How Real Estate Will Shape Up In 2015

A very happy new year to all!

So 2015 arrives!

Looking back at the year just passed by, we realize it wasn’t bad at all. Although, the first half of 2014 saw a dip in property prices because of weakness in rupee, and higher inflation, the second half brought so many positive surprises to India’s real estate sector. According to the National Housing Bank (NHB) Residex Index, residential property prices show an upward trend in the second half of 2014.

Every new thing comes with a touch of anticipation about what it holds and how it unfolds. And so does the new year. Observing the recent trends, and analysing the pattern over the previous year, let’s have a look at what to expect from this year.

  • Growth In Indian Real Estate Market

2014 saw gradual growth in demand for Indian real estate, and this will continue in 2015 as well. ProjectVendor.com surmises an increase of 11% in FY’15, and 10-15% from FY’14 – FY’17. Well, no wonder Indian real estate market size is expected to touch US$ 180 billion by 2020. Residential and commercial projects, organized retail will contribute to this growth significantly. According to Yahoo Finance, real estate, construction market is poised to grow by 20 per cent between now and 2017. 2015 will focus more on recovery and clearing inventory, construction deadlines and backlogs. First half of 2015 will be largely recovered with property markets, and easing pressure on the rupee will also impact the industry positively.

  • Affordable Housing

The first half of 2014 saw a consistent decline in the sale of residential units because of subdued demand, and high price tags attached to them. Needless to say, high-end residential projects had to take a hit because of this, whereas the affordable housing segment started to gain interest from the buyers. As a consequence, many developers, who were earlier, eager to serve mid to high residential segment because of higher margins, shifted their primary focus to the volume market by launching affordable-segment projects in the deeper suburbs.

As per the estimation of the Planning Commission, about 600 million people will live in cities. Therefore, there is a huge demand for the affordable housing and the industry has a big gap to fill. Developers will be more concerned about right-pricing their offerings, and the supply of luxury residential offerings will be moderate. Hence the trend of the affordable housing is likely to continue in 2015.

  • Demand For Smaller-Sized And Regular (Vis-À-Vis Luxurious) Properties

Demand for smaller property sizes is now surpassing the bigger units across metro and metropolitan cities. The reasons can be the following:

  • Smaller homes are low on investment, and hence affordable.
  • Bigger homes ask for more maintenance, which unquestionably means further burden on buyers’ pockets and minds.
  • More and more buyers are looking at real estate as one of the best investments around. Smaller properties stand better possibility to generate a higher rate of return than the bigger ones.

Also, upon analysis, we may realize that more buyers prefer to have basic amenities instead of the earlier ongoing pattern where buyers took fancy to extravagant amenities. According to a recent survey conducted by CommonFloor, about 50 per cent buyers prefer regular amenities over ultra-luxurious ones

Therefore, the demand for smaller units is expected to increase in 2015.

  • Demand For Residential Plots

As I mentioned in the above point, more and more buyers are becoming investment oriented. Therefore the demand for residential plots will see newer heights in 2015. Buyers prefer to buy plots for more attractive returns in the mid-to-long term time span. They are now shifting their focus on the upcoming smart cities, where apartment culture has not observed the maximum speed yet. Open residential plots were and are expected in 2015 as well, to be a strong option for the investment in real estate.

  • Commercial Real Estate

Real Estate Investment Trusts (REITs) and commercial real estate are expected to influence the market significantly in 2015. REITs received a friendly nod from the government in 2014, and this will show a bright ray of hope to the cash-strapped developers in 2015. REITs will act as the investment vehicle between investors and developers. According to Rediff, DLF is planning to monetize some commercial assets worth about $500 million or Rs 3,000 crore (Rs 30 billion)

With economic activity gradually on the rise, there will be an increase in jobs, which in turn will be beneficial for the commercial real estate market. The late of 2014 observed a gradual reduction in the excess supply of commercial vacancy. In 2015, the demand is expected to remain in a similar range, marginally improving from the level witnessed in 2014.

  • Retail Real Estate

If we keep aside the cases of well-managed and organized retail malls, in 2014, retail real estate segment received a strong blow because if growing market conditions that favoured the online retail community. The wave of eCommerce that had been influencing the entire country for a couple of years was at its strongest in 2014. This poses a mighty challenge to physical retailers and mall developers. However, According to Anuj Puri, Chairman & Country Head, JLL India, a handful of mall developers have risen to this challenge by identifying key transitions that could help them sail through. The measures they have undertaken include a revamped tenant mix, adoption of the mixed-use format and delivering theme-based shopping experiences. These practices are now common in overseas markets, and Indian retail malls will be seen adapting to them more rapidly in 2015.

With the information and understanding we have currently at hand, this year looks quite full of goodies. So let’s stay optimistic and look forward to an awesome year for the Indian real state sector. Let’s hope it turns out to be a happy 2015, indeed!