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Real estate sentiment scores at a year-high in Q4 2020; 2021 outlook optimistic

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According to the 27th Edition of -FICCI-NAREDCO Real Estate Sentiment Index Q4 2020 (October – December 2020) Survey, for the first time in 2020 the ‘Current Sentiment Score’ entered the optimistic zone at 54 points in Q4 2020, a significant jump of 14 points over the previous quarter.

The ‘Future Sentiment Score’ also witnessed a robust surge to 65 points in Q4 2020 from 52 points in Q3 2020. Geographically, the western part of the country saw the sharpest jump in Future Sentiment Index. This zone’s Future Sentiment jumped to 66 points in Q4 2020 from 47 points in Q3 2020.  With respect to stakeholders, both developers and non-developers (which include banks, NBFCs and PE funds) recorded an improvement in Future Sentiment score in Q4 2020.

On the macroeconomic front, 82 percent of the survey respondents opined that the economy would grow further in the coming six months as opposed to the 57 percent respondents with the same view in Q3 2020.Similarly, the share of survey respondents with the opinion that economic health will worsen in the next six months went down substantially to 7 percent in Q4 2020 from 31 percent in Q3 2020. 

In terms of credit availability, 87 percent of the Q4 2020 survey respondents believed that the funding scenario would either improve or continue to remain the same over the next six months.

Further, 77 percent of the Q4 2020 survey respondents were of the opinion that residential sales would increase over the next six months, up from 66 percent in Q3 2020. With regards to the office market, 60 percent of the Q4 2020 survey respondents, up from 47 percent in Q3 2020, believed that office leasing activity would increase over the next six months.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “Both the Current and Future Sentiment scores in Q4 2020 have seen great surge in the latest survey backed by revival in both residential and office market real estate that have been highly encouraging. The sector saw a lift in the market’s mood and increased stakeholder expectations of a stronger recovery in the next six months.  As we begin our journey into 2021 with a positive outlook, it is important to closely watch the performance of the key economic indicators in the coming months to check the sustainability of the growth seen in the last two quarters of 2020. Equally crucial is the development of the vaccine and its widespread availability for the masses, these two factors will largely determine the performance of the real estate sector in the coming months.

Dr. Niranjan Hiranandani, National President – NAREDCO & ASSOCHAM and Founder & MD, Hiranandani Group said, “As reflected in the 27th Knight Frank – FICCI – NAREDCO Real Estate Sentiment Index Q4 2020 Survey, it was resurgence that was powering optimism in real estate. The survey mirrors recovery expectations of not just real estate, but the economy. Investments in real estate over the recent past reflect positive sentiments on part of investors, domestic as also global, on the resurgence in the Indian economic growth story. This is a clear indicator of the bullish growth story of Indian Real Estate and reflects on the growth prospects of 270 allied industries as also job creation. Recently, we have seen this investment being in the office spaces segment, which reflects the confidence of investors in the Indian GDP’s positive growth potential.

Stakeholder outlook for the office market has improved substantially in Q4 2020 as leasing activity gained momentum. The residential market outlook has revived further in Q4 2020, across all parameters, reflecting the increased traction in this segment. The impact of renewed consumer demand for residential realty has resulted in high levels of registration data, these transactions have lifted market sentiment. This bull run will be sustainable, growing through 2021, in the backdrop of the anticipated positive Union Budget – scripting the real estate revolution in India.”

Current Sentiment Score

  • The Current Sentiment score jumped considerably to 54 in Q4 2020 from 40 in Q3 2020, entering the optimistic zone for the first time in 2020.
  • The October-December 2020 quarter continued to see an improvement in the business momentum. Office space leasing grew as global players began acting on their pending and anticipated lease plans encouraged by the news of multiple potential COVID vaccines. Traction in residential segment continued in Q4 2020 on the back of festive discounts, pent-up demand and low home loan interest rates.

Future Sentiment Score

  • The Future Sentiment score has climbed up to 65 in Q4 2020 from 52 in Q3 2020, mirroring the strong recovery expectations prevalent in the market.
  • Stirring demand and festivities of Q4 2020 gave a strong fillip not just to the real estate sector but also to the economy at large. The improvement in high-frequency indicators recorded since September 2020 continued in December 2020 as well. Goods and Services Tax (GST) collections in December 2020 are at a record high whereas the Purchasing Managers’ Index (PMI) for manufacturing recorded a fifth straight month of expansion.
  • This economic growth environment has raised the market’s expectations of recovery in the coming six months and is reflected in the climbing Future Sentiment score.

