Is the worst over for Indian realty sector?

The worst seems to be over for the Indian realty sector with the institutional investments in the sector moving up 14 per cent from H12021 to reach $2.6 billion in H12022. The inflows during H12022 was led by the office sector which accounted for about 48 per cent share, followed by the retail sector with a share of 19 per cent, going by the latest study by the multinational professional services and investment management firm- Colliers.

However, when it comes to residential segment, there has been a word of caution from another leading property consulting firm, Anarock.Inflationary pressures on input costs compelled developers to increase property prices in the past few months, and RBI unleashed two rate hikes that swelled up home loan interest rates. These two factors led to rise in the overall property acquisition cost for home-buyers, leading to a dip in housing sales. The fact that after two years, there was no new Covid-19 wave to disrupt family travel plans during the school vacation months (April to June) could also have impacted sales, if one goes by the Anarock research.

But first the good news. On a quarterly basis, inflows into Q2, 2022 increased from the preceding quarter, while registering a 50 per cent increase from the average quarterly inflows of 2021. And not just the foreign funds, even domestic investors are back in the market with a 38 per cent share in H1 2022, a massive jump from just 13 per cent share in H1 2021. Domestic investors were majorly inclined towards mixed-use assets and the retail sector. Having said this, one must remember that investments still continue to be driven by foreign investors wherein pension and sovereign funds are betting on income-yielding assets in the office, retail and industrial sectors. During H12022, the retail sector saw a 19 per cent share in investments as investors look toward completed malls as an investment avenue. India's retail market is seeing an expansion of fashion and F&B brands. Also, malls have been seeing a healthy pick-up in footfalls since last year. Quite interestingly, investments inflows into alternate assets rose 53 per cent YoY during H1 2022 to about $370 million, indicating that investors are betting big on diversifying their portfolios.

Ironically however, the industrial & logistics sector and the residential sector saw subdued inflows during H1 2022. Anarock research suggests that in a major fallout of increased property prices and lending rate hikes, the top 7 cities saw housing sales moderate by 15 per cent – from nearly 99,550 units in Q1 2022 to nearly 84,930 units in Q2 2022. As for the declining new launches, developers would have held back fresh supply while they sought clarity on the unfolding market sentiments amid increased housing purchase costs, it feels.Developers would like to believe if office and retail sector come forward in bouncing back, can residential sector be far behind?