Home / News / India /  Indian real estate: Performance through FY23 and outlook for the future

Despite rising construction costs and a record hike in the repo rate (225 bps) in 2022, the real estate sector has seen a considerable upswing. After a protracted period of economic stagnation, the real estate industry was able to breathe easier this fiscal year. After two long years of pandemic-related lockdowns and subsequent economic turmoil, the industry has experienced a comprehensive recovery this year throughout Tier I, II, and III cities.

In a response to real estate performance through FY23 and outlook for the future Mr Vimalendra Singh, Chief Sales and Service Officer at Mahindra Lifespaces said “The theme of the year 2022 has been of appreciation. Despite its recent ups and downs, the Indian real estate market has grown, instilling confidence in the minds of homebuyers and investors alike. The desire for homeownership has become stronger ever since the pandemic started and has continued to remain strong. Pandemic-induced trends such as remote & hybrid working, made homebuyers look for larger, sustainable spaces with value-added services and amenities which enhance their well-being. With this evolution of buying preference, customers are also gravitating towards peripheral areas with close proximity to city centres. Moreover, the pandemic also brought real estate forth as a more stable option for investment, and this sentiment was further strengthened owing to the performance of the industry over the year."

“With RBI increasing repo rates, home loan interest rates saw a rise. However, this has had an almost negligible impact on sales and customer sentiment in the past. Additionally, flexible payment plans from developers have also encouraged home buyers to complete their purchases. This was also the year of espousal of sustainable and innovative products amongst the new-age environment-conscious homebuyers. At Mahindra Lifespaces, we have leveraged innovation, technology, thoughtful design and a deep commitment to sustainability to add value to our real estate offerings. The demand and supply dynamics are expected to remain resilient in 2023. Even considering the expectations of another round of rate hikes, the market is likely to respond positively as it has done over the last year. We expect this momentum to continue over the coming year and remain confident of the growth of the industry as a whole," said Mr Vimalendra Singh.

Mr. Jaatin Suratwwala, Managing Director and Chairman, Suratwwala Business Group Ltd said “Despite the pandemic's tail-end, interest rate hike, job losses, a sluggish economy and all that's been taking place in the world to slow things down, figures at the end of 2022, and surprisingly, the pricier luxury and high-end sectors are showing a marked upward swing in off-take all over the country! Affordable housing could be sluggish in the face of a slow and cautious economy, interest rate hikes and general increases in realty costs attributable to rising prices of raw materials. Not that it doesn't affect the higher, pricier and more luxurious reality. It's just that with higher buying power, the latter is better placed to tackle rising prices, whereas those at the bottom of the barrel think twice before loading their already creaking (and leaking) monthly budget."

“The one sector where things are clearly looking up is the one dealing with infrastructure, logistics, and to an extent, manufacturing. The primary reasons behind such positive sentiments include the Central Government's massive push for putting in place infrastructure, be it the dedicated railway freight corridor, world-class multiple-laned express highways crisscrossing the country (a far cry from the standard 4-laned highways of yore), airports, railways and even bus-terminuses all of which could resemble (or better!) the best in the west. Riding on the back of these developments have been manufacturing and related service companies, including 3PL and 4PL entities, that have put in place massive production, storage and processing capacities that India had only heard of and seen in movies till a while back. They are now India's for the asking!," said Jaatin Suratwwala.

“Covid having changed manufacturing to be China+1, India is reaping all the benefits with the likes of Apple and Samsung (besides the others like Oppo, Vivo and the likes) putting up massive production plants in India. This then, is just the beginning. With China going thru another round of Covid, more companies are expected to shift base to India. The thing they would most need is a piece of land to set up operations; that's besides their staff wanting the basics of life, only adding to the need for reality. At the fag-end of the year 2022, it means just one thing. Seriously happy times will be upon us in the year 2023!," said Mr. Jaatin Suratwwala. 

Sudarshan Lodha, Cofounder and CEO, Strata Property Management said “Indian real estate has witnessed a boom in 2022 with a fillip in commercial and residential space construction and absorption. This demand surge has been refreshing after two long years of pandemic instilled lockdowns and consequent economic downfall. With the soaring demand, commercial real estate market in the country witnessed, triple-digit growth in the office and retail segments while the residential segment has also seen a remarkable growth of 40% vis a vis last year. Unlike the previous years, this year the industry has witnessed holistic growth across tier I, II & III cities. The boost in the e-commerce industry and India’s emergence as the fastest-growing business & IT hub has led to a phenomenal demand in the country’s commercial real estate. Furthermore, policy initiatives like Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) is expected to further amp up this demand."

