Real Estate Sector Showcases Resilience with Festive Demand Surge and Office Leasing Boom
The finance ministry's monthly economic review highlights the resilience of the real estate market, noting a temporary dip in residential demand and a significant surge in office space leasing. The review underscores the sector's strong fundamentals and p
Real EstateResidential DemandOffice LeasingFestive SeasonMarket FundamentalsReal Estate NewsOct 28, 2024
However, the review suggests that this tempering is a healthy response to rising prices and is expected to contribute to sustainable growth. The strong market fundamentals continue to make real estate a preferred investment option, as developers align their supply strategies. Evidence of this is seen in a decline in new unit launches, which is expected to stabilize the market.
Dhruv Agarwala, Group CEO of Housing.com & PropTiger.com, shares similar optimism. He notes that while new residential supply has been subdued due to factors like inflated home prices and a cautious ‘wait-and-watch’ approach from developers, the festive season from October to December is expected to bring a surge in new launches across major cities. The Navratri festival starting on October 3, followed by Diwali and the Christmas-New Year season, could drive significant activity in the housing market.
Agarwala adds that despite the slowdown in new launches from branded developers, demand remains strong for prime locations among both end-users and investors. Developers are offering discounts and incentives to attract buyers, which could boost sales. The potential for an interest rate cut by the RBI in the upcoming monetary policy could further stimulate demand, which has already shown robustness post-COVID.
Niranjan Hiranandani, Chairman of the Hiranandani Group and NAREDCO, sees a positive trend in the festive season. He believes that cultural beliefs and favorable economic conditions are driving home-buying sentiment. With mortgage rates at historic lows and government incentives like the PMAY subsidy, affordability has improved for middle-income and first-time buyers. The post-pandemic shift towards larger living spaces is also stimulating demand in the luxury segment. In metro and tier 2 cities, homebuyers are increasingly valuing projects with strong infrastructure, healthcare, and education access, indicating a focus on holistic living environments.
However, Hiranandani also points out challenges such as rising input costs in steel and cement and potential supply chain disruptions, which could impact project timelines and pricing.
The finance ministry’s review also highlights the strengthening demand for office spaces. A report by real estate consultant Cushman & Wakefield shows that gross leasing of office space rose 66% to 24.8 million square feet across the top eight cities in Q2 of FY25, marking the second-highest quarterly leasing volume in the sector’s history. This led to a drop in the vacancy rate to 17.1% in Q2 of FY25, the lowest in 14 quarters. The report projects that gross leasing of office space will likely surpass 80 million square feet this year, breaking the previous record of 74.5 million square feet in 2023.
Real estate major DLF has reported robust results for the second quarter of FY25, with strong outlooks for both residential and commercial segments. In the residential sector, new sales bookings during the quarter were down to ₹692 crore, reflecting delays in receiving approvals for new product launches. However, approvals for the super-luxury project ‘The Dahlias’ in DLF 5, Gurugram, were granted early in the current quarter. New sales bookings for the first half of the fiscal stand at ₹7,094 crore, and the company remains on track to meet its guidance for the full fiscal.
DLF Cyber City Developers Limited (DCCDL) also saw strong results in the commercial business, posting a 13% y-o-y increase in consolidated revenue to ₹1,653 crore in Q2FY25. Profit for the quarter stood at ₹521 crore, up 25% from Q2FY24. The company’s rental business is experiencing steady growth, and it has accelerated capital expenditure to expand its rental portfolio, including new phases of Downtown Chennai and Downtown Gurugram, totaling approximately 11 million square feet.
Frequently Asked Questions
What does the finance ministry's review say about the real estate market?
The finance ministry's review highlights that market fundamentals in the real estate sector remain firm, despite a recent dip in residential demand. The sector is expected to see a rebound, especially during the festive season.
How has the residential demand in urban areas changed recently?
Residential demand in urban areas has moderated after a sharp uptick in the previous four quarters. According to Proptiger’s quarterly report, housing sales in India’s top 8 cities declined by 5% in the quarter ending September 2024.
What factors are driving the potential surge in new launches during the festive season?
The festive season from October to December, cultural beliefs, favorable economic conditions, and potential interest rate cuts by the RBI are expected to drive a surge in new launches and increased activity in the housing market.
What challenges are the real estate developers facing?
Developers are facing challenges such as rising input costs in steel and cement and potential supply chain disruptions, which could impact project timelines and pricing.
What trends are observed in the office leasing market?
The office leasing market is showing strong demand, with gross leasing of office space rising 66% to 24.8 million square feet in Q2 of FY25, the second-highest quarterly leasing volume in the sector’s history. The vacancy rate in major cities dropped to 17.1%, the lowest in 14 quarters.
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