The Real Estate Sentiment Index is developed jointly by Knight Frank India, the Federation of Indian Chambers of Commerce and Industry (FICCI) and National Real Estate Development Council (NAREDCO). The objective is to capture the perceptions and expectations of industry leaders in order to gauge the sentiment of the real estate market.

Knight Frank –FICCI– NAREDCO

Q4 2019 (October – December 2019)

Real EstateSentiment Index

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Approach

India is now in the midst of a sharp economic slowdown

S E C T I O N A – C U R R E N T S E N T I M E N T S C O R EC U R R E N T S E N T I M E N T S I N C H U P ; I N D I A I N C H O P E F U L F O R T H E C O M I N G S I X M O N T H S

KNIGHT FRANK–FICCI–NAREDCOREAL ESTATE SENTIMENT INDEX | Q4-2019

The Real Estate Sentiment Index is based on a quarterly survey of key supply-side stakeholders which include developers, private equity funds, banks and Non-Banking Financial Companies (NBFCs). The survey comprises questions pertaining to the economy, project launches, sales volume, leasing volume, price appreciation and funding. Respondents choose from the following options for which weightage has been assigned: a) Better (100 points) b) Somewhat Better (75 points) c) Same (50 points) d) Somewhat Worse (25 points) and e) Worse (0 points). The index is determined by calculating the weighted average score of the percentage of responses in each of these categories. Hence, a score of 50 represents a neutral view; a score above 50 demonstrates a positive sentiment; and a score below 50 indicates a negative sentiment.

In order to present a holistic view of the real estate industry, the report is divided into two sections. Section A comprises two indices: the overall current sentiment index that indicates the respondents’ assessment of the present scenario compared to six months prior, and the overall future sentiment index that represents their expectations for the next six months. Section B focuses only on the future sentiments of the stakeholders. This survey was conducted between October–December 2019.

Shishir BaijalChairman and Managing Director Knight Frank India

The year 2019 has been a challenging year and we are going through delicate times. The September quarter GDP growth nosedived to

4.5%, primarily due to a sharp deceleration in investment growth, even as consumption growth remained weak. The slew of corrective

measures by the Government to boost demand and infuse liquidity such as the creation of INR 250 billion Alternative Investment

Fund (AIF), GST rationalisation, partial credit guarantee scheme for NBFCs, are all steps in the right direction. However, the industry

is in serious need for more targeted steps to revive confidence in the sector. The upcoming Union budget scheduled for February 2020

will be keenly watched by India Inc to invigorate demand and ease the credit crunch for the real estate sector. With this background,

in the 23rd edition of the Knight Frank FICCI NAREDCO Sentiment Index, we attempt to slice the current market sentiments for the

real estate sector and gauge the industry movement in the coming six months.

• The current sentiment score has revived in the fourth quarter

of 2019. Inching to 53 and getting back in the optimistic zone

after two consecutive quarters in the pessimistic zone (below 50

mark), the score is a welcome revival.

• It is worth mentioning that the mood of the market was in the red

in the preceding two quarters as the sector struggled with credit

squeeze and overall economic slowdown. As per the advance

estimate of NSO, India’s GDP growth for FY20 is estimated at

5%, lowest in 11 years.

• A recovery in the current sentiment score hints that the stake-

holders are cautiously optimistic as they keep a close watch over

the implementation of the slew of measures undertaken by the

government to revive the sector. The creation of a stressed asset

fund (AIF) of INR 250 billion has been a welcome step in provid-

ing the last mile funding to stalled affordable housing projects.

• Improvement in the current sentiment for the sector is also in line

with recent improvement in some macro-economic indicators.

For instance, Purchasing Manager Index (PMI) for the services

and manufacturing sector improved meaningfully in December

2019. Cement sector growth improved to 4.1% in November

2019 after contracting in the previous 3 months.

0

10

20

30

40

50

60

70

80

90

100

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019

Source Knight Frank Research

CURRENT SCORE

FUTURE SCORE

58

53

4846

5255

57

62

47

42

53

61

55

6462

59

63

53

49

59

S E C T I O N B – F U T U R E S E N T I M E N T S C O R E

• The future sentiment score that had gone in the red for the first time in the preceding quarter of Q3 2019 has bounced back to 59 in Q4 2019. Though in the optimistic zone now, we believe the outlook of stakeholders remains cautious with a majority of them opining that the market will remain at the same levels and not go down further in the coming six months.

• The real estate sector has been under pressure for over three years now. Weak demand, inventory overhang, developer defaults coupled with the worsening of the NBFC crisis has dried up funding for the sector, which in turn has increased the borrowing cost and impacted finances for the already strained sector.

• The future sentiment score for North moves to optimism after two consecutive quarters of pessimism. Inching to 54 in Q4 2019 from 48 in Q3 2019, the stakeholders in the region are somewhat positive as regards the coming six months.

