 93% of Q4 2020 – now expect improvement or stability in the overall economic health in the next six months. The remaining 15% – up from 7% in Q4 2020 – believe that economic health would worsen over the next six months.
• On the credit availability front, the stakeholder outlook has shifted from positive to observant as 81% of the Q1 2021 survey respondents – down from the 87% of Q4 2020 – expect the funding scenario to either improve or to remain the same for the coming six months.
Rajani Sinha, Chief Economist and National Director Research, Knight Frank said “Since Q4 2020, the Real estate sector had started seeing a meaningful recovery in line with the overall macro-economic revival in the country. However, with the second wave of COVID raging in India, the real estate future sentiments have weakened, as the industry stakeholders grapple with the pandemic related uncertainties. With industry players turning cautious, the six month outlook for real estate has weakened across the parameters of demand, supply and pricing in Q1 2021, even while the sentiment scores continue to remain in the optimistic zone. Economy’s return to normalcy will depend on the pace of vaccination and the time taken to control the second wave of COVID. Apart from the pace of vaccination, government decisions on lockdown restrictions will largely determine the performance of real estate sector in the coming months.”
ANNEXURE – 3
Office Market Outlook: New Supply, Leasing and Rents
• The office market was showing a healthy recovery from Q4 2020. However, the second wave of COVID and the resultant mobility restrictions and possible lockdowns in some cities have adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.
• In Q1 2021, 58% of the survey respondents were of the opinion that the new supply in the office market would improve or remain the same in the coming six months.
• As far as rentals are concerned, 44% of the Q1 2021 survey respondents expect office rentals to remain steady over the next six months.
Office market outlook turns somber
Source: Knight Frank Research
ANNEXURE – 4
Residential Market Outlook: Launches, Sales and Prices
• Even with the rising COVID infections since March 2021, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices.
• In Q1 2021, 65% of the survey respondents were of the opinion that residential launches will increase in the next six months. 26% respondents felt that new project launches would remain the same in the coming six months.
• On the demand front, 64% of the Q1 2021 survey respondents expect an increase in sales activity over the next six months. The share of respondents who expected the sales activity to continue at the same pace over the next six months jumped from 13% in Q4 2020 to 23% in Q1 2021.
• With regards to residential prices, 48% of the Q1 2020 survey respondents – up from 38% in Q4 2020 – believe that prices will increase over the next six months, while 43% were of the opinion that prices would remain the same.
Cautious optimism on residential market outlook
Source: Knight Frank Research