Dr Samantak Das, Chief Economist and Head of

Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

 

“The Indian economy grew better than expected by posting 8.4% growth during Q2 FY22 indicating the strength of the economy. The growth has been led by good monsoon, faster pick-up in economic activity and increased vaccination. ‘Construction sector’ GVA which comprises physical activities of the real estate and infrastructure sectors grew by 7.8% as against contraction of 7.2 % during the same quarter last year. The services part of real estate - ‘Financial, real estate and professional services’ segment grew by 7.8% as against a de-growth of 9.1% during Q2 FY21. Overall, it can be said that real estate sector has already been on the growth trajectory and the future would be even better if there is no other external shock. Indian residential real estate has been leading the growth story, with sales witnessing an upward growth of 65% on a sequential basis during July-September quarter. The economy is expected to perform better going ahead due to vaccination progress, improved momentum and better resilience which will augur well for the overall real estate business.”

JLL’s inputs on the probable impact of

 JLL’s inputs on the probable impact of extension of Stamp Duty Concession on realty sector.

 

Attributed to:  Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL.

Reaction to:  State Government of Maharashtra may look at extension of Stamp Duty Concession

 

If the State Government decides to extend the Stamp Duty Concession further, then.

 

“Amidst the fear of rising cases of Covid -19, this will be a timely second shot in the arm that will help the real estate sector continue its buoyancy. 

The larger markets of Mumbai and Pune in the state saw a growth of 13-15% in residential sales during the first quarter of 2021 over the previous quarter, well abled by the government’s proactive measure of providing stamp duty concessions in the second half of 2020, paired with the State’s Mission Begin Again programme. The extension of stamp duty relaxation will further significantly support the real estate sector to regain the volumes lost during the pandemic and register robust growth.”

 

Hyderabad houses FLEX SPACE one of the fastest grwoing

 Hyderabad houses 4.5 million sq. ft. of flex space; one of the fastest growing flex markets in the country: JLL

 

Hyderabad hosts 4.5 million sq. ft. of the total flex space stock in India and is one among the fastest growing markets in the country, according to a recently launched report by JLL, Reimagine Flexspaces A 360⁰ view.

The demand for flexible spaces in large cities such as Hyderabad is likely to grow, with businesses having a greater need to accommodate portfolio expansion and contraction along with crisis support. This indicates the inherent growth potential of the flex office market in India.

“Flex space operators provided organised workspaces with a lock-in-period of 1-2 years. Companies that have pre-leased with scheduled delivery over next 1-2 years have shown interest in such flex spaces to have their temporary offices. Apart from big MNCs, Hyderabad also houses many start-ups and small companies in the field of Consulting, IT, and logistics. Flex spaces have become financially feasible for such small players as well with low capex,” said Sandip Patnaik, Managing Director and Head (Telangana & Andhra Pradesh), JLL India

The flex space market in Hyderabad saw major traction from mid-2018 and peaked in 2019. Flex spaces accounted for 28% of total office space leasing in 2019 in the city. While flex spaces already enjoyed popularity amongst start-ups and small-sized companies, there has been an increased traction amongst large BFSI and IT-ITeS occupiers mainly as managed office spaces as well as incubation spaces. This supports the significant expansion by flex space operators in the city during the last 2-3 years.

As per a recent report by JLL strong signs of recovery were witnessed in the Hyderabad office market in Q3 2020 with a healthy gross leasing at 1.9 million sq. ft. At the same time, net absorption grew by 31% from the previous quarter to 1.5 million sq. ft. in Q3 2020.

The country is expected to witness deeper penetration, throughout 2021 and beyond, the flex space market is forecast to grow at a slower pace and more organically. Irrespective of several short-term disruptions and challenges, increased demand from large enterprises, will support the growth of the flex space market to more than 50 million sq. ft. by 2023. It is anticipated that flexible space will grow by an average of around 15-20% per annum over the next three-to-four years, although this trajectory will not be linear. Previously expected levels of new investment are unlikely to be seen, as operators look to solidify their existing operations and it is likely that certain operators will not be able to weather the storm.

As corporates return to the workplace, they are likely to further leverage flexible space to reduce capital expenditure and create cost savings, while allowing for split teams and de-densification requirements. Developments that initially drove the growth of the flex market, like the focus on utilizing workplaces to boost productivity and drive dynamic work cultures, enhance emphasis on employee health etc., will continue to influence the next phase in India.

 “While the flex-space market more than tripled in the last 3 years, the momentum going ahead will be relatively slower. Players are likely to tread cautiously, and the overall market is expected to expand 1.5 times from the current size. At the same time, demand for flexible space is likely to remain resilient and we expect the size of the flex space market to cross 50 million sq. ft. by 2023, led by increased demand from larger enterprises,” Dr Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

In the commercial real estate space, flex spaces have become synonymous with adaptability. As preferences evolve, a range of flexible space options have taken shape to suit changing business needs, including remote working. To respond to the current disruption, and to lay the groundwork to deal with what may be permanent changes for the industry, flex space operators have been agile and are recalibrating their business strategies. They are now laying a greater emphasis on profitability and evolving strategies to ensure stable occupancy levels in their flex space centres.

