India’s Real Estate Sector Expected To Perform Well In 2022

A report by Knight Frank India released by Knight Frank on Thursday highlighted that the Indian real estate sector could perform well in 2022. The property consultancy expects different segments of the market to continue growing despite the effect of Covid-19 pandemic.

Residential Real Estate To Do Well

The residential real estate sector has seen sales and launches edge up after seeing a decline during the pandemic period. Prices of real estate saw a slight decline due to the pandemic but appear to be firming as well. In terms of affordability, which is estimated as a ratio of equated monthly instalments (EMI) to income, houses are at their most affordable at this point.

The housing market has recovered from the pandemic with increasing demand for home ownership. Several markets saw a cut in stamp duty, making home buying much cheaper. Hence, Knight Frank foresees a 5 per cent capital growth for residential real estate in 2022.

Office Space Cloud See Growth In 2022

In the office space, demand is expected to be driven by the information technology sector as well. Though the pandemic had caused the IT sector to rethink its real estate strategy, the current decline in cases and high vaccination rates have led to increased real estate adoption. Both global and domestic companies have picked up office space in India.

In addition, with growth in revenues and business, promoted by the pandemic, higher investments in Global Capability Centres are expected. IT companies have hired around 2.6 lakh new employees from April 2020 to September 2021. As a consequence, real estate demand could increase, despite other factors such as attrition and hybrid working models.

The co-working sector could see increased demand as well, as companies look to reassess costs and opt for flexible arrangements, shorter leases and other benefits associated with co-working space. Given recurring lockdowns, such flexible arrangements have been adopted by larger corporates as well.

Warehouse Space To See Recovery Only In 2023

Unlike office and residential spaces, the warehousing space might not see recovery in 2022 as it is bound by supply side constraints and other issues. Nevertheless, the sector is expected to contribute to 36 per cent of the total warehousing transactions in financial year (FY) 2023.

Despite the pandemic, the sector has continued flourishing, and continues to grow at a rapid rate. The rate of growth is expected to be strong as well, from 2.95 million square metres in fiscal 2021 to 4.26 million square metres in fiscal 2023.

REITs To Benefit The Real Estate Environment

Real estate investment trusts (REITs) have been resilient performers despite the tough times witnessed by the real estate sector. The listed REITs have mainly focused on leasing out real estate space to the IT industry that has done well, despite the pandemic. As a result, these REITs have not seen a drastic decline in vacancies or rentals. Key performance indicators for investors such as net operating income, distributable cash flows etc, have seen stability during the period.

“Even as REIT prices have been volatile in the last two years, their performance in terms of property management and market expertise has reinforced confidence in the new asset class,” the report said.

REITs have seen greater adoption by retail investors, making investing in and exiting real estate an easy task. Additionally, these instruments act as exit routes for builders and developers who wish to exit projects and free up funds.

Data Centres Market To See Higher Capacity Addition

Lastly, the data centre market is expected to do well with increasing adoption of technology and access to the Internet. The country’s huge base of technology users that use over the top entertainment, social media sites, gaming apps, etc, require data storage and processing facilities. Further, data localisation laws implemented by the government, along with the telecoms’ ambitions of creating 5G networks, would create greater demand for data centre real estate.

However, according to Knight Frank, the story is far from over, with greater potential in the market in the coming years. Currently, the estimates for data centre capacity stand at 445 MW (megawatts), which is expected to rise by 220 MW in 2022, with greater capacity addition. As a result, the total capacity in the market could go up to 735 MW in the coming year. India has 25 crore social media users, only second to China, and over 70 crore mobile Internet users. With 41 per cent users already looking to upgrade to 5G according to a report, the Indian data centre market could require further capacity augmentation.

Overall, the factors required for growth appear to be in place for the real estate sector. So far, the sector has seen tepid growth in most years, but recently residential real estate performed well as credit got cheaper and household income grew. Hopefully, we shall see sustained momentum in the sector in the coming year.