Zonal Future Sentiment Score

  • The West Zone has seen the highest jump in the Future Sentiment score, climbing to 66 in Q4 2020 from 47 in Q3 2020. East zone stakeholder outlook also saw a substantial leap in future sentiments, jumping to 65 in Q4 2020 from 50 in Q3 2020. The Future Sentiment score for the North region went up to 58 in Q4 2020 from 55 in Q3 2020 while that of the already bullish South region improved marginally to 66 in Q4 2020 from 65 in Q3 2020.
  • In Q4 2020, the Future Sentiment index for all regions is higher than Q4 2019 (pre-COVID level). This reflects the strong optimism prevailing in the sector as we enter 2021.

Stakeholder Future Sentiment Score

  • The outlook of supply side stakeholders has moved into the optimistic zone in Q4 2020 for both developers and non-developers (non-developers include banks, financial institutions and PE funds).
  • Developer sentiments picked up on the back of resolving supply-side challenges and growing demand. The Q4 2020 performance of residential market across top eight cities in India was encouraging, as sales velocity returned to pre-COVID levels. Office transactions also grew in the last quarter of 2020 with occupiers beginning to execute their pending and future lease plans. This jump in demand has strengthened the developer outlook of real estate market for the coming six months.
  • Fueled by the increase in residential sales and the pick-up in office transactions, real estate lending of banks and financial institutions also received a fillip. Accordingly, the future outlook of non-developers i.e. the financial stakeholders of real estate sector, improved in Q4 2020. Their Future Sentiment score jumped to 63 in Q4 2020 from 50 in Q3 2020, moving into the optimistic zone for the first time since Q4 2019.

Raj Menda, Joint Chairman, FICCI Real Estate Committee and Corporate Chairman, RMZ Corp. said, “With the economic recovery heavily dependent on the vaccine, the length of this downturn now is certain. After almost a year of working remotely during a global pandemic, work force is already thinking about their gradual returns to the workplace. Corporate offices have put in place the requisite sanitation, health checks protocols and social distancing to welcome back essentially, all tenants. The signs of recovery are already showing. IT/ITeS continue to drive the office segment in India. As global economies have stabilized, we have also seen an increase in private market activity. Two large scale office transactions in South India in Q4 020 are testament to that. With two successfully completed REITS (Real Estate Investment Trust), we are now seeing the third REIT proposed by Brookfield.  The pandemic had accelerated the e-commerce growth to such an extent, which would have taken four to six years to achieve. The insurgent growth is going to impact logistics related infrastructure including warehousing, positively. Within real estate, certain asset classes, like retail may have a longer recovery cycle, while other sector like data centres, cloud kitchens and co-working may see an uptick in demand in the immediate to medium term.”

Strong Improvement in Economic Outlook, Credit Aavailability Concerns Recede

  • Mirroring the growth in economic indicators, a sizeable 82 percent of the Q4 2020 survey respondents – up from 57 percent in Q3 2020 – believe that the economy would grow further in the coming six months. At the same time, the share of survey respondents with the opinion that economic health will worsen in the next six months, went down considerably to 7 percent in Q4 2020 from 31 percent in Q3 2020.
  • With regard to availability of funding, 87 percent of the Q4 2020 survey respondents were of the opinion that the funding scenario will either improve or continue to remain the same over the next six months.

Rajani Sinha, Chief Economist and National Director Research, Knight Frank said, “Economic indicators in India have started improving in the last few months with the economy moving towards normalcy. The critical aspect would be at what level the growth momentum is sustained after taking care of the pent-up demand. The real estate sector has seen a boost in sentiments, aided by supportive measures from the government, RBI and the resultant pick-up in end -user demand. Any further demand boosting measures announced by the Government in the upcoming Union Budget, will give a strong fillip to real estate sector. Going forward the trajectory of the real estate sector would be dependent on the economic recovery and efficacy of India’s COVID vaccination drive.”