Real estate sentiments hit historic low: 24th Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q1 2020 (January – March)

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With the COVID-19 crisis playing havoc on the economy and real estate sector, the 24th Knight Frank – FICCI – NAREDCO Real Estate Sentiment Index Q1 2020 Survey shows that the current sentiments of the real estate stakeholders in India have dropped to an all-time low of 31 in the first quarter (January – March) 2020. The survey further indicates that the ‘future sentiment score’ outlining the industries’ market expectations has also dipped well into the pessimistic zone at a score of 36 in Q1 2020 against the score of 59 in Q4 2019. The real estate sector that had just about started showing some signs of revival during the last quarter of 2019 has suffered a severe setback due to the COVID-19 crisis.
A score of over 50 signifies ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score of below 50 shows ‘Pessimism’.
COVID-19 OUTBREAK DEPRESSES STAKEHOLDER SENTIMENTS: CURRENT & FUTURE SCORE

Source: Knight Frank Research
Shishir Baijal, Chairman and Managing Director of Knight Frank India said, “The pandemic has created an unprecedented condition which is impacting global markets and societies. There is already a severe shortage of liquidity due to the complete standstill that most economies have come to. Even while the government and the Reserve Bank of India have provided some stimulus measures, further support may be required to help the real estate sector and for the economy to stay afloat during the crisis. Managing liquidity and sustaining through the length of this pandemic will be critical for economic survival in the post-pandemic era.”
Shishir further added, “The real estate segment specifically will have a longer journey to make. This crisis has retracted the end-user confidence to its lowest levels ever, which will push any kind of real estate purchase decisions to the distant future. The already ailing real estate sector has been crippled with this pandemic, making it imperative for government support to bring it back on track.”

KEY FINDINGS OF THE SENTIMENT INDEX SURVEY
Current sentiment score
• The current and future sentiment score has nosedived to the lowest levels in Q1 2020 in the wake of the ongoing COVID-19 outbreak.
• The sentiment score had revived in the Q4 2019 after being in the pessimistic zone (below 50 mark) for two consecutive quarters. The revival was however short-lived, as the current sentiment score has dropped to 31 in Q1 2020.
• The mood of the stakeholders as regards the overall economy and the real estate sector had been in the pessimistic zone in the second and third quarter of 2019 due to credit squeeze and overall economic slowdown. With the slew of measures announced by the government to revive the sector, the last quarter of 2019 infused confidence in the real estate market. The creation of a stressed asset fund (AIF) of INR 250 billion to provide last mile funding to stalled affordable housing projects was a welcome step in this direction. However, the COVID-19 outbreak has marred the stakeholder’s sentiments.
Future sentiment score
• The future sentiment score has sharply fallen to 36 in Q1 2020 after having bounced back in Q4 2019.
• Looming uncertainty due to the pandemic has adversely impacted the stakeholder sentiments for the coming six months as well.
• The lockdown will translate into a vicious sequence of stalled construction, delays in project deliveries, delays in loan repayments and debt servicing to banks and an overall slump in demand due to uncertainties in employment and salary cuts. All these factors have marred the future sentiment score of stakeholders.
ZONAL FUTURE SENTIMENT SCORE – NORTH AND WEST ZONES MOST IMPACTED
• The future sentiment score for North had moved to the optimistic zone in the preceding quarter after being in the pessimistic zone for two consecutive quarters. However, in the wake of the pandemic, future sentiments of stakeholders for North nosedived to 28 – the lowest across parameters in Q1 2020.
• Similarly, future sentiment index for West has dropped to 34 in Q1 2020 after bouncing back to 55 in the preceding quarter.
ZONAL FUTURE SENTIMENT SCORE

Source: Knight Frank Research
STAKEHOLDER FUTURE SENTIMENT SCORE – DEVELOPERS AND LENDERS MIRROR GLOBAL CONCERNS ON ECONOMY AND THE REAL ESTATE SECTOR
• Mirroring the global and domestic economic concerns, the real estate stakeholders’ sentiments have dropped to new lows.
• The developers’ sentiments as regards the sector had seen a boisterous revival (59) in the preceding quarter of Q4 2019 on the back of government interventions. However, due to the current pandemic, the developers’ sentiments have dropped to new lows for the coming six months.
• Sentiments of the financial institutions also moved to a pessimistic zone, with a score of 36.

