Realty sector under pressure and outlook is pessimistic, says survey

Bengaluru: Despite a slew of measures by the government and the Reserve Bank of India (RBI) to boost liquidity and revive demand, the real estate sector is under immense pressure and the outlook is pessimistic, according to the Real Estate Sentiment Index Q3 2019, the latest survey by Knight Frank, FICCI and NAREDCO.

The current sentiment of the real estate stakeholders on the supply side, including developers, private equity funds, banks and non-banking financial companies (NBFCs) plummeted further in the July-September quarter, reflecting uncertainty that was witnessed during demonetization in 2016.

“The real estate stakeholders’ sentiment has gone in the ‘pessimistic’ zone owing to poor demand side performance, despite measures by the government. However, it is more significant that they are wary about the next six months for the sector and the overall economy, thus pushing the sentiment score in the red,” said Shishir Baijal, chairman and managing director of Knight Frank India.

The real estate sentiment index is based on a quarterly survey of key supply-side stakeholders. A score of over 50 signifies ‘Optimism’ in sentiment, 50 means sentiment is ‘Same’ or ‘Neutral’, while below 50 shows ‘Pessimism’. For the July-September quarter, the current sentiment score was 42, while the future sentiment score was at an all-time low of 49.

The real estate industry has witnessed over three years now and stakeholders see no immediate solution for the sector ailed by defaults, weak demand and the drying up of funding because of the NBFC crisis.

“The restricted flow of liquidity has resulted in many real estate projects being stuck in the past one year due to lack of funds. The realisation that the slowdown in the economy will further weaken the demand and in turn impact cash flow issues for the developers has marred the outlook of the stakeholders for the coming six months,” the survey said.

“Affordable housing projects that have got the equation right in terms of unit size, product configuration, location and developer standing are witnessing good demand even during this time. Within the residential spectrum, the stress has mounted up on the high-end segment in the recent period and that is one segment where sales have been slow,” said Keki Mistry, vice-chairman and CEO, HDFC Ltd.

The National Capital Region, the largest property market, will see tough times in the coming six months, said the survey.

Approximately, 26 developers in NCR have come under the National Company Law Appellate Tribunal (NCLAT) in the past few months. The sentiment score for the western region has also gone in the red for the first time. Both the north and west zones have had a fair share of investor interest in the past, which has now waned from the market, the survey said.