Investors find Indian real estate safe haven in current economic scenario

Based on reports highlighting performance of real estate in 8 major Indian cities for H2 2020 (July-December) across the residential and office sectors, it is seen that MMR (Mumbai Metropolitan Region) witnessed growth of 10% in home sales (year on year) at 30,042 units. Sales started increasing from September while growing by 80% (year on year) for the fourth quarter of 2020. Developers recovered from the pandemic owing to the stamp duty cut, several fence-sitters went ahead and made purchases ahead of the first deadline window for the reduction in December, 2020 while the State Government earned higher revenue as well. 

Home buyers in the mid and higher income groups along with luxury real estate buyers have been taking advantage of the stamp duty cut considerably throughout Mumbai-MMR. Interest rates have come down to record lows, prices are at their lowest, people now wish to purchase bigger homes, developers are offering several discounts and offers and household savings have also increased owing to the lockdown. Home launches went down by 25% (year on year), standing at 26,904 units for H2 2020 although they increased by 121% for Q4 2020 with 18,515 units launched in this period. Weighted average prices fell by 3.2% approximately in this period, touching Rs. 6,787 per sq. ft. 

Tanuj Shori, the CEO & Founder at Square Yards, feels that lower stamp duty and registration rates have spurred investments in ready to move residential units in addition to correction in property prices, flexible payment plans and also the fact that they offer certain rental yields along with appreciation. He states that commercial real estate including Grade-A office spaces, IT Parks, logistics centers and REITs continue to be profitable and attractive investment alternatives, offering 6-10% in average yields. A fusion of the lowest ever home prices and favorable currency rates has spurred NRI investments in Indian real estate. 

Shori has advised NRIs to choose mortgage refinancing in India if the difference between available rates of interest and the rate of interest paid them surpasses 0.50% or 50 bps. NRIs not presently in India could give power of attorney to people residing here for taking care of proceedings while choosing variable rates linked to the repo rate of the RBI. With a downward interest rate trend clearly visible, there are possibilities of further rate cuts as well. Shori has mentioned that NRIs will not have to bear prepayment penalties with variable interest rates and emphasized upon the fact that in the current global scenario, NRIs will find it more profitable to park their money in Indian realty. 

Home buying sentiment in the MMR has been boosted by the stamp duty cut and home sales have increased by a whopping 193% (quarter on quarter) and also by 147% of the quarterly average in 2019 if the Q4 2020 period is taken into account. 22,407 units were sold in Q4 as compared to only 7,635 units in Q3 2020 and 57% of homes sold were in the price band above Rs. 50 lakh as compared to 52% in H2 2019. The majorly costlier micro markets in MMR including Western Suburbs, South Mumbai, Central Mumbai and others saw the highest growth in sales for Q4 at 246%, 342% and 186% respectively. 

Developers feel that the reduction of 50% in construction premiums is a demand that has been addressed and will boost realty in Mumbai. A 1-year window however will be an added burden for realty players who are still grappling with liquidity. Reduction in construction premiums will undoubtedly make Mumbai the numero uno destination for NRI investments with the extra stamp duty and ready reckoner rate reduction benefits. The bank interest rates are also at their lowest in the current scenario. Experts feel that NRIs should tap into the premium reduction for investing in new launches with 1,2 and 3 BHK units and luxury homes in integrated townships and extended suburbs with proper accessibility, locational benefits via nearby educational institutions, shopping and entertainment zones and healthcare facilities and also decent return on investment (ROI). 

Office space completions in MMR touched 1.7 million sq. ft. for H2 2020 and leasing transactions stood at 2.1 million sq. ft. overall for this period. Weighted average transacted rentals came down by 5.6% for this period while office transactions recovered slightly in Q4, increasing by 8% (quarter on quarter) to 1.1 million sq. ft. while touching 46% of the quarterly average in 2019. Business zones like Central Mumbai along with off-BKC and BKC witnessed handsome office leasing growth in this period of 24% and 32% respectively. Co-working operators doubled their share in transactions to 18% in H2 2020 as compared to 7% in H2 2019. 2019 was historic for the MMR with transactions in the office market touching new record highs owing to big pre-commitment transactions. 2020 saw an expected decline in leasing and COVID-19 restrictions. Occupiers with long-term outlook and better prospects have used this time to look around for better office space deals. Once local train restrictions are removed and restrictions on utilizing office space are done away with, demand for office spaces is anticipated to recover rapidly according to experts.