In an exclusive interview, Sankey Prasad, Managing Director and Chairman, Colliers International India, talks about real estate and shares his outlook for 2020.
The real estate industry will continue to witness its ups and downs in the coming year also. However, with various government initiatives, the sector is bound to receive a substantial share of the FDI inflow, and with right checks and balances induced in the system to moderate and de-risk investments, the future of real estate looks even more promising, says Sankey Prasad, Managing Director and Chairman, Colliers International India, in an exclusive interview with Sanjeev Sinha. Excerpts:
How do you sum up 2019 for the real estate sector?
2019 should be considered a year of introspection for real estate. However, the outlook is extremely positive, and I have strong reasons to believe so. Though the residential sector stagnated with issues related to surplus inventory, liquidity issues due to the NBFC crisis and general elections, there has been upside too; implementation of RERA has helped clean up the sector and RBI has cut the repo rate in 2019 to a nine-year low. I am sure these are impetus for growth in the future. The steady growth in IT, retail, consulting & e-commerce have registered high demand for the office space in recent times, which is expected to continue. New avenues of development in logistics & warehousing, new airports and infrastructure expenditure by the government have also had their positives on the industry. On the whole, I foresee a very bullish year ahead for real estate in 2020, keeping in mind the slow revival of residential projects.
Are the reforms and bailout package for real estate enough to revive the sector?
The bailout package and reforms proposed by the government could not have come at a better time. The residential sector is in the grip of one of the worst slowdowns in a decade. I would say, the government has only acknowledged the issue, by setting up the stress fund, but it needs to introduce more reforms and re-look at taxation for the revival of the ailing sector. I am sure the industry will welcome more proactive reforms from the government to enable the residential sector to regain momentum. In my opinion, the government should involve industry leaders in such endeavours to build consensus, as the revival of the sector is a joint responsibility.
Has the real estate funding ecosystem changed post the NBFC crisis?
In the wake of the crisis faced by the non-banking financial companies (NBFCs), triggered post the default of IL&FS in September 2018, the developer community had been facing strong headwinds. NBFCs were a major source of funding for the cash-strapped developers post the freeze from the banking sector due to increasing non-performing assets (NPA). However, the NBFC crisis, which surfaced in late 2018, worsened the scenario for the developers.
NBFCs have increased their rates, making it less attractive to a developer, which is affecting their operations. Not only the developers, but the crisis has also substantially reduced the borrowings of the prospective homebuyers, which has had an effect on the demand for residential properties. With the freeze on disbursements by NBFCs, the entire real estate sector is struggling to secure liquidity.
What are segments that will witness growth in 2020? Is the residential sector also likely to bounce back?
Sectors that are poised for growth in 2020 are:
- Logistics & Warehousing
- Affordable housing
- Co-working/ co-living spaces
A rebound is expected in the Indian housing market activity over the coming year. A major factor that would help trigger the activity in this segment is the low interest rates regime that prevails in the country and the same is expected to stay on for some time. Further, the government has given a push to institutionalize rental housing in India, which should also trigger activity in the rental housing market. Also, with political stability and the reigning in of the same government in office at the Centre in the general elections of May 2019, the push to affordable housing by the government would continue and that should help the pick-up of activity in the housing segment.
How do you think 2020 will fare for the sector?
Real estate as a sector plays a key role in the growth phenomenon of any emerging market, and India is no exception. The real estate industry will continue to witness its ups and downs. However, with various government initiatives like REIT funds, etc., the sector is bound to receive a substantial share of the FDI inflow. With the right checks and balances induced in the system to moderate and de-risk investments, I feel the future is even more promising.
Will the buoyancy in commercial real estate business continue or decline in 2020? Will it be the saviour for the overall real estate sector?
Though the share of commercial office market constitutes only 12-15% of the overall property market, it is one of the fastest-growing segments, compelling investors to chase investment-ready assets in Tier I cities. Foreign investors are now willing to take more risks and enter greenfield projects as ready assets are few. However, this unprecedented demand has ramped up asset valuations, raising questions whether the current boom is sustainable. In addition, apart from the big cities, Tier II and smaller cities are yet to see a pick-up in demand and hence remain reasonably fragmented.
Driven by MNCs and tech companies in India, the demand for premium office spaces is bound to expand, despite the temporary roadblocks like the ongoing economic slowdown. Though global investments are happening, they are still relatively less compared to other mature markets; which in itself provides scope of further expansion.