Outlook For 2019: Commercial & Affordable Housing Sectors To Show Continued Strength

Shishir Baijal, Chairman & Managing Director, Knight Frank India2018 will be recorded as a year marked by consistent volatility ­ on account of both international and domestic events. Globally, several factors such as rising oil prices, simmering geopolitical tensions between U.S. and China, prospects of an escalation in trade war, and uncertainty in Middle East and Europe, have caused recurring stress to the markets. Domestically, the Non-Banking Financial Institutions' (NBFC) liquidity crunch impacted stakeholders' sentiments. High crude oil price coupled with weakening Indian currency put pressure on the Reserve Bank of India (RBI) to raise interest rates.

The real estate industry experienced the protracted impact of structural reforms undertaken over the last 24 months, such as Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), and Demonetization, that collectively changed the way business is conducted in the country. The Indian real estate sector, while remained largely optimistic, had their sets of woes to deal, with during the
year with various asset classes reacting differently to the global and domestic stimuli.

Whilst we witnessed a healthy growth in office, industrial, and retail sectors, we recorded rising interest in niche segments such as co-working, co-living, and student housing. Considering sustained policy focus on construction of crucial national highways & industrial corridors, we saw continued strength in logistics and warehousing with growing interest from occupiers and overseas investor community alike.

The residential sector remained subdued. Although the supply side has done well given a healthy uptick in the number of launches, consumer demand has been lacking momentum, especially in premium and luxury residential segments. However, we see an uptick in affordable housing sector ­ both from supply and demand side, which leads us to believe that it would be a key driver for residential sector in coming times. Further, the Knight Frank Affordability Index, a measure of how expensive the housing market is, points at rising affordability in several prominent cities. In cities like Pune, Kolkata and Ahmedabad, the Index was well within the comfort level of the benchmark, while in cities of NCR, Bangalore, Chennai and Hyderabad, it hovered close to the benchmark.

Going forward, we believe that the commercial sector would continue to perform well, although it might face the interim risk of supply shortage. Yet, the sector, along with industrial, retail and frontier segments like co-living, student housing, and others should hold ground and continue to develop further. Additionally, the affordable housing should witness positive movement.

It is important to remember that Indian economy's secondary & tertiary sectors have attained a certain level of momentum from where they will continue the for-ward-push. Eventually, this should bode well for the residential sector too. As sustained growth takes place in these sectors, increasing financial security over the next couple of years should lead to a higher participation in residential real estate.