India’s property market has, after a brief growth slowdown in recent years, bounced back with aplomb. The economy continues to grow, with thriving markets in retail, office, and residential real estate. In this bird’s eye view guide, we consider the current state of affairs, the potential challenges in the coming years, and an outlook on developments we can expect.
Economy: GDP Growth Expected to Continue
The performance of India’s economy is key to understanding the country’s real estate market. China’s unexpected slowdown in 2018 led to an overall weaker performance on the global stock exchange. The United States is also expected to see a 0.5% reduction in GDP growth, affecting investment. While global factors will shape India’s economic trajectory, and the country is to a great extent tied to external factors, we nevertheless project continued growth.
India’s government policy stimulus, resilient domestic factors, and the country’s limited exposure to the global manufacturing market combine to form an insulating effect. We, therefore, expect that while we may not see the impressive growth experienced earlier in the decade, we predict solid performance all-round. This will undoubtedly have a positive net effect on the real estate market in the coming years.
Office Sector is Rapidly Evolving
The changing face of India’s economy is perhaps best reflected in the rapid evolution of India’s office sector. Office space absorption reached an all-time high, to the tune of 47 million sq. ft over India’s nine leading cities (equivalent to a 5% increase year-on-year). The ‘big players’ still lead the pack, with NCR and Bangalore driving demand. Hyderabad, however, has trumped expectations by becoming the third-leading office destination, leaving Mumbai languishing in fourth place.
The most noteworthy trend so far this year is the loosening grip of the IT industry on the office real estate market. It is now enjoying increasing investment from emerging sectors such as the consultancy, telecom, biotech, construction, and co-working providers, to name but a few.
We are also seeing the evolution of office space, with companies preferring flexibility over anything else, and the rise of “smart” buildings matching the technological ambitions of many of the companies setting up shop in India. The increasing number of start-ups in the country also reflects confidence in the economy and the government’s incentivizing policies. The rise of international investment is undoubtedly having an effect on the sector’s transformation. Expect this trend to continue well into 2020.
Retail: Millennials Dominating Consumer Demand
Retail is going through a metamorphosis as a result of a transformation in the country’s demographic profile. Millennials are increasingly dominating consumer demand, moving from so-called chore shopping (aka buying the mere essentials) to the cherish model that’s so prevalent in the West.
The drive towards quality high-end retail products has resulted in a buoyant retail real estate market. 2018 alone featured 5.1 million sq. ft. of brand new retail space in India’s seven major cities. India is enjoying investment from both domestic and international companies, with the fashion, accessories, electronics, and sportswear industries seeing exceptional growth.
Big international brands are also finally setting up shop in India, with Ikea’s recent arrival met with much fanfare. The company is aiming to inject $1.5 billion worth investment into its operations in the country. Other major brands, including Ralph Lauren, American Eagle, and Ted Baker have also introduced outlets in the country.
Residential: Government Initiatives Bolsters Demand
The residential sector went through a worrying standstill, with the bearish phase of 2017 causing concern amongst industry experts. Government policies such as the Real Estate (Regulation and Development) Act (RERA), demonetization, and the introduction of the Goods and Services Tax (GST), all disrupted growth in this sector.
However, 2018 saw the seeds of a thriving revival, which is now becoming evidently clear in the residential market. For example, we are seeing a sharp increase in disposable income amongst consumers, while contained inflation rates are bolstering trust and affordability in the market. Another positive development is the reduction in speculation-led investment, which in previous years heightened the fears of a property bubble and the rising demand from the growing Indian middle class.
We can expect to see housing supply increasing in both the affordable and mid-priced markets, with greater diversification in the types of properties available to the consumer. Government incentives in such properties are driving investment, while the improved infrastructure and injection of a large number of private equity investors will also stimulate a thriving and competitive residential market.
In short, 2019’s mantra can be best summarised thus: rapid change is the new normal. While India has long been a sleeping juggernaut, its growing economy points to India awakening from its slumber. As a result, we are confident that the three real estate sectors highlighted in this guide will experience stable and exciting growth in the coming years.