Is it wise to invest in Indian real estate market in 2021?
The real estate market in India is one of the pallbearers of the economy and the country’s second highest source of employment after agriculture. The sector is closely related to up to 220 related sectors. The sector accounts for nearly 6 to 7 percent of the economy and is projected to account for nearly 13 percent of the economy by 2025 if all of the reform measures announced are well implemented. The sector has been one of the greatest wealth creators over the past few decades.
After temporary shocks amid structural reforms like GST and RERA, the increased liquidity in the banking system and the restoration of buyer confidence in the real estate sector slowly took hold before COVID-19 hit Indian shores. Therefore, the slump influenced by the pandemic is at best a short-term slip in all economic sectors. With the introduction of the vaccine and the resumption of normalcy, the real estate market will recover with renewed vigor.
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The pandemic could affect buyers’ preferences when choosing properties in 2021: Larger floor plans with greater security, hygiene and comfort in captivity could find their way to more buyers. In terms of commercial real estate, satellite offices in non-conventional micro-markets, i.e. outside the CBDs (Central Business Districts), are absorbed faster and more effectively.
With the widespread acceptance of WFH (Work From Home) in the entire IT sector, ITeS buildings may be faced with medium vacancy rates in the first quarter of 2021. However, as the COVID threat is mitigated, we will see more absorption in the second quarter and second half of the year.
Atmanirbhar Bharat and the surge in FDI suggest a strong recovery in commercial real estate in the second half of the year. After an all-time high in the pandemic, retail vacancies are already declining, and greater acceptance of the same is expected in the course of 2021.
Despite the short-term disruption, the commercial real estate sector in India continues to attract interest from users and investors looking at the long-term horizon. With the government easing further after COVID, employers and employees are looking for the right balance between in-office and remote work options.
Investment will continue to flow through the remainder of 2021 as the liquidity of global central banks will ensure interest rates are low and funds will pursue investments with high returns. Following the change in the REIT rules by SEBI, an inflow of investments in commercial real estate is to be expected, which offer lucrative returns compared to other investment opportunities.
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According to a report from Savills India, PE investments in India’s real estate sector could rebound, growing by $ 6 billion in 2021, up 30% year over year. The improvement in the economic scenario brought about by positive reform initiatives will support growth. The office space segment recorded good traction in the current year.
Given the improving growth outlook, property prices in capital cities are expected to remain stable and grow upward in certain areas as demand increases.
India is one of the fastest growing economies. The Indian government, which is preparing for mass vaccination, will ensure the economy is on a growth path in a quarter or two. The central bank’s accommodative stance and liquidity measures will ensure that interest rates are low in the short to medium term, which supports growth.
Also Read: How the COVID-19 Pandemic Presented a Veiled Opportunity for the Indian Real Estate Sector
In addition, the Maharashtra government is likely to decide on an updated construction subsidy and levy policy that will lower construction costs for developers in the largest real estate market in India. The decision will help bring prices down and stay in line with the government’s goal of making real estate more affordable.
To sum up, with a number of economic and political reforms and stimulus packages put in place by the authorities, the sector will have a positive outlook in 2021. With an improved consumer sentiment, we are seeing positive effects on the fence sitters who are now coming out and investing, which further increases the demand for more dynamic layouts taking into account the new normal. The industry is hoping for an effective budget from the finance minister that will help not just the real estate sector but the economy as a whole.
(The author is the CEO of Azlo Realty.)