Real Estate In 2017 And Outlook For 2018
Over the past two years, India's real estate market has witnessed a slew of reforms. The primary aim of these reforms and policy announcements has been to instill confidence into the consumer as well as attract investors to the market. The results of these reforms are already being felt across the country's economic landscape. Among the 190 countries surveyed in World Bank's Doing Business 2018 report, India saw an improvement in its ranking from 130 in 2017 to 100 in 2018. Further, Moody's upgraded India's credit ratings from Baa3 to Baa2, after a gap of more than 13 years; citing continued progress in the nation's economic and institutional reforms.
During 2017, several reforms including The Real Estate Regulator Act (RERA), relaxations in the annual budget for affordable housing projects, incentives under the PMAY scheme, further relaxations in carpet area for affordable housing units and more recently granting of Infrastructure status to Affordable Housing are providing a much-needed thrust to India's housing market. We are already witnessing an uptick in developer activity across cities especially in the affordable housing segment. By granting infrastructure status to housing, and introducing public private partnership (PPP) options for private investments in affordable housing segment, the government is focusing on ways to attract investments into the sector.
Other reforms that have provided a much-needed boost to the sector include the implementation of the Goods and Services Tax (GST) as well as granting of infrastructure status to the logistics industry. The GST will be biggest catalyst for structural changes in India's warehousing and logistics segment. By making doing business in India tax neutral, the GST will reduce documentation resulting in decreased turnaround time, improve supply chain efficiencies and expand client outreach. Coupled with granting of infrastructure status to the Logistics sector, we expect investment inflows to increase for the logistics market in the long term.
The country's retail real estate market continued to attract global retailers looking to expand their footprint in Asia. During 2017, retail real estate witnessed almost 3.5 million sq. ft. of supply, with the second half witnessing supply of almost 2 million sq. ft. of organized space. The new FDI policy was announced in August 2017 wherein the government provided exemptions and clarifications on sourcing norms, single brand retailing as well as wholesale cash and carry. The result of these exemptions and clarification is likely to have a positive impact on international as well as domestic retailers planning to enter/expand in the coming months.
As we move into 2018, we expect this positive momentum in the sector to continue. Investment inflows will increase backed up increased regulation, Ease of Doing Business and accountability for all stakeholders. For the sector specifically, the year ahead will be one where these reforms and policies will finally yield results.
Leasing activity in 2018 for office space is expected to remain broadly steady. Hyderabad, Delhi NCR and Mumbai are likely to witness a marginal rise in take-up on the back of healthy supply pipeline. The supply slippages noted in 2017 are likely to result in a stronger pipeline for 2018, which is going to be led by cities such as Delhi NCR, Hyderabad, Bangalore and Mumbai. While IT/ITeS occupiers continue to lead demand activity, other prominent sectors such as BFSI, engineering and manufacturing, research and consulting are likely to garner a larger share in the leasing activity in 2018.
As the cloud around the RERA implementation settles, we expect overall activity in India's Housing market to gain momentum in the coming months. Taking a cue from the end-users, the housing market is becoming buyer focused with supply addressing the demand emerging. India is also coming back into the purview of the global investor community and the segment is seeing an uptick in capital inflows. Also, the concerted efforts (both on the supply and demand side) towards affordable housing, are likely to result in increased participation from private players in this segment.
The demand for retail space is likely to remain strong during the year ahead, as occupiers from retail categories such as Fast Fashion, Departmental Stores, Sports & Leisure, and Food & Beverages continue to absorb space. Family entertainment centers and multiplex operators are also going to be active in leasing space at existing and upcoming malls in the coming months.
With the implementation of the GST we expect there to be consolidation of large warehousing firms, entry of reputed developers backed by institutional funding and rise in demand for large mother warehouses. This will result in the emergence of large scale nationwide players. With new technologies coming in, the concept of 'hub and spoke model' is likely to gain prominence, driven by operational efficiency and cost reduction. This growth in demand will spur supply of quality warehousing in the future.
