Hampered by the second COVID wave concerns, the Future Sentiment score of stakeholders has fallen across regions, even while it remains in the optimistic zone.
With the fear of the second wave of COVID-19, the Future Real Estate Sentiment score has fallen to 57 in Q1 2021 from 65 in Q4 2020, even while the Current Sentiment score has inched up marginally. The ‘Current Sentiment score’ recorded a marginal improvement, inching up from 54 in Q4 2020 to 57 in Q1 2021. This improvement can be attributed to the healthy momentum in the commercial and residential real estate segments during Q4 2020 and during January – February 2021, according to the 28th Edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q1 2021 (January – March 2021) Survey.
Hampered by the second COVID wave concerns, the Future Sentiment score (for the next six months) of stakeholders has fallen across regions, even while it remains in the optimistic zone. Similarly, the Q1 2021 outlook of supply side stakeholders reflects caution on the future of real estate for the next six months, even if their scores remain in the optimistic zone.
With the substantial increase in COVID cases since March 2021, the outlook for residential launches and sales has softened in Q1 2021. Even so, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices. Similarly, the second wave of COVID and the resultant mobility restrictions and possible lockdowns in some cities has adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.
On the macroeconomic front, the pace of economic revival appears to have slowed down, with some key economic indicators showing weakening over the last two months. Influenced by the change in macroeconomic developments, stakeholder outlook on the overall economic momentum and on credit availability has turned cautious in Q1 2021.
Commenting on the same, Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The sentiment of stakeholders remained cautious for both Current and Future Sentiment scores in Q1 2021, owing primarily to the second wave of the pandemic, resulting in economic uncertainties. The real estate sector had seen a strong bounce-back during the last few quarters, which has kept the future sentiment of stakeholders in the positive zone. With the Central government refraining from a second nationwide lockdown, the sector would be hoping to hold onto the progress made so far. As some regions have already announced movement restrictions, it will be imperative to observe the key economic indicators in the coming months to check the sustainability of the growth that the sector has already achieved. The speed at which the inoculation drive is conducted, and the intensity of local restrictions placed will be proportional to the growth of the real estate sector’s growth in the coming months.”
A score of above 50 indicates ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score below 50 indicates ‘Pessimism’.
Future sentiments dampened by second COVID wave
Source: Knight Frank Research; Please note: Data for 2018 is available for Q1 and Q4 only.
Influenced by the change in macroeconomic developments and the second wave of COVID, stakeholder outlook on the overall economic momentum has faltered marginally in Q1 2021. 85% of the Q1 2021 survey respondents – down from the 93% of Q4 2020 – now expect improvement or stability in the overall economic health in the next six months. The remaining 15% – up from 7% in Q4 2020 – believe that economic health would worsen over the next six months.
On the credit availability front, the stakeholder outlook has shifted from positive to observant as 81% of the Q1 2021 survey respondents – down from the 87% of Q4 2020 – expect the funding scenario to either improve or to remain the same for the coming six months.
Rajani Sinha, Chief Economist and National Director Research, Knight Frank, said, “Since Q4 2020, the Real estate sector had started seeing a meaningful recovery in line with the overall macro-economic revival in the country. However, with the second wave of COVID raging in India, the real estate future sentiments have weakened, as the industry stakeholders grapple with the pandemic related uncertainties. With industry players turning cautious, the six month outlook for real estate has weakened across the parameters of demand, supply and pricing in Q1 2021, even while the sentiment scores continue to remain in the optimistic zone. Economy’s return to normalcy will depend on the pace of vaccination and the time taken to control the second wave of COVID. Apart from the pace of vaccination, government decisions on lockdown restrictions will largely determine the performance of real estate sector in the coming months.”
Office Market Outlook: New Supply, Leasing and Rents
The office market was showing a healthy recovery from Q4 2020. However, the second wave of COVID and the resultant mobility restrictions and possible lockdowns in some cities have adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.
In Q1 2021, 58% of the survey respondents were of the opinion that the new supply in the office market would improve or remain the same in the coming six months.
As far as rentals are concerned, 44% of the Q1 2021 survey respondents expect office rentals to remain steady over the next six months.
Residential Market Outlook: Launches, Sales and Prices
Even with the rising COVID infections since March 2021, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices.
In Q1 2021, 65% of the survey respondents were of the opinion that residential launches will increase in the next six months. 26% respondents felt that new project launches would remain the same in the coming six months.
On the demand front, 64% of the Q1 2021 survey respondents expect an increase in sales activity over the next six months. The share of respondents who expected the sales activity to continue at the same pace over the next six months jumped from 13% in Q4 2020 to 23% in Q1 2021.
With regards to residential prices, 48% of the Q1 2020 survey respondents – up from 38% in Q4 2020 – believe that prices will increase over the next six months, while 43% were of the opinion that prices would remain the same.