 Large enterprises to drive demand

The densification trend that had emerged over the last decade will likely reverse with enterprises leaning on flexible office space to relax space density. Large enterprises might also look at splitting up their offices to reduce commute times and dependence on public transport. However, with expected economic uncertainty, companies will be hesitant to commit large capital to real estate. In terms of strategy, leasing directly to a third-party flexible space operator is the most widely adopted model. A partnership model allows both landlords and operators to leverage each other’s strengths. There are several ways to implement a partnership, with revenue shares and management contracts being the most common. Under the revenue share option, both parties split the upside. In the case of a management contract, the operator gets a fixed payment, while the landlord assumes all the leasing risk and enjoys the upside. Despite the benefits of this approach, partnerships are relatively less common in India for now.

What the future holds

The entry of more than 300 flex space operators into the country helped commoditize the market. Prior to the pandemic, most of these operators were focused on attaining scale and capturing market share. However, the availability of capital, in the current scenario, will be a challenge. Players who have embarked on aggressive growth so far will find themselves strapped for capital. In such a scenario, the market is likely to witness consolidation activity driven by larger operators with financial wherewithal acquiring smaller ones. 

Flexible workplaces will continue to be a major influence on the future direction of the Indian office market. There will be an even greater focus on providing customized office space solutions and demand for flexible space will not only return but increase, as occupiers embrace the core plus flex model more widely. Despite the massive disruption from the impact of COVID-19, the future of flexible workspaces will remain optimistic.

Homebuyer Preference Survey

 ‘Homebuyer Preference Survey - The COVID-19 Impact’

Key Highlights:

• Economic uncertainty and rising stock market volatility is positioning real estate as the preferred asset class for investments in India with over 50% of consumers considering buying a new home in the next six months
• 67% believe that buying a house is a necessity
• 91% respondents reinstate the importance of home ownership
• More than 50% of the prospective homebuyers indicated a preference to buy a 2 BHK apartment with size ranging from 800 to 1,000 sq ft.
• Markets of Hyderabad, Pune and Chennai provide indications of relatively healthy inventory management in terms of average construction period and YTS (years to sell). Further analysis reveals longer-term resilience might appear first in the southern markets of Bengaluru and Chennai

 

More consumers desire home ownership over renting despite COVID-19 challenges, says JLL

·         67% believe that buying a house is a necessity

·         91% respondents reinstate the importance of home ownership

Economic uncertainty and rising stock market volatility is positioning real estate as the preferred asset class for investments in India with over 50% of consumers considering buying a new home in the next six months, says JLL, India’s largest real estate consultancy firm. According to JLL’s Homebuyer Preference Survey, 91% respondents wanted to buy a home when asked to choose between buying and renting. Additionally, 67% believed that buying a home is a necessity, not a luxury.

The evolving COVID-19 pandemic will also influence short-term decision making with job security cited as the biggest concern when contemplating the purchase of a home, respondents say. The survey uncovered that a greater proportion of people in the age group of 20-35 years were likely to defer their home purchase plans by more than six months. Polled consumers above 35 years indicated that they are more inclined towards buying a property in the next six months. Also, more than 50% of the prospective homebuyers indicated a preference to buy a 2 BHK apartment with size ranging from 800 to 1,000 sq ft.

“Real estate has emerged as the most resilient asset class today and we see potential for more consumers to pivot towards home ownership in the longer-term. In tandem, ongoing work from home arrangements are pushing developers to become more flexible and give homebuyers the option of creating a study room if need be,” said Ramesh Nair, CEO & Country Head (India), JLL. The pandemic has also accelerated the pace of digital transformation amongst developers and intermediaries. In the past, we’ve seen project discovery happen online, this moved to virtual tours and interactions, and now one-fifth of the respondents in this survey said they’re digital-ready to affect their transaction online end-to-end,” he added.

The requirement of study rooms as work from home practices are adopted is a key highlight of the study. Elsewhere, the importance of healthy living is gaining currency as societies with wellness amenities are being favored. Furthermore, homebuyers want to mitigate the risk and are willing to pay a premium for properties from reputed developers, showing an affinity towards ready-to-move-in properties in gated societies and township projects. 

“It is encouraging that more than 50% of the prospective homebuyers surveyed have expressed their readiness to potentially buy homes within the next six months. At the same time, developers are relatively flexible to allay buyers’ concerns in this fragile business environment with respect to immediate cash outgo and long-term financial obligation by offering attractive flexible payment options with minimum upfront payment,” said Samantak Das, Chief Economist and Head Research & REIS, JLL.

Interest varies by market

The markets of Hyderabad, Pune and Chennai provide indications of relatively healthy inventory management in terms of average construction period and YTS (years to sell). Further analysis reveals longer-term resilience might appear first in the southern markets of Bengaluru and Chennai. The larger markets of Delhi NCR and Mumbai have high levels of unsold inventory in various stages of construction as well as greater YTS due to a prolonged slowdown in sales. The proportion of prospective homebuyers who deferred their home purchase decisions by more than six months is also higher in these larger markets.

Affordable and mid segments will continue to drive the market

Most respondents indicated a preference for properties in the sub INR 50 lakh and INR 50-75 lakh category. On the supply side, developers have also realigned their products, with 60% of the new launches in the past two years falling in the INR 50 lakh and INR 50-75 lakh price segments. The alignment of demand and supply will support the recovery process and it is expected that the affordable and mid-price segments will continue to witness maximum traction in the post-COVID era as well.

According to JLL, COVID-19 can be credited to be the catalyst for accelerating vital trends such as price rationalisation in larger markets, adoption of technological platforms to enable seamless buying and selling while resetting the significance of ‘owning’ a house amongst potential homebuyers. The survey was conducted in June-July this year and has seen participation from 2,500 respondents across Mumbai, Delhi NCR, Bengaluru, Pune, Chennai and Hyderabad.