“We expect the trend to continue and bolster in 2023, with increased absorption and decreased vacancy rates, strong ROI, more considerable NRI and FDI investment and solidified government initiatives helping infrastructural boost leading to growth in the office space segment. Grade A premium office spaces segment is expected to grow to a staggering 1.2 billion sq.ft. by 2030. Moreover, Tier-II towns is expected to witness robust demand with the rise in employment opportunities and economic activities in these markets. Additionally, with a behavioural shift towards digitization, we will see more people investing in commercial assets through fractional routes. Overall, real estate will remain one of the ideal investment asset classes, and as the pandemic has faded, the commercial market looks to bloom in major cities of the country," said Sudarshan Lodha.

Mr Robin Chhabra - Founder and CEO of Dextrus Workspace said “Since the abating of the Delta Covid wave we have seen a fast resurgence of office leasing and this is strongly reflected in the 100% occupancy rates we are currently seeing in the Dextrus coworking centers. We see this continuing into Y2023 as the industry has proven adaptable to the changing tenant requirements as well as a resilient Indian economy. We are seeing a strong acceptance from Indian companies for our model, as the hassle free solution for their office needs is easing burdens and helping them focus on their core business. Managed office spaces​ and co​-​working spaces are predicted to grow over 10% - 13% annually over the next three years which is quite healthy as an emerging sector. This past year we have focused on providing enterprise office space for clients looking for a customized and more long term offering. This has worked very well for our clientele who range across industries, from International Banking to Warehousing to University Institutions. On the heels of this demand, our outlook for 2023 is to expand our footprint in key micro markets of Mumbai and to launch “BUILD by Dextrus", a design and build studio that shall give companies a one stop shop where we can source, design, build and operate an office space of their choice."

Mr Boman Irani- Chairman and Managing Director of Rustomjee Group said “The real estate sector has seen great improvement in 2022 and we are positive and expecting the sector to grow further in the year 2023. The post-pandemic ‘normal’, advancements in technology, and the changing home buyer demographics and demand have created a positive impact on the real estate sector. The definition of home has evolved over time and is extending beyond the four walls to provide a complete environment with open spaces, play areas, amenities and more. At Rustomjee, our commitment to enhance customer experience with improved quality of day-to-day life continues to stay strong. We are extremely optimistic about the year ahead, considering what we have in the works."

Mrinaal Mittal, Director Blackteak Realty sees 2023 as the year of much needed consolidation in real estate sector. This year will witness a move away from fragmentation which is observed rampantly in real estate currently and conscious effort by key stakeholders towards systemization and unification. This will ensure that listed and reputed developers will increase their equity and strengthen their position in the market. With organized developers garnering more market share, the products brought forth in the market for consumers will be world class and superlative in quality. This movement will create positive changes and long term benefits for both consumers and developers. Another pivotal trend of the real estate industry will be the shift from unorganized to organized business models. We anticipate a movement of unorganized retail players from their current stand-alone disjointed establishments into malls. This again will create amplified business opportunities for the sellers and wide variety for buyers, benefitting both parties alike.

“This metamorphosis into an organized business format will also bring about a change in the broker community of this sector. From a haphazard way of functioning they will move into organized trade practices which will be advantageous for all crucial collaborators. Even the labour involved in construction of real estate projects will exhibit a shift from non-skilled to skilled ensuring higher efficiencies and less wastage. Construction sector which is the backbone of real estate is confronted with multiple quandaries like recurrent misinterpretation and workflow disturbances, resulting in project delays and cost overruns. We also envision advent of technology and automation specific to this industry in a significant manner and scale especially in the construction part of the project development.. Automation and technology in this aspect offers solutions to do things better. With tools like Building Information Modeling (BIM), AI, drone tech etc. real estate developers bring higher efficiencies into the process," said Mr.Mrinaal Mittal.

Harsh Shah, Partner, Economic Laws Practice said “The real estate market has witnessed a significant boom despite increasing construction costs and record increase in the repo rate (225 bps) in the year 2022. The key factors leading to an increase in demand are:

1. Desire for bigger homes in light of the hybrid work culture and the pandemic experiences

2. The India growth story : India, as an economy, continues to grow rapidly thereby providing a positive sentiment towards high investments such as real estate

3. Preference towards investment in real estate, being a more stable option for a safe-haven investment given the volatility in the stock market

4. Reduced uncertainty of potential future income post the pandemic, with a mindset that the worst is over

It is likely that the momentum in the sector will continue at least for the first quarter of 2023. Post this, several factors, including but not limited to, the interest rates, the global economic slow-down and its ripple effects and the recent possible resurgence of COVID as witnessed post the FIFA World Cup, would determine the demand for the rest of the year. However, on the whole, it appears that the outlook for the sector will continue to be positive."

Harsh Parikh, Partner, Khaitan & Co said “This financial year was a sigh of relief for the real estate sector after a long status quo. Developers came forward to acquire large land parcels which was a welcome change which was missing in the past couple of years. It showed the confidence in the sector going forward. There is a huge potential for the real estate sector in the coming year as well. Given that interest rates have risen sharply this year, they may tend to taper during some part of next year. To add to this, if the Government offers any reduction in stamp duty, it will auger very well with the market to boost sales and investments in the sector."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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