• The stakeholders opine that though the market is reeling under inventory pressure and low buyer confidence, what brings respite is that now all developers have aligned their business with RERA and GST. This is leading to the rapid consolidation and filtering of the market in Gurugram in Haryana, Noida and Greater Noida in Uttar Pradesh, which forms the major portion of the real estate chunk of the National Capital Region.

• Along with this, the creation of the INR 250 billion stressed asset fund (AIF), has brought back some confidence in the stakeholders of the region, as it would help provide the last mile funding to various stuck projects in NCR.

• However, the stress fund set up by the government to complete stalled projects will exclude Jaypee Infratech, Unitech and Amrapali Developers as the matter is sub judice. Aimed to complete projects in the affordable and mid segment, we see projects in Ghaziabad, Noida and Greater Noida taking the benefit of this outlay.

• Sentiment score for West which had gone in the red for the first time in the preceding quarter has moved up to 55 in Q4 2019. Stakeholders in the West are also in a wait and watch mode and are awaiting the implementation of the AIF that will boost market sentiments in the current credit crunch.

• Confidence of the developers has somewhat revived in the last quarter of 2019. The sentiment score that had gone in the red in Q3 2019 has boisterously come back to 59 in Q4 2019 on the back of government interventions. This means the stakeholders are optimistic regarding the stimulation of the sector in the coming six months.

• Over the past two years the real estate sector has witnessed structural changes that have transformed the dynamics of the sector. Starting with demonetisation in the latter half of 2016, and the implementation of Real Estate Regulatory Authority Act (RERA) and Good and Services Tax (GST) in 2017, the real estate sector is undergoing a phase of catharsis.

• The Reserve Bank of India (RBI) has reduced the repo rate cumulatively by 135-basis points so far. With the linking of the bank lending rate to an external benchmark, bank’s transmission of lower policy interest rate is expected to gather pace. SBI has recently cut its home loan rate to 7.90% from 8.15%.

• Though the sentiments of financial institutions has revived from the preceding quarter; the stakeholders remain cautious.

N O R T H A N D W E S T M A I N TA I N C A U T I O N

NORTH

D E V E L O P E R S F I N A N C I A L I N S T I T U T I O N S

SOUTH

EAST

WEST

Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019

S C O R E > 5 0 : O P T I M I S M | S C O R E = 5 0 : S A M E / N E U T R A L | S C O R E < 5 0 : P E S S I M I S M S C O R E > 5 0 : O P T I M I S M | S C O R E = 5 0 : S A M E / N E U T R A L | S C O R E < 5 0 : P E S S I M I S M

48 69 42 48 54

58 67 61 56 61

61 62 56 50 63

62 60 52 45 55

FINDINGS FINDINGS

B .1 Z O NA L F U T U R E S E N T I M E N T S C O R E B . 2 STA K E H O L D E R F U T U R E S E N T I M E N T S C O R E

D E V E L O P E R S W E L C O M E G O V E R N M E N T I N T E R V E N T I O N , L E N D E R S V I G I L A N T

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

58

64

52

47

59

61

64

48

51

56

KNIGHT FRANK–FICCI–NAREDCOREAL ESTATE SENTIMENT INDEX | Q4-2019

R E S I D E N T I A L R E A LT Y S E E S G R E E N S H O O T S O F R E C O V E R Y

B .4 R E S I D E N T I A L S E C T O R O U T L O O K

• As far as residential sales is concerned, 74% of the stakeholders have shown a positive outlook for the coming six months maintaining that residential sales will either improve or remain the same but will not go down further.

• The sector has seen muted prices across cities due to slow demand and inventory overhang. Developers facing the credit freeze are keeping a lid on any upwards increase in prices with 79% of the

stakeholders opining that residential prices will remain at the same levels or drop further in the coming six months.

• Slew of measures announced by the government like AIF for last mile funding of affordable housing, rationalisation of GST rates, along with liquidity support to HFCs and NBFCs have acted as a shot in the arm for the sector, but the survey suggests that more targeted solutions are required to further revive the sentiments and invigorate demand.

Q4 2018 Q4 2018 Q4 2018Q1 2019 Q1 2019 Q1 2019Q2 2019 Q2 2019 Q2 2019Q3 2019 Q3 2019 Q3 2019Q4 2019 Q4 2019 Q4 2019

FINDINGS

E C O N O M Y

F U N D I N G S C E N A R I O

B . 3 E C O N OM I C O U T L O O K A N D F U N D I N G S C E NA R I O

U R G E N T P O L I C Y A C T I O N S R E Q U I R E D T O R E V I V E E C O N O M Y ; A N D C A U T I O U S F U N D I N G O N T H E C A R D S

23%

36%

41%39%

24%

37%29%

35%

37%

10%

30% 60%

39%

35%

26%

30%

31%

38%45%

28%

27% 24%

34%

42%24%

29%

47%53%

24%

23%

BETTER

BETTER

SAME

SAME

WORSE

WORSE

Q4 2018

Q4 2018

Q1 2019

Q1 2019

Q2 2019

Q2 2019

Q3 2019

Q3 2019

Q4 2019

Q4 2019

FINDINGS

• The real estate industry’s sentiments regarding the economy has remained cautious in the fourth quarter of 2019. While 35% of the stakeholders opine that that the overall economic situation will be the same in the coming six months, 37% are of the opinion that the trends will get better.

