Real Estate Sector Shows Resilience: Festive Demand and Office Leasing Boom
The finance ministry’s economic review highlights the real estate sector’s resilience, with a notable surge in demand during the festive season and a robust office leasing market.
Real EstateOffice LeasingHousing MarketFestive DemandEconomic ReviewReal EstateOct 28, 2024
According to the real estate research firm Proptiger, residential demand has moderated in the urban sector after a sharp uptick in the previous four quarters. Housing sales in India’s top 8 cities saw a 5% decline in the quarter ending September 2024. The review, drawing from Proptiger’s insights, states, “The current tempering is a healthy response to rising prices and is expected to contribute to sustainable growth. Market fundamentals remain strong, and real estate continues to be a preferred investment option amid positive consumer sentiment. Developers have also aligned their supply strategies, as evidenced by a decline in new unit launches.”
Dhruv Agarwala, Group CEO of Housing.com & PropTiger.com, shares a similar sentiment. “Over the first two quarters of FY25 (April to September), new residential supply has been subdued due to several factors, including inflated home prices driven by investor speculation. Developers have largely adopted a cautious ‘wait-and-watch’ approach. However, we expect heightened activity in the housing market in the October to December quarter. With the Navratri festival starting on October 3, followed by Diwali at month’s end, and culminating in the Christmas-New Year season, a surge in new launches across major cities is anticipated,” Agarwala noted.
Despite a slowdown in new launches from branded developers, demand remains strong for prime locations among end-users and investors. Developers are offering discounts and incentives to attract buyers, which is likely to drive sales. Additionally, the potential for an interest rate cut in the upcoming RBI monetary policy could further boost housing demand, which is already robust post-COVID.
Niranjan Hiranandani, Chairman of the Hiranandani Group and NAREDCO, is optimistic about the festive season's impact on the real estate market. “As we enter the festive season, there is a resurgence in home-buying sentiment across India, blending cultural beliefs with favourable economic conditions. Traditionally, this period symbolises prosperity, making it an ideal time for property investments. Current market dynamics support this sentiment with mortgage rates at historic lows due to the RBI’s unchanged repo rate, affordability has improved, especially for middle-income and first-time buyers. Government incentives, like the PMAY subsidy, continue to drive demand in the affordable housing segment. Additionally, a shift towards larger living spaces, influenced by post-pandemic lifestyle changes, is stimulating demand in the luxury segment. In metro and tier 2 cities, there’s a clear preference for projects with strong infrastructure, healthcare, and education access. This indicates that today’s homebuyers value holistic living environments,” Hiranandani said.
However, he also highlighted challenges such as rising input costs in steel and cement, and potential delays due to supply chain disruptions, which could impact project timelines and pricing.
The finance ministry’s review also notes the strengthening demand for office spaces. According to a report by real estate consultant Cushman & Wakefield, gross leasing of office space rose 66% to 24.8 million square feet across the top eight cities in Q2 of FY25 Y-o-Y, marking the second-highest quarterly leasing volume in the sector’s history. Consequently, the vacancy rate in these cities dropped to 17.1% in Q2 of FY25, the lowest in 14 quarters. The report projects that gross leasing of office space in these cities 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 recently announced their Q2FY25 results, revealing a robust outlook for both its 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 their 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 Rs 7,094 crore, and DLF remains on track to meet its guidance for the full fiscal year.
DLF Cyber City Developers Limited (DCCDL) also saw strong results in the commercial business, posting consolidated revenue of ₹1,653 crore in Q2FY25, a 13% y-o-y increase. Profit for the quarter stood at ₹521 crore, up 25% from Q2FY24. “Our rental business is experiencing steady growth. Encouraged by these trends, we have accelerated our capital expenditure to expand our rental portfolio, including new phases of Downtown Chennai and Downtown Gurugram, totaling approximately 11 million square feet,” DLF reported.
Frequently Asked Questions
What is the current trend in the residential real estate market?
The residential real estate market has seen a moderation in demand after a sharp uptick in the previous four quarters. However, there are positive indications of a rebound, especially during the festive season from October to December.
How are developers responding to the current market conditions?
Developers have adopted a cautious 'wait-and-watch' approach due to factors like inflated home prices and supply delays. However, they are also offering discounts and incentives to attract buyers.
What are the main factors driving the demand for office spaces?
The main factors include a strong economic recovery, low vacancy rates, and robust leasing activity. The gross leasing of office space is projected to surpass 80 million square feet this year, breaking previous records.
How is the festive season expected to impact the real estate market?
The festive season, from Navratri to Diwali and beyond, is expected to boost home-buying sentiment. Cultural beliefs and favorable economic conditions, such as low mortgage rates, are making this period ideal for property investments.
What challenges are developers facing in the real estate sector?
Developers are facing challenges such as rising input costs for materials like steel and cement, and potential delays due to supply chain disruptions. These factors can impact project timelines and pricing.
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