By Raghavendra Kamath
The Reserve Bank of India has been increasing key rates to tackle inflation which has led to mortgage rates going up. Despite this, Anshuman Magazine, chairman and chief executive, India, South East Asia, Middle East, Africa, at global property consultancy firm CBRE, tells Raghavendra Kamath that home sales would see a strong momentum in FY23 due to government measures in affordable housing and rebound in economic activity. Excerpts:
The RBI is increasing rates to tackle inflation. Do you think home sales will take a major beating this year due to higher rates?
The RBI’s decision to raise the repo rate by 50 bps to 4.9% was a well-anticipated move, considering the steep rise in global inflation levels as well as the monetary tightening measures being adopted by central banks worldwide. We believe that this decisive action will go a long way in curbing mounting inflation levels in the medium term. With the government’s sustained policy push, particularly in the affordable and mid-end segments, enhanced vaccine coverage, as well as a rebound in economic activity, the residential sector is expected to continue to witness a strong momentum in sales in FY23 as well. Moreover, rising input construction cost coupled with sustained demand amidst low housing mortgage rate could result in further appreciation in housing prices. Hence, we believe that continued interest from both end-users as well as investors will help the sector maintain its strong sales pace in the medium term.
Real estate IPOs are on a halt to shaky markets. Do you think it will affect developers fundraising abilities in general?
The capital markets are flush with liquidity in the past two years on account of a low interest rate regime across developed and emerging markets, with leading developers raising over Rs 18,700 crore ($2.4 billion) through the QIP and IPO routes since FY2019. The trend is anticipated to get stronger in 2022 with the expected launch of around 3-4 IPOs, and with developers looking to raise funds through the QIP route. However, with the recent volatility in the stock market and record high crude oil prices, there could be some realignment or deferment of these plans.
Not many REITs have hit the markets in recent times. What could be the reason for it?
Due to Covid-related uncertainty, listing of REITs was momentarily impacted. However, increased public participation in the equity market, a low interest rate on deposits held with banks and an accelerated pace of digitisation has created a positive ecosystem for listing of more REITs. Developers such as DLF, Panchshil Realty, amongst others, have already assessed/planning to assess their portfolio for a listing in 2022.
The year 2022 could also see the launch of REITs for sectors other than office, such as industrial and logistics, and retail; largely on the back of increased availability of quality portfolios in such segments and strong fundamentals supporting their growth. Over the past 18-24 months, investment-grade I&L assets have witnessed significant interest from large foreign institutional investors and asset owners who have acquired these assets on the back of an uptick in space take-up and continuous policy push from the government.
How are global investors looking at Indian real estate as an investment destination in the context of rising rates, falling rupee and so on?
In 2021, investments into real estate experienced growth on the back of a strong rebound across asset classes, with total capital inflows of about $ 5.5 billion. Development sites/land dominated overall investments with a share of 37% as developers acquired land parcels by leveraging the reduction in stamp duty charges and lower cost of financing. This was followed by the acquisition of built-up office (25%) and industrial & logistics (17%) assets.
The trend is anticipated to continue with total investments in 2022 expected to rise by about 5-10%, to reach around the pre-pandemic levels of 2019. Capital flows are expected to continue to be led by development sites/land and the office sector, whereas the I&L and residential sectors could also see higher equity inflows.
How is the office leasing scene in the country? What is your outlook for office properties this year in terms of leasing and rents?
The office sector in India continued to witness a robust recovery in Q12022, as leasing activity grew by 97% Y-o-Y to touch 11.4 million sq ft. Bengaluru, Chennai and Delhi-NCR dominated absorption during the quarter, accounting for almost two-thirds of the transaction activity. Technology corporates drove leasing with a share of about 34%, followed by BFSI firms (17%), flexible space operators (13%), engineering & manufacturing (12%) and research, consulting & analytics (11%) firms. With the government’s evolving Covid-19 protocols and the recovery in office leasing in 2021, we expect the positive momentum to further strengthen in 2022.