Commercial realty only bright spot in Q1 2015, says FICCI-Knight Frank report

New residential project launches have halved during the January-March 2015 quarter due to over-supply, though numbers might improve slightly over the next six months, sales volumes has remained more-or-less steady and a majority of the country's leading developers expect property prices to remain sluggish in the next six months due to slowing demand – these are some of the key findings of the FICCI-Knight Frank Real Estate Sentiment Index for the January to March 2015 quarter.

The report further adds that the euphoria over an expected jump in residential sales post the general elections has now made way for more subdued sentiments since volumes did not improve, with only about 15 percent of those surveyed expecting real estate sales to improve over the next six month period.

On the pricing front, the report adds that expectations about a possible hike in property prices has also reduced substantially to about less than half since the third quarter of last year, with only 33 per cent of the respondents expecting a price hike in the next six months.

While a significant turnaround was already witnessed last year on the office market front, the trend is largely expected to continue through this year. However the reports points to a significant drop in transaction volumes in Q1 2015, amounting to a 15 percent fall in absorption of office space vis-à-vis the same period last year, due to lack of quality office space supply and certain big transactions that are scheduled for closure in later quarters.
      
On the bright side however the report states that the market is likely to see a fresh supply of new office space during the remainder of this year. A majority of stakeholders on the supply side have also endorsed this view riding the back of a high latent demand for quality space and are optimistic about a possible rent appreciation over the next six months.

With REITs now a reality, about 70 percent of respondents expect the supply of new office space to climb during this period, while a significant 85 per cent of respondents hold the view that office rentals have already hit rock bottom and are hence likely to increase going forward.

The report further adds that while the current overall economic sentiment stands at a lukewarm 51 percent, the recent government initiatives on the policy front like the - Make in India - campaign and the thrust on creating a business-friendly environment in India has upped the future sentiments to a more positive 64 percent, particularly among the stakeholders in the market for commercial office space.

While a majority of the industry stakeholders' pan-India continue to be optimistic about the future of the realty domain in India, the report found a dip in the sentiments of respondents from the North and West zones during the first quarter of this year as compared to the same period last year.

The national capital Delhi and financial hub of Mumbai are the top drivers of the realty business in the country though political unrest (in New Delhi) and a controversy-ridden development plan (in Mumbai) continue to have an impact on the sentiments of realty stakeholders in these cities.