Lately, the Indian real estate sector has been faced with a liquidity crisis which has badly affected the industry, resulting in a growing inventory of unsold properties. The luxury and premium sectors of real estate have been especially affected, with a large portion of the unsold inventory consisting of these properties. However, the affordable housing sector is still witnessing plenty of sales. Thus, it is quite evident that the demand for affordable homes is high, and if the developers switch their focus to such projects, they can gradually recover from the losses due to higsh volume of transactions.
The commercial real estate sector has performed very well, with an increase in the number of project launches as well as absorption. In fact, 44 million sq. ft. of office spaces was absorbed in 2019, which is higher than the 41 million sq. ft. that was absorbed in 2018. This is because commercial spaces tend to generate higher returns and often the tenants upgrade the property for commercial advantages, which also helps to earn higher returns from future returns. In cities like Mumbai, Gurgaon, Hyderabad, Bangalore, etc. which are prime commercial hubs, foreign corporate companies and IT companies have been setting up offices. All these factors have helped the commercial sector of real estate grow consistently well.
As a result of the liquidity crisis and the drop in sales, a large number of residential projects are currently stuck. The legal challenges are preventing them from receiving last stage financing to complete the project. As a result of the poor track record of developers, fall in purchasing power of buyers, etc. these projects are not attracting enough investment to keep them running. In many cases, this is resulting in consolidation through the larger companies taking over the approved land banks and then financing the rest of the project.
However, the situation can undergo improvement. The Central Government has announced a relief fund of INR 25000 crore to help the stuck projects revive. Some of the developers have partially switched to affordable housing and have witnessed a rise in sales. If more follow the trend and focus on properties which are actually high in demand, the Indian real estate sector would have a bright future ahead.
