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Union Budget 2024-25: Real Estate Sector Highlights in budget

The FY 2024-25, is a positive budget for the real estate sector with some key initiatives to give a major push to urban development and housing -particularly affordable housing under the Pradhan Mantri Awas Yojana (PMAY).

Sanjeev Kathuria, Founder, Author & CEO, Torbit Consulting

Last year turned out to be one of the best years for the real estate industry, with residential, commercial and warehousing properties sold and leased like hotcakes, especially in Tier 2 cities. All stakeholders including financial institutions and developers did well. The customers got an opportunity to realize their dreams. The year 2024 has started on a promising note as all stakeholders in the industry – government, financial institutions and developers are in a good position and are optimistic and forward-looking.

Residential Real Estate

In view of the  low interest rates prevailing till early 2023, and supporting government policies, boutique or what we call affordable housing did very well. Later despite the rise in interest rates, residential realty performed well. This year, housing in Tier 2 cities will do wonderfully well, especially in plotted developments. The residential segment in metro cities will see a little slower growth. There are specific reasons for that. Because of the high home prices and high interest rates, homes have gone out of the affordability range of customers. The volume of sales in metros will remain stable or go down a bit. The prices may not rise or drop.

There is a bullish outlook for Tier 2 cities. Last year, we saw huge housing sales in these cities. Reputed developers like Godrej, Tata, and many more sold their properties overnight. Tier 2 cities are expected to do well. this year as absorption and sales will be high. Investors will gain from property appreciation. Housing in Tier 2 cities will do wonderfully well, especially in plotted developments.

Post-covid luxury housing has gained currency in comparison to affordable housing. At present people are opting for luxury homes and the demand for luxury homes is higher than boutique/affordable homes . Luxury housing saw decadal-high sales last year. This year the demand for absorption of luxury housing will be good because of fewer inventories available across the country. Luxury housing will rule the scenario and do much better than boutique housing. We will see a lot of absorption with new launches and will also see price appreciation.

Office Real Estate

In view of the anticipated layoffs by global giants like Microsoft, Google, Twitter etc, absorption will be stable or slow. On the domestic front, the IT industry is in a dire state with limited even new job opportunities and a shift towards hybrid work models even in established companies. This shift to hybrid models  reduces the need for physical office space , impacting commercial real estate.However, Grade A office spaces are likely to perform well. Key players including DLF, Max, Embassy, known for creating Grade A office spaces are expected to thrive. These distinctive office spaces are likely to be quickly absorbed. So, we will see a low inventory of these spaces, especially in major cities like Bangalore, Hyderabad, Pune, and Gurgaon. The Grade B office space will grow slowly.

Retail Real Estate

Retail commercial spaces and larger malls are expected to perform well while smaller format malls may struggle. The high street retail segment is projected to do well, driven by tech advancements and significant investments in technology. The large corporations like Tata, Mahindra, and Prestige Group will gain dominance, benefiting from lower capital lending rates, compared to smaller players who get funding at higher interest rates, making it challenging for them to compete effectively in the market. High street retail will do much better while multiplexes will see lower footfall.

Hospitality Sector

There are promising times ahead for the hospitality sector  . Especially in view of the government’s focus on tourism , particularly religious tourism, hotels will do well. The thrust on tourism will also  boost holiday/vacation homes.

Alternate Realty

This will be a booster year for Alternate Realty. The data centre segment will emerge as a bright spot in real estate. It will be the biggest inventory builder across the country attracting huge investments. For the last five years, money has been pouring into logistics and it will continue to flow. Warehousing will do well with stable lease rentals on the strength of spurt in industrialization and retail, especially e-retail.

The ‘Make in India’ initiative of the government has put industrialization on a fast track.  MSMEs that are already making significant strides , are expected to thrive with an expected surge in their numbers. These enterprises manufacture a wide range of basic tools and machinery including items as small as nuts and bolts. Whether it is Foxconn, Tesla or Apple, the entire India including Tier -2 cities, is experiencing a wave of industrialization.  Amidst this, we will see rapid growth in industrial land parcels. Large industrial/corporate players could acquire 500-1000 acres of land for corporate farming, dominated by corporate biggies like Ambani and Adani. In Tier 2 cities, these prime land parcels may well see the interest of the investors. All this will be boosting industrial reality.