Source Knight Frank Research

ECONOMIC OUTLOOK AND FUNDING SCENARIO – ECONOMY AT A STANDSTILL; FUNDING TO REMAIN DEPRESSED
• The stakeholders’ sentiments with regard to the economic scenario for the next six months paint a dismal picture with 76% of the stakeholders being of the opinion that the overall economy is headed for a downward spiral.
• 70% of the stakeholders believe that the flow of funds to the real estate sector might get worse or remain at the current levels in the coming six months.

ECONOMY FUNDING SCENARIO

Source Knight Frank Research
Dr. Niranjan Hiranandani, National President, NAREDCO and Founder & MD, Hiranandani Group, said, “The current lockdown has brought the industry to a standstill position and the recovery curve will depend on the fiscal stimulus rolled out by the government machinery. Given the bleak market scenario, all concerned stakeholders are in cautious mode and fighting the war of life versus livelihood. However, a great amount of resilience and adaptability has been demonstrated by consumers and the developer. This crisis has definitely put people to re-channelize their thoughts and behavior, which will lead industry to the structural trends. The biggest learning is the change in perception of owning one’s house which embeds a deep sense of safety and security in the period of crisis. This shall be the next driving force to generate long term sustainable housing demand for the segment.”
“There will be a slowdown across the industry post COVID-19 crisis. The industry is facing an acute working capital crisis which is essential to restart the business and keep it moving. We have all pinned our hopes on government intervention to salvage the loss created by the crisis with its big fat fiscal stimulus to get the growth trajectory back on track ” added Dr. Hiranandani.
RESIDENTIAL MARKET OUTLOOK: SECTOR TO REMAIN STAGNANT, POST SIGNS OF REVIVAL IN THE PRECEDING QUARTER
• More than 60% of the stakeholders have opined that the current COVID-19 situation will adversely impact residential new launches (65%), sales (65%) and prices (64%) in the next six months.
• The residential sector which already had concerns of weak demand will find it difficult to launch new projects and complete the ongoing ones due to construction halts and labour shortage.
• The slew of measures announced by the government like AIF for last-mile funding of affordable housing, rationalisation of GST rates, liquidity support to HFCs and NBFCs were desirable steps to revive the sector. However, in the current situation, further stimulus measures will be required to revive the sentiments and invigorate demand.

RESIDENTIAL PRICE APPRECIATION RESIDENTIAL LAUNCHES

RESIDENTIAL SALES

Source Knight Frank Research

OFFICE MARKET OUTLOOK: OFFICE GROWTH DERAILS
• 42% of the respondents believe that the next six months will be one of the worst phases in terms of new supply additions across the major office markets in the country.
• 53% of the stakeholders opined that leasing activity will remain well below par in the next six months.
• Stakeholders’ outlook with regard to future rental appreciation also dipped in Q1 2020 with 50% of the stakeholders expecting rents to either remain stagnant or slide under the current uncertain economic scenario.

NEW OFFICE SUPPLY LEASING VOLUME

RENT APPRECIATION

Source Knight Frank Research
Sanjay Dutt, Managing Director & CEO, Tata Realty & Infrastructure Ltd, Chairman, FICCI Real Estate Committee, said, “There is an extreme sense of uncertainty on the COVID-19 pandemic both in terms of its intensity and timeline of damage on human life and everything associated with it, including business. This unknown has created a lot of fear and is reflecting on the sentiments of industry stakeholders too. The government has proactively taken measures to prevent the spread of virus, save lives and livelihoods besides providing some procedural regulatory relief. It is time to strengthen revival efforts with a strong fiscal boost that shall serve as a stimulus to ensure that the economy recovers sooner than later. As gradual recovery begins with improvement on this pandemic and things settle over a 12-24 month time horizon, we will see a long drawn extended U-shaped recovery for the residential segment but a faster V-shaped recovery for the office segment in the country. Sentiments perhaps may return earlier.”

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