Work-from-home trend may significantly damage office space market: Ind-Ra – ET RealEstate

MUMBAI: Negative demand created by the work-from-home culture along with reduction in fresh leasing activities due to a weaker economy can easily shave 40 per cent off annual demand over the next few years, according to India Ratings and Research (Ind-Ra).

The agency said this can result in over 500 basis points increase in vacancy levels over FY21 to FY23. “The impact on upcoming office space providers is likely to be particularly sharp as these may struggle to let out their upcoming properties.”

Nearly 83 per cent of employees surveyed recently by Accenture favoured a hybrid work model with the ability to work remotely 25 to 75 per cent of time.

Ind-Ra said such a transition to working remotely can seriously hamper office real estate demand as it may allow companies to use a hot desking policy where the same desk may be shared by a number of employees who report to work on different days.

If 2.5 per cent of overall employees are asked to report to work on alternate days and use the hot desking policy, it may result in a net 1.25 per cent reduction in office space required in a country.

On a base of 635 million square feet of office space occupied in top eight cities of India at FYE20, said Ind-Ra, it will result in a negative demand of 7.9 million square feet which is 21 per cent of the average annual demand seen during FY19 to FY20.

“A larger impact of hot desking might shave off several years’ of demand in the short run and create significant hardships for office real estate providers.”

Besides, a number of international companies have announced hybrid work models where the employees will need to report to office only on a few days of the week. Ind-ra said it can be easy to infer that the space that may be subject to hot desking model may be a lot more than 2.5 per cent as envisaged.

Ind-Ra said occupancy at a large real estate investment trust (REIT) focusing on office portfolio declined to 86.8 per cent in 4Q FY21 from 92.2 per cent in 1Q FY21.

Occupancy at another listed REIT declined to 81.8 per cent in 4Q FY21 from 87.1 per cent in 2Q FY21. Occupancies at other listed REITs and companies also declined by around 500 basis points over the last four quarters, said Ind-Ra.

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Residential real estate sector’s performance to improve in FY22: Report – ET RealEstate

NEW DELHI: The performance of the residential real estate sector is expected to improve in FY22, according to a recent report by India Ratings and Research (Ind-Ra).

Grade I players are likely to see a surge in growth, while non-Grade I players are expected to see a reversal of the sharp decline experienced in FY21. The overall sales in FY22 could still be around 14% below FY20 level, the report said.

According to the report, the overall floor space sold is expected to increase by 30% year-on-year in FY22 after a 34% year-on-year decline in FY21. The recovery will likely be dominated by Grade I players, whose sales are likely to grow by 49% year-on-year in FY22, after a 14% year-on-year increase in FY21. Non-Grade I players are also likely to see their sales rise by 26% year-on-year in FY22, after a 39% year-on-year decline in FY21.

The total residential floor space sold in India remained largely stagnant at 326 million sq ft in FY20. Floor space sold declined 41% year-on-year during the nine months of FY21 and Ind-Ra expects them to be down 34% year-on-year in FY21.

Grade I players, however, saw their sales increase at a CAGR of 19.7% from FY18-FY20 as their market share expanded to 9.8% in FY20 from 6.8% in FY18. The market share expanded to 15.6% in 9MFY21 as they managed to report a 4.3% year-on-year increase in sales despite the pandemic. Non-Grade I players are generally struggling because buyers are skeptical about their ability to timely deliver projects and their access to financing remains constrained.

In some of the cities, such as Hyderabad and Bengaluru, rental yields could be 3%-4% year-on-year higher in FY22. With mortgage rates falling below 7% in FY22, the gap between the rental yield and mortgage rates is narrowing and is likely to promote home ownership, the report added.

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Stamp duty cut in Maharashtra may do little to revive real estate demand: Ind-Ra – ET RealEstate

NEW DELHI: India Ratings and Research (Ind-Ra) believes that the proposed stamp duty reduction by Maharashtra government would do little to boost demand in the sluggish residential real estate market.

The sector has been facing a slowdown for the past few years which has been exacerbated by COVID-19 led nation-wide lockdown.

The residential real estate’s volume and price growth are closely integrated with the GDP growth rate. Given that India’s GDP growth rate has been sagging and is likely to witness historic lows in FY21, it is highly unlikely that temporary measures such as one-time reduction in stamp duty for a limited period will revive confidence in the real estate markets. Income slowdown amid levered households’ balance sheets may only intensify the slowdown in the residential real estate in the near term.

The two key residential real estate markets of Maharashtra – Mumbai Metropolitan Region (MMR) and Pune may react differently to this measure, given the structural difference between these two markets, said Ind-Ra.

MMR and Pune have seen a decline in weighted average prices (across ticket sizes) at a CAGR of 3% and 0.5%, respectively, while all India prices increased about 1% during FY16-FY20.

MMR particularly has almost 75% of its inventory in ticket size upwards of Rs 50 lakh and may thus require a little more than stamp duty reduction to encourage prospective buyers.

On the other hand, Pune has equal split between Rs 50 lakh and upwards and Rs 50 lakh and below ticket size; and thus, lower ticket sizes may still see some uptick, given that the capital values in that segment have remained more or less stable.

Thus, anticipation of a further decline in prices may offset the benefits offered by temporary reduction in stamp duty.

The state government had proposed to reduce stamp duty by 3% for the period 1 September to 31 December 2020, and thereafter to 2% between 1 January to 31 March 2021, from the present 5%, across Maharashtra.

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