FICCI-NAREDCO-KNIGHT FRANK

REAL ESTATE SENTIMENT INDEX

Q2 2017 (APRIL JUNE 2017)
The real estate sentiment index is developed jointly by Knight Frank India, the Federation
of Indian Chambers of Commerce and Industry (FICCI) and National Real Estate
Development Council (NARDECO). The objective is to capture the perceptions and
expectations of industry leaders in order to judge the sentiment of the real estate market.
FICCI-NAREDCO-KNIGHT FRANK
REAL ESTATE SENTIMENT INDEX | Q2-2017
APPROACH
The real estate sentiment index is based on a quarterly survey of
key supply-side stakeholders, which include developers, private
equity funds, banks and non-bank financial companies (NBFCs).
The survey comprises questions pertaining to the economy, project
launches, sales volume, leasing volume, price appreciation and
funding. Respondents choose from the following options, for which
weights have been assigned: a) Better (100 points) b) Somewhat
Better (75 points) c) Same (50 points) d) Somewhat Worse (25 points)
and e) Worse (0 points). The index is determined by calculating the
weighted average score of the percentage of responses in each of
SECTION A - OVERALL CURRENT AND FUTURE SENTIMENT
AMBIGUITY OVER THE IMPLEMENTATION OF POLICY MEASURES PULL DOWN CURRENT SENTIMENT IN Q2 2017
FUTURE SENTIMENTS STAY POSITIVE BUT NOT BULLISH
100 CURRENT SENTIMENT
90
80
70 67 68
SENTIMENT SCORE
60 58
53 53
50 48
40
30
20
10
0
Q4 2015 Q1 2016 Q2 2016
FINDINGS
The current sentiment score (48) has gone in the negative zone
and has reached Q4 2015 levels. Factors such as the uncertainty
over the manner and form in which the Real Estate (Regulation and
Development) Act, 2016 (RERA) rules will be implemented across
states and the implementation of the Goods and Services Tax (GST)
from 1 July has created confusion among the stakeholders, especially
with respect to ongoing projects. This has resulted in a dip in current
sentiments in Q2 2017.
After a slip in sentiments during Q4 2016, when the currency
demonetisation took place, the current sentiment score is the lowest
in the last five quarters. The wait and watch mode is still prevailing
in the sector in the expectation of clarity on various policy measures
by the government in the next six months.
The future sentiments, on the other hand, have shown a positive
trend in Q2 2017 but not as high as Q2 2016 levels. The future
sentiment score that had been on a constant decline since Q3 2016,
has shown an uptick from the preceding quarter, Q1 2017, implying
that respondents are positive but not bullish for the next six months.
The uptick in future sentiments stems from the fact that the supply
side stakeholders believe that eventually in the next six months clarity
these categories. Hence, a score of 50 represents a neutral view; a
score above 50 demonstrates a positive outlook; and a score below
50 indicates negative sentiment.
In order to present a holistic view of the real estate industry, the report is
divided into two sections. Section A comprises two indices: the overall
current sentiment index that indicates the respondents assessment
of the present scenario compared to six months prior, and the overall
future sentiment index that represents their expectations for the next
six months. Section B focuses only on the future sentiments of the
stakeholders. This survey was conducted between AprilJune 2017.
FUTURE SENTIMENT
OPTIMISM
64 62 61
58 58
53
48
41
PESSIMISM
Q3 2016 Q4 2016 Q1 2017 Q2 2017
on GST and RERA will come in coupled with the upcoming festival
season.
As regards RERA, some states like Maharashtra, Karnataka
and Gujarat have already taken a lead by notifying their rules and
appointing a regulator. Maharashtra has gone a step ahead and has
also launched the website of its Authority, where developers can apply
to get their projects registered. There are however, states that are yet
to notify their rules. As per the Central Government, all states need to
notify their RERA rules, latest by 31 July 2017. The major concern for
developers, especially in states that have not yet notified RERA rules,
is the manner in which the RERA rules would classify a project as an
ongoing project.
With the implementation of GST, stakeholders are also concerned
that they would need to readjust their businesses and integrate their
back-end supply chain to be able to claim the input tax credit under
the GST rules and then pass it onto the consumers. Hence, even with
positive aspects like low home loan interest rates, low prices and
sound fundamentals of the economy, it is this realignment that is not
making the stakeholders bullish about the next six months.
FICCI-NAREDCO-KNIGHT FRANK FICCI-NAREDCO-KNIGHT FRANK FICCI-NAREDCO-KNIGHT FRANK
REAL ESTATE SENTIMENT INDEX | Q2-2017 REAL ESTATE SENTIMENT INDEX | Q2-2017 REAL ESTATE SENTIMENT INDEX | Q2-2017