Conclusion

Despite the positive outlook, there are concerns about over-valuation across the board which need to be addressed Developers need to offload their inventory, improve cash flows, accelerate construction and deliver projects promptly if they wish to remain competitive.

Tech Intervention Transforming Real Estate

Despite being one of the biggest sectors that generates ample jobs and feeds large number of ancillary industries, the real estate sector is often viewed with distrust and fraught with ambiguity. Amongst many issues that have plagued the sector, transparency in dealings, trust deficit, ever-increasing costs and delay in completion of projects have been the fundamental concerns. Introduction of new-age laws, and next-gen technologies at multiple levels are helping the sector shed its negative image and mist of ambiguity shrouding the sector. Tech enabled disruption of the status quo is gathering pace with a new breed of visionary start-ups making headway and introducing technologies that not only take care of the critical pain points, but also work towards making the entire process functionally and fundamentally strong. Introducing highest levels of transparency and cost effectiveness through technology and data, they are making the home construction and purchase process stress free for all stakeholders. From the smallest home construction projects to large scale projects dealing with multiple specs, these technologies are helping attain highest levels of customization, cost-effectiveness, and transparency, propelling high levels of trust, efficiency and customer delight.

Transparency plays a critical role in the consolidation and growth of the sector. It has been often said that the sector lacks transparency, but that might not be completely true any longer. Transparency includes online disclosures, accountability and empowering various parties to make informed choices. This is achieved by full stack technology platforms offering services that help conceive one’s dream home, keep a close watch on construction progress, make and track electronic payments and do away with additional recurrent costs that crop up due to poor and faulty planning. By being able to immersively visualize spaces and specs with the help of VR and AR technologies, they ensure quick, informed, engaged and effective decision making before a single stone is laid. Once execution starts, mobile apps help customers and stakeholders track daily data at their fingertips. 360 degree virtual tours serve as an excellent, delightful and accessible sales tool for already constructed properties as well.

With different requirements and functionality expected by different individuals, the home design and build technology platforms are aiding to acquire customized homes. Moving away from one-design-fits-all approach to offering an individualized-product, archi-tech (3d modelling, design visualisation and BIM tools, project planning, document management, collaboration and tracking tools etc.) is making deep inroads in offering an enhanced experience for consumers who want to live in a home that matches their style and offers highest levels of desired functionality. Easy understanding and visualization through technology is helping save time, effort, and money through avoiding rework. Furthermore, it helps measure time, functionality and cost-effectiveness, helping home owners get their dream homes within cost and time constraints. Accurate estimations, enforcement of process standards, skilled resources for execution waste reduction, of projects are all key metrics trackable with technology. With ever-increasing cost-effectiveness and ability to offer best-in-class customization solutions, technology enables a delightful construction experience measurably superior to what customers have come to expect.

Introduction of technology at multiple levels of working, from the very beginning or conceiving to visualisation, understanding the construction process to actual execution of the project has helped in a big way. Immersive VR experiences, mobile App based real-time execution tracking are playing an important role in avoiding delays due to rework and helping home owners rest assured while their dream homes are being built. Timely completion is only possible with accurate real-time tracking and this also enables transparency and re-enforces trust. Proper planning, timely actionable reports and recommendations, based on data and mechanisms to continuously improve the plan are also key factors being enabled by technology.

Trust continues to play an important role for the sector. With transparent working, completion and delivery in a cost-effective manner, technology is helping the sector in re-enforcing trust that it always needed. The confidence of the developer/construction community and home buyers is strengthening with real-time data at their fingertips on mobile and web Apps. Easy collaboration and quick course corrections, easy, accessible warranty and support information etc. are key to reinforcing customer confidence. Regular feedback via Apps and continuous improvement mechanisms enabled by accurate tracking data ensure that any shortcomings that come to light or positive suggestions that can make the experience even better, are considered, evaluated, and introduced in real-time or in future projects. Technology adoption is an ongoing process, still nascent and should only grow as it continues to make a positive win-win impact for all stakeholders.

Knight Frank report has also provided the forecast for 26 global prime residential markets for the year 2024.