Mumbai: The divergent trend between commercial and housing real estate markets seen in the last couple of years is likely to continue in 2020. Commercial lease rentals are expected to be northbound on the back of robust demand and falling vacancy levels.

Home sales, on the other hand, are expected to be subdued in spite of several government sops to revive demand. Unfavourable demand-supply dynamics and liquidity crunch will continue to weigh on sales growth and property prices will remain flat. According to Anarock Property Consultants Pvt. Ltd, 650,000 homes remained unsold across seven cities as of end-September, 12% of which were ready-to-move-in units. This is in spite of additional tax sops on home loans especially in the affordable segment, lower goods and services tax rate on under-construction projects, and lower interest rates for housing loans.

Nonetheless, in the overall weak business environment, demand for affordable and ready-to-move-in homes is slowly gaining traction. “Due to the changing demographic profile of cities on the back of increasing urbanization and inward migration, housing demand has largely been concentrated in the affordable/lower ticket-size segment," says a report by Icra Ltd.

Santosh Sharma/Mint.
Santosh Sharma/Mint.

Large developers, primarily those in the listed universe, such as Sobha Ltd, DLF Ltd, Oberoi Realty Ltd and Godrej Properties Ltd, have fared well by cashing in on demand in the affordable segment. As a result, total home sales of the listed developers rose by 8% year-on-year in Q2 FY20 compared to a fall of 18% in the year-ago period.

This explains the acceleration in the Nifty Realty index, which has risen 25% in 2019 (till date), twice that of the Nifty 50 index.

In the high-end segment, buyers are still cautious and prefer ready-to-move-in homes. One can expect this trend to continue at least till the first half of 2020. With about 460,000 stranded projects having burnt deep holes in customers’ pockets, demand for under-construction homes should remain sluggish even in 2020, unless inventories drop. The Icra note adds that a rise in new launches in the coming months could add to inventory and weigh on property prices.

In stark contrast, on a year-to-date basis, the commercial property market registered 13% year-on-year growth in office supply and 11% rise in absorption. Analysts expect the buoyancy in this segment to continue on the back of consistent demand and falling vacancy levels.

Traction in real estate investment trusts (REITs) may be a key feature in 2020 following the success of the Embassy Office Parks REIT’s public issue.

That said, from the retail investor’s perspective, companies with higher annuity income from office property and affordable housing projects will be able to post stable performance in the near-to-medium term.

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