APPROACH SECTION B - FUTURE SENTIMENTS

The real estate sentiment index is based on a quarterly survey of these categories. Hence, a score of 50 represents a neutral view; a RESIDENTIAL SECTOR FIGHTING HARD TO STAY AFLOAT FINDINGS
key supply-side stakeholders, which include developers, private score above 50 demonstrates a positive outlook; and a score below ZONAL SENTIMENT SCORE STAKEHOLDER SENTIMENT SCORE
equity funds, banks and non-bank financial companies (NBFCs). 50 indicates negative sentiment.
BETTER SAME WORSE There is a striking recovery in the
ALL ZONES WARM UP TO POLICY REFORMS FINANCIAL INSTITUTIONS BULLISH ABOUT COMING SIX
The survey comprises questions pertaining to the economy, project sentiments of residential launches in
In order to present a holistic view of the real estate industry, the report is MONTHS; DEVELOPERS SENTIMENTS HOLD STEADY
launches, sales volume, leasing volume, price appreciation and Q2 2017. Launches have been falling
divided into two sections. Section A comprises two indices: the overall across cities for the past three years
funding. Respondents choose from the following options, for which
current sentiment index that indicates the respondents assessment
SCORE>50: Optimism SCORE=50: Same/Neutral SCORE>50: Optimism SCORE=50: Same/Neutral
SCORE<50: Pessimism
46% 49% 48% 45% 68% but nearly 68% of the respondents in
weights have been assigned: a) Better (100 points) b) Somewhat SCORE<50: Pessimism
of the present scenario compared to six months prior, and the overall Q2 2017 have opined that launches
Better (75 points) c) Same (50 points) d) Somewhat Worse (25 points) Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
future sentiment index that represents their expectations for the next
and e) Worse (0 points). The index is determined by calculating the
six months. Section B focuses only on the future sentiments of the 69 Q2 2016 66 35% 37% 30% 26% 15% will improve in the next six months. It
weighted average score of the percentage of responses in each of is likely that these positive sentiments
stakeholders. This survey was conducted between AprilJune 2017. are triggered by the upcoming festival

SECTION A - OVERALL CURRENT AND FUTURE SENTIMENT RESIDENTIAL 19% 14% 22% 29% 17% season and expected clarity on policy
issues.
67 67 Q3 2016 61 LAUNCHES
AMBIGUITY OVER THE IMPLEMENTATION OF POLICY MEASURES PULL DOWN CURRENT SENTIMENT IN Q2 2017 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 There is a marked dip in the
FUTURE SENTIMENTS STAY POSTIVE BUT NOT BULLISH
67 sentiments of residential sales in the
second quarter of 2017. At its lowest
NORTH 62 65 Q4 2016 58
100 CURRENT SENTIMENT FUTURE SENTIMENT ever, 68% of the respondents feel that
56 60 60% 46% 59% 64% 40% it will take time for buyers to return
90
69 59
to the market. The buyer confidence
60

OPTIMISM
80
64 60 Q1 2017 59 35% 40% 29% 14% 28%
that was marred by project delays,

70 67 68
EAST 59 non-deliveries, litigations, etc. will
SENTIMENT SCORE

64 62 61 63 WEST only come back once they see the

58 58 58 58 implementation of the policy reforms
60
62 RESIDENTIAL 5% 14% 12% 22% 32%
50 48
53 53 53
48 70 60 60 Q2 2017 63 SALES
spearheaded by the government.

41 64 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 In contrast to the lacklustre