• The cautious outlook comes on the back of the overall economic slump. Private final consumption expenditure in the economy has fallen to 4% in H1 FY20 from 8% average in previous three years, while investment growth has fallen to a 19-quarter low of 1% in Q2 FY20 .

• As far as funding is concerned, stakeholders have taken a positive stance for the coming six months. The survey findings suggest that the stakeholders feel that the flow of funds to the sector will improve in the coming six months.

BETTER SAME WORSE

KNIGHT FRANK–FICCI–NAREDCOREAL ESTATE SENTIMENT INDEX | Q4-2019

R E S I D E N T I A L L A U N C H E S R E S I D E N T I A L S A L E S R E S I D E N T I A L P R I C E A P P R E C I AT I O N

22%

35%

13% 36%

33%28%

42%

33%

23%

41%

27%

49%

15%

60%

40%

31%

42%

33%

26%

37%

28% 16% 39% 44% 35%

43% 59% 32% 25% 37%

24%25%

29% 25%37% 46%

48%36%

42%44%

49%60%

31%33%

37%26% 36% 25% 14% 21%

Source Knight Frank Research

Source Knight Frank Research

• Outlook regards the office market for the coming six months is on a positive side, which also corroborates the current market trends. The office market clocked an all-time high transaction of 5.6 mn sq m (60.6 mn sq ft) in 2019, signalling the robustness of the market. The future sentiment score regarding the leasing activity is strong with 88% of the stakeholders opining that leasing activity will either improve or remain the same.

• Maintaining the positive momentum, a majority of the stakeholders have opined that new supply will enter markets across geographies. According to Knight Frank Research the supply momentum stayed strong in 2019 as close to 5.7 mn sq m (61.3 mn sq ft) of office space was delivered during the year. 91% of the stakeholders expect rents to either remain at the current levels or firm up in key office markets.

FINDINGS

O F F I C E M A R K E T - T H E B R I G H T S P O T

N E W O F F I C E S U P P LY

O F F I C E R E N T A P P R E C I AT I O N

L E A S I N G V O L U M E

B . 5 O FFI C E M A R K E T O U T L O O K C O N C LU D I N G R E M A R KS

Q4 2018

Q4 2018

Q4 2018

Q1 2019

Q1 2019

Q1 2019

Q2 2019

Q2 2019

Q2 2019

Q3 2019

Q3 2019

Q3 2019

Q4 2019

Q4 2019

Q4 2019

BETTER SAME WORSE

57%

61%

53%

58%

65%

56%

47%

51%43%

47%

46%

37%

57%

62%

57%

35%

23%

33%

32%

26%

34%

36%

33%

43%

35%

33%

42%

38%

26%

38%

7%16%

14%

11%9%

11%

17%16%

13%

18%

21%21%

5%12%

5%

In a nutshell, the survey findings for Q4 2019 (October – December)

suggest that stakeholder sentiments for the real estate sector

are in the optimistic zone regarding the current situation and

expectations for the next six months. The Sentiment Index has

shown an improvement owing to the positive steps undertaken by

the government and the banking regulator. The slew of measures

announced by the Government over the past few months have been

steps in the right direction, but the grappling sector needs more

directed reforms and measures for revival.

The stakeholders are keenly awaiting quick and effective

implementation of the INR 250 billion stress fund for the stalled

projects which will help lift the market sentiments. Along with this,

the transmission by banks of the 135-basis point policy interest rate

cut by RBI, is a key aspect to convince the fence sitting buyers.

There is also a need to revive buyer confidence and demand in the

economy. The upcoming Union Budget scheduled for February 2020

will be keenly watched by India Inc for steps to invigorate demand

and ease the current liquidity crunch.

KNIGHT FRANK–FICCI–NAREDCOREAL ESTATE SENTIMENT INDEX | Q4-2019

Source Knight Frank Research

Disclaimer: This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this

report, no responsibility or liability whatsoever shall be accepted by FICCI or NARECDO or Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report,

this material does not necessarily represent the view of FICCI, NAREDCO and Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval

of FICCI, NAREDCO and Knight Frank to the form and content within which it appears.

KNIGHT FRANK INDIA NAREDCO

RAJANI SINHAChief Economist & National Director - Research rajani.sinha@in.knightfrank.com

ANKITA SOODLead Consultant - Researchankita.sood@in.knightfrank.com

BRIG. (RETD.) R. R. SINGHDirector Generalnaredco@naredco.in

FICCI

NEERJA SINGHDirector- Infrastructure neerja.singh@ficci.com