Tough times are ahead for India's real estate sector

05 June 2020 3 min. read

The next one or two years are going to be challenging for India’s real estate sector, according to Chintan Patel, partner at KPMG India and Lead of the firm’s Building, Construction and Real Estate practice.

Patel, who has been a partner in KPMG's real estate deal advisory practice for nearly half a decade, put forth a timeline of 12 to 18 months where India’s real estate economy is expected to struggle with Covid-19-induced circumstances. However, he differentiated between the residential and commercial real estate segments in India, highlighting the different position for each segment.

“Residential real estate was anyway in a slightly tougher spot even before we got into Covid-19. Commercial real estate was one of the green shoots that real estate had. But with work from home and with companies trying to focus more on their core business rather than just expanding, it may have some impact on commercial real estate,” he said to the Economic Times.

Real estate has been among the stronger sectors in India’s economy for a number of years now, as involvement from the government and the private sector has driven rapid growth. The commercial space has seen the bulk of this growth, with retail real estate being among the bright spots.

Tough times ahead for India's real estate sector

Previously, analysts were predicting growth of nearly 10% per year in India’s real estate market. However, the ‘work from home’ conditions under Covid-19, as well as overall economic strain is expected to dampen growth in the sector. Many businesses have begun to realise the value and cost-effectiveness of remote working, which spells trouble for commercial real estate.

However, Patel points out that the outlook is not as dark as it seems. He points to the fact that the work from home arrangements remain a crisis response for many businesses, which will be looking to get back to the office in the medium and long terms. As a result, the commercial real estate can expect a slow year or so, but there is a ray of hope in the long term.

There is more hope for the residential real estate segment, according to Patel. Again, the segment might have a tough year or two, but the KPMG partner highlighted that India’s vast population base will always create room for a strong residential economy. He also suggested that the circumstances might create new opportunities for residential real estate.

“If work from home is the norm going forward and if that is the assumption, then the design has to include some area which is dedicated for people to work from home. Second, if people cannot physically visit to see so many locations before making a decision is made, can technology play a big role? I believe technology starting from design to construction, to selling, to financing will play a major role going forward in the residential sector,” said Patel.