40 65 DEVELOPER FINANCIAL sentiments on residential sales, 59%

PESSIMISM
30 SOUTH 65 INSTITUTIONS of the respondents have opined that
there will be an upward pressure on
20 59 FINDINGS
38% 43% 29% 40% 59% residential prices in the coming six
10
65 Both, the developers and financial institutions, have a positive months. Residential prices have been
outlook for the future with their scores pegged above 50. However, stagnant across cities for the past
0
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 the developers are wary of the recent policy reforms like RERA and 41% 41% 45% 46% 19% three years and the respondents opine
the implementation of GST. This paradigm shift in their way of doing that prices may move up due to factors
business and the apprehension of when the buyer would return to RESIDENTIAL such as an increase in compliance
FINDINGS
the market has dented the developers sentiments in Q2 2017. On PRICE 21% 16% 26% 14% 22% costs due to implementation of new
FINDINGS All the zones look upbeat with the future sentiment score on a APPRECIATION policies.
the other hand, the future sentiment score of 63 of the financial
The current sentiment score (48) has gone in the negative zone on GST and RERA will come in coupled with the upcoming festival positive swing. The fact that many states have modified their institutions has seen an improvement from the last three quarters. Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
and has reached Q4 2015 levels. Factors such as the uncertainty season. RERA rules as per the local dynamics has given a positive impetus The positivity stems from the fact that RERA, being a path-breaking
over the manner and form in which the Real Estate (Regulation and to sentiments among stakeholders from the supply side of the real real estate reform in the country, is seen to render the much-needed
As regards RERA, some states like Maharashtra, Karnataka
Development) Act, 2016 (RERA) rules will be implemented across estate market. transparency to the sector, which was missing previously. This
and Gujarat have already taken a lead by notifying their rules and
states and the implementation of the Goods and Services Tax (GST) appointing a regulator. Maharashtra has gone a step ahead and has increased transparency will facilitate greater flow of institutional flow
from 1 July has created confusion among the stakeholders, especially also launched the website of its Authority, where developers can apply into the sector and that too at competitive rates.
with respect to ongoing projects. This has resulted in a dip in current to get their projects registered. There are however, states that are yet
sentiments in Q2 2017. to notify their rules. As per the Central Government, all states need to
OPTIMISM REIGNS OVER FUNDING SCENARIO
After a slip in sentiments during Q4 2016, when the currency notify their RERA rules, latest by 31 July 2017. The major concern for
demonetisation took place, the current sentiment score is the lowest developers, especially in states that have not yet notified RERA rules,
ECONOMY FINDINGS FUNDING SCENARIO
in the last five quarters. The wait and watch mode is still prevailing is the manner in which the RERA rules would classify a project as an
in the sector in the expectation of clarity on various policy measures ongoing project. Sixty-two per cent of the respondents stakeholders have opined that going forward
by the government in the next six months. opine that going forward the economy will the flow of funds in the sector would be
With the implementation of GST, stakeholders are also concerned 5% 6% 9% 5% 6% 5% 9% 9%
17% 21%
23%
reflect better results since most of the policy better. The transparency and processes 12% 12%
The future sentiments, on the other hand, have shown a positive that they would need to readjust their businesses and integrate their 16% 28%
reforms that were in the pipeline have already brought about by government policy reforms 33%
42% 17% 44%
trend in Q2 2017 but not as high as Q2 2016 levels. The future back-end supply chain to be able to claim the input tax credit under 52% 17% 62%
51% 61% 67%
66% seen the light of the day, especially those have been instrumental in holding the positive
sentiment score that had been on a constant decline since Q3 2016, the GST rules and then pass it onto the consumers. Hence, even with 72% 75%
79% 79%
concerning the real estate sector. sentiments of the institutional funds, including
has shown an uptick from the preceding quarter, Q1 2017, implying positive aspects like low home loan interest rates, low prices and
banks.
that respondents are positive but not bullish for the next six months. sound fundamentals of the economy, it is this realignment that is not Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Stakeholder sentiments hold steady Q2 2016 Q3 2016 Q4 2016 Q1 2016 Q2 2017
The uptick in future sentiments stems from the fact that the supply making the stakeholders bullish about the next six months. about the future flow of funds into the real
side stakeholders believe that eventually in the next six months clarity estate sector. Seventy-nine per cent of the BETTER SAME WORSE
BETTER SAME WORSE
FICCI-NAREDCO-KNIGHT FRANK
REAL ESTATE SENTIMENT INDEX | Q2-2017

OFFICE MARKET PRESSURE ON DEMAND AND SUPPLY PLAGUE THE OFFICE MARKET

100

90

80
40% 38% 22% 46% 44% 10% 46% 41% 13% 41% 41% 18% 36% 39% 25%
NEW OFFICE SUPPLY

70
SENTIMENT SCORE

BETTER
60

50
SAME
40

WORSE 30

20

10

0
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

100

90

80 61% 34% 5% 54% 40% 6% 51% 37% 13% 50% 33% 17% 48% 34% 18%
LEASING VOLUME

70
SENTIMENT SCORE

BETTER
60

50
SAME
40

WORSE 30

20

10

0
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
100

90
OFFICE RENTAL APPRECIATION

80 66% 33% 1% 61% 33% 6% 47% 44% 9% 50% 38% 12% 39% 47% 14%
SENTIMENT SCORE

70
BETTER
60

50
SAME
40

WORSE 30

20

10

0
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

FINDINGS
New office supply has been eluding the market for the past two
years and the sentiments in Q2 2017 substantiate this fact. Sixty-
four per cent of the stakeholders believe that new office