India Real Estate: H2 2019 Report -Knight Frank India

by Shrutee K/DNS

Home sales stay resilient in 2019 despite weak economic outlook; rise by 1% y-o-y in 2019: Knight Frank India  New launches grow by 23% y-o-y in 2019
Office transactions hit historic high of 60.6 msf in 2019: Knight Frank India 

Bengaluru dominates office leasing in 2019 with 15.3 msf; also sees highest rental growth amongst all cities at 8.1% Y-o-Y

Mumbai, January 07, 2020: Knight Frank India, in its latest report, India Real Estate: H2 2019, observes that despite headwinds of economic slowdown, Indian real estate sector has recorded an overall growth in 2019. The residential segment in top eight cities of India demonstrated unexpected resilience and recorded a marginal growth of 1% year-on-year (Y-o-Y) in sales volume in 2019. Total sales volume was recorded at 245,861 units in 2019 over 242,328 in 2018 as affordability improved, and developers aligned themselves with the needs of home-buyers by reducing ticket-sizes and unit-sizes in a bid to encourage sales. New residential unit launches rose by 23% Y-o-Y in 2019 to be recorded at 223,325 units. The office market recorded its historic best year in terms of transaction volumes in 2019, recording 60.6 million square feet (msf), backed by a surge in leasing activity by the Information Technology segment. New completions surged by 56% in 2019 and was recorded at 61.3 msf, marginally surpassing demand.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “2019 can be seen as a relatively positive year for the real estate sector. The historic rise in the office transactions is a significant growth indicator for the office market as it represents the continued commitment of domestic and global corporations in the country’s growth potential despite the ongoing economic slowdown. The residential sector also overcame the negative market outlook by registering a growth in sales volumes as well as new launches. Economic headwinds such as slower GDP growth, reduced industrial output, poor consumer sentiments, amongst others, presented significant challenges to the residential market throughout the year. However, the slew of recent fiscal and monetary incentives by the government and Reserve Bank of India, seem to have had an arrestive impact on the real estate sector.”

Shishir Baijal further added, “We expect the GDP growth of the country to start recovering and touch 6- 6.5% by FY21. Consequently, the real estate sector growth should also maintain its momentum. While the office space is expected to sustain demand, increasing supply could weigh on rents and vacancy levels. Liquidity constraints and home-buyer sentiments will continue to keep buyers tentative in residential segment. Thus, even maintaining this newfound stability in demand would need commitment from all stakeholders in the residential market.”

The flagship report - India Real Estate: H2 2019, that was launched today, is the 12^th edition of the report. It presents a comprehensive analysis of the residential and office market performance across eight major cities for the July-December 2019 (H2 2019) period.

RESIDENTIAL MARKET HIGHLIGHTS FOR TOP 8 CITIES

NEW LAUNCHES:

Home launches across the top eight cities in India grew by a robust 23% to 223,325 units in 2019.

The growth in launches was more pronounced in H2 2019, at 25% to 112,150 units.

61% of launches in H2 2019 occurred in ticket sizes under INR 5 million (INR 50 lakh) and 81% under INR 10 million (INR 1 crore) as developers focused on affordable housing and lower ticket sizes.

Mumbai saw the highest number of homes launched in 2019 at 79,810 units, followed by Pune at 44,660 units, and Bengaluru at 33,772 units.

SALES VOLUME: 

Aggregate annual sales across the top eight cities stayed stable and rose by a marginal 1% to 245,861 units in 2019 as regulatory and financial interventions helped keep sales from deteriorating further.

Developers’ focus on right-sizing and right-pricing of new residential products and greater transparency due to increased regulation, has led to a steadying of annual and half-yearly sales numbers.

H2 2019 experienced similar flat sales growth at a marginally lower 1% YoY to 116,576 units.

Bengaluru registered the highest increase in sales at 10%, followed by Hyderabad and Kolkata at 9% each, and Chennai at 8% in H2 2019. NCR saw a marginal rise of 2% in sales, while MMR and Pune witnessed degrowth in sales of 14% and 10%, respectively.

Hyderabad witnessed the highest annual rise in home prices during 2019 at 10% and was the only city to register a double-digit growth.

Bengaluru saw a 6.3% YoY rise in home prices, followed by NCR at 4.5%, Kolkata at 3.1%, Ahmedabad at 2%. Mumbai, Pune and Chennai witnessed degrowth in home prices at 2.5%, 3% and 5%, respectively.

UNSOLD INVENTORY:

Unsold inventory across the top eight markets improved in 2019, registering a 5% decline to 445,836 units.

Mumbai had the highest quantum of unsold inventory at 145,301 units, followed by NCR at 122,084 units and Bengaluru at 78,414 units.

INDIA RESIDENTIAL MARKET SNAPSHOT

	LAUNCHES						SALES
City	2018	2019	YoY %  Change (Full Year)	H2 2018	H2 2019	YoY %  Change (H2)	2018	2019	YoY %  Change (Full Year)	H2 2018	H2 2019	YoY %  Change (H2)
Mumbai	74,363	79,810	7%	38,389	35,988	-6%	63,893	60,943	-5%	31,481	27,212	-14%
NCR	15,819	22,905	45%	6,696	15,059	125%	40,643	42,828	5%	22,596	22,976	2%
Bengaluru	27,382	33,772	23%	11,826	12,878	9%	43,775	48,076	10%	17,973	19,851	10%
Pune	32,684	44,660	37%	18,584	23,264	25%	33,521	32,809	-2%	17,070	15,445	-10%
Chennai	10,373	11,542	11%	3,850	3,780	-2%	15,986	16,959	6%	7,401	7,980	8%
Hyderabad	5,404	13,495	150%	1,698	8,065	375%	15,591	16,267	4%	7,278	7,933	9%
Kolkata	12,015	5,654	-53%	5,622	5,027	11%	12,731	11,266	-12%	6,140	6,678	9%
Ahmedabad	4,167	11,487	176%	2,844	8,089	184%	16,188	16,713	3%	8,101	8,501	5%
All India	182,207	223,325	23%	89,509	112,150	25%	242,328	245,861	1%	118,040	116,576	-1%

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “After a slew of policy measures such as RERA, GST and demonetisation, the developers’ community is steadily coming to terms with this new normal and finding its footing, which is evidenced from the recovery in the volume of apartments launched since H1 2018. Affordable and low-cost housing, which have largely been the focus of the regulatory and financial measures taken by the government, will continue to be focus-areas for builders as they align themselves with the needs of home-buyers."

OFFICE MARKET HIGHLIGHTS FOR TOP8 CITIES

OFFICE SUPPLY:

The supply constrained Indian office market saw an unprecedented influx of office space in 2019 that pushed transaction levels to an all-time high, both in annual and half yearly terms.

Close to 61.3 million sq ft (msf) of office space was delivered during the year, amounting to a 56% YoY growth over 2018.  

Bulk of 2019’s office space supply came online during the second half of the year (H2 2019) at 37.5 msf, registering a 78% YoY growth over the previous period.

2019 saw Bengaluru experience the highest quantum of new supply at 16.1 msf, followed by NCR at 12.3 msf and Hyderabad at 10.9 msf. Except MMR and Pune, all other markets saw a positive growth in office supply.

OFFICE LEASING

Office leasing activity in 2019 touched a historic high 60.6 msf despite the ongoing slowdown in the economy, registering a 27% YoY growth over 2018.

H2 2019 also saw a similar growth in transaction volumes at 29% and accounted for a record high of 33.2 msf.

H2 2019 incidentally also represented the first half-year period since H2 2012 in which the space transacted was less than the supply that came online during that period.

Bengaluru, which has dominated this decade in terms of transaction volumes, saw the highest volume of office space leased again in 2019 at 15.3 msf, followed by Hyderabad at 12.8 msf, nearly twice its previous annual high.

However, Bengaluru was overtaken for the first time in terms of space transacted in a half yearly period, during H2 2019. Bengaluru came second to Hyderabad which saw a massive 8.9 msf of space transacted during H2 2019 and it was the market that experienced the most transaction activity during the period.

The IT sector accounted for 41% of the total office space leased in H2 2019, against 31% in H2 2018; while the share of Banking, Financial Services and Insurance (BFSI) reduced to 16% in H2 2019, from 18% in H2 2018, as the sector reeled under the shadow of the NBFC crisis.

Co-working companies leased 4.1 msf of office space in H2 2019 and accounted for 12% of the total space transacted in the top eight cities, a substantial increase from 8% share in H2 2018.

INDIA OFFICE MARKET SNAPSHOT

	New Completions (in million sq ft)						Transactions (in million sq ft)
City	2018	2019	YoY %  Change	H2 2018	H2 2019	YoY %  Change	2018	2019	YoY %  Change	H2 2018	H2 2019	YoY %  Change
Mumbai	6.5	5.4	-18%	2.2	3.5	61%	7.9	9.7	22%	5.1	5.1	0%
NCR	7.6	12.3	62%	4.0	6.4	60%	7.4	8.6	17%	3.9	4.8	22%
Bengaluru	7.6	16.1	111%	3.9	8.4	115%	13.4	15.3	14%	6.9	7.0	1%
Pune	6.9	4.1	-41%	4.2	2.6	-38%	6.6	6.2	-5%	2.7	2.4	-11%
Ahmedabad	3.1	4.9	57%	2.2	2.2	2%	1.0	1.5	50%	0.6	1.0	70%
Chennai	1.3	1.7	31%	0.2	1.5	872%	3.5	5.2	50%	1.7	3.4	95%
Hyderabad	3.9	10.9	181%	2.1	6.9	224%	7.0	12.8	82%	4.3	8.9	105%
Kolkata	2.4	6.0	153%	2.3	6.0	162%	0.8	1.4	69%	0.6	0.7	24%
All India	39.3	61.3	56%	21.0	37.5	78%	47.6	60.6	27%	25.8	33.2	29%

Source: Knight Frk India Research

SECTOR-WISE SPLIT OF TRANSACTIONS (% share)

Industry	H2 2018	H2 2019
BFSI	18%	16%
IT/ITeS	31%	41%
Manufacturing	14%	12%
Co-Working	8%	12%
Other Services	22%	19%

Source: Knight Frank India Research

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, "Office leasing in India has been growing from strength to strength despite a sluggish economy, with ample investment demand for high-quality assets. It would be interesting to see if the massive supply that is lined up to come online in the near future across major markets, and macro-economic headwinds put rental growth under pressure."

About Knight Frank: Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 19,000 people operating from over 512 offices across 60 markets. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit www.knightfrank.com.

In India, Knight Frank is headquartered in Mumbai and has more than 1,400 experts across Bangalore, Delhi, Pune, Hyderabad, Chennai, Kolkata and Ahmedabad. Backed by strong research and analytics, our experts offer a comprehensive range of real estate services across advisory, valuation and consulting, transactions (residential, commercial, retail, hospitality, land & capitals), facilities management and project management. For more information, visit www.knightfrank.co.in