Indian market slowdown…

Indian Real Estate Sector

 The real estate sector has the second-highest contribution in terms of GDP next only to agriculture. It accounts for 9% of total GDP in India.

This mammoth market segment is expected to grow to $650 billion by 2025 and rise to a trillion-dollar industry by 2030. It is estimated to contribute a GDP of 13%. This drive is primarily due to the easy availability of lands in the suburban markets.

Indian GDP Analysis

Indian Economy

The Indian economy has been characterized as a major growing economy due to the country’s strong trade and diplomatic partnerships. The growth of an economy is determined by the increase in annual GDP. The Indian economy which has been growing consistently has seen a dip in recent months. It grew 5% in FY 20 and has been considered one of the slowest growth since 2007. Many experts associated with Analytics and Banking has termed this as symptoms of an economic recession.

Economic Recession is characterized by sustained negative GDP growth is two or more subsequent quarters. Though India’s GDP has grown by 5%, the progress has been severely contracted. This could be an early sign of Recession. Eight core industries have reported a downfall of 2.1% as of August.

A recession is accompanied by business reporting revenue loss after being stable for a longer amount of time and high unemployment rates. The automobile sector has reported back-to-back losses and has relieved several people to keep the companies sustained and stable. The last recession which hit India leads back to 2007-2008 where the GDP fell to 7.6% affecting exports and business growth. But since then Indian ties with its global counterparts have increased. Many international organizations are setting up shops in India, each desiring a piece of the potentially ever-growing cake. 

An Economic Recession is characterized by sustained negative GDP growth is two or more subsequent quarters. Though India’s GDP has grown by 5%, the progress has been severely contracted. This could be an early sign of Recession. Eight core industries have reported a
downfall of 2.1% as of August 2019.

A recession is accompanied by business reporting revenue loss after being stable for a longer amount of time and high unemployment rates. The automobile sector has reported back-to-back losses and has relieved several people to keep the companies sustained and stable. The last recession which hit India leads back to 2007-2008 where the GDP fell to 7.6% affecting exports and business growth. But since then Indian ties with its global counterparts have increased. Many international organizations are setting up shops in India, each desiring a piece of the potentially ever-growing cake. 

Important factors

One factor which predominates the Indian Economy growth is Consumption; technically split into  Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE). Over the past five years, the average consumption growth of Indian Households has risen to 7.8%. But in the June quarter, it has fallen to 3.1% causing a slowdown of the economy.

Another key factor that propels the economy is Investment with Gross Fixed Capital Formation (GFCF) as the primary constituent. Its contribution to growth has fallen by 6.2 percentage points between the periods of 2014-2019. Investors and entrepreneurs are reluctant to invest in potential companies and research, lowering of infrastructure development which ultimately leads to sluggish technological development.

How Recession has affected Real estate

In Real Estate both buyers and builders are facing their own set of problems.

Buyers have grown wary about investing in a property due to the growing delivery and transparency issues. A lack of greater transparency has led to corruption, money laundering and tax evasion. The government has initiated RERA, which has been reinforcing strict guidelines about the aforementioned issues. It ensures adherence of the builder to their stipulated delivery time and offers detailed information about the property to the buyer.

Real estate project launch and conversions graph

 It is evident from the graph the launch of new projects have declined (The new launches in NCR fell by a staggering 41%). However, the property sale has been steady even with the growing recession.

To determine the longevity impact on Real estate, let’s take a look at how the Indian Real estate sector behaved when the “Great Recession” hit India.

How “The Great Recession” hit Indian Real Estate Sector

From 2000-2006 Indian Real Estate industry was passing through a golden era. It was expected to rise to $90million by 2015 with an ROI of 13-16 yields.

Changes in housing prices during the years

 During 2008-2009, there was a staggering fall in house prices with buyers wary of investing due to further decline in value. Builders started enticing consumers through substantial discounts which went up to 30% in Q4 2008.

  • In Bangalore, the real term house prices dropped to an astounding 31%
  • In Delhi, a price fall of 1.6% was observed
  • In Mumbai, the price fell by 2%.

Demand for luxury properties fell by 50% while for affordable housing it dropped by 10%. Also, the mortgage market faced a hindrance in their expansion due to conflicting laws.

  • Banks offered loans to middle and high-income sectors which affected the low-income ones.
  • Interest rates ranged from 9.25%-13.25% for mortgages.
  • The Loan-to-value (LTV) declined to 75%

Economic researchers from Birla Institute of Management, Noida conducted a study based on certain hypotheses to figure out whether the recession would continue to impede the Indian economy or if it was just a phase.

The results showed

  • An increase in demand for real estate
  • A surge in the Price of Property
  • Increase in the launch of new projects
  • A rise in Competition
  • A decline in the Rate of home loans

As per the results in 2007, the Indian Real Estate sector has continued to grow at an impressive rate. New competitors have increased the launch in new projects.

  • Private Equity investments in the real estate market touched  a new high since 2008, with private equity players investing around $2.8 billion.
  • Residential projects attracted substantial funding.
  • Real-estate sales grew significantly in major cities like Mumbai, Hyderabad and Bangalore
  • The commercial sector sales witnessed spectacular growth with several large leases and buy-out transactions. The total office-space absorption rose to an impressive 35 million sq.ft.

This growth provides hope for recovery of the real estate sector with demand for properties to further increase in the upcoming years.

Is the Real Estate sector growing?

Happy Real estate Agent

Similar to predictions during the period of the Great Recession, new predictions are turning up for the future of real estate.

According to Prashant Thakur, Director of Anarock Research, the real estate industry has taken an inevitable new trend. Affordable housing is gaining popularity and new projects are being launched with a strong focus in this category. He attributes the large volume of unsold inventory to the construction of projects with conflicting customer orientation as the demand has consistently increased.

Also, Rental housing, co-living spaces have become popular among the millennials. And, Real Estate Investors prefer commercial properties over residential properties as it garners significant ROI.

He also predicts the future of Real estate would thrive on the consolidation of the builders. 7 out of 10 builders will either consolidate or disappear with the well-established and reputed builders leading the charge. Buyers would also turn to these reputed builders for security and trust in delivery and transparency.

Should I really invest now?

Considering the facts and the studies, it is evident that this growth recession is just a phase and real estate sectors would continue to rise in value. Also, real estate is regarded as one of the safest investment choices. So, whether you are looking for a house to live in or a property to invest in, the recession won’t be an impeding factor. In fact, you could take advantage of this recession and buy properties at a substantially discounted price.

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