With 2019 under our belts and the new year under way, Indian real estate is set to see a challenging year ahead. The economy this year looks strained and will affect industries across the board, especially Real Estate as the overall liquidity in the market is tight. Here’s what we believe Indian Real Estate 2020 has in store:
The Non-Banking Financial Corporations (NBFC) crisis that started in late 2018, and continues, will weigh down on the small-to mid-sized developers who do not have strong balance sheets and access to capital. The cost of capital of even larger developers has gone up considerably due to the tight liquidity in the market. This is a great time for Funds with fresh capital to make strong returns by refinancing and problem-solving the liquidity issues of NBFCs.
This segment which forms over 80% of Real Estate in India, will continue to have low demand for under-construction projects in most micro-markets. Due to the soft market conditions, consumers will continue to buy completed inventory as they do not see risks of significant price differences between under-construction and completed projects. However, we believe that in many micro-markets, residential Real Estate is bottoming out and developers are being more prudent with their financial planning and the product mix of the supply of what they bring on board. As an end-user, we would recommend to start actively looking at projects that are completed or near completion as it might be a good time to buy your dream home.
Even though 2019 was a record year for absorption of commercial real estate, we are concerned that this segment is looking frothy with a lot of supply coming on board in the next 2-3 years. Due to the slowing economy, we expect the buoyancy and demand that we have seen over the last few years to start becoming more rational and price-sensitive.
The concepts of Co-Working, Co-Living, Warehousing and the Datacenter Space that have been complimentary to developers over the recent past will continue to see traction. There will be consolidation, however, the established players who have raised large amounts of private equity funding will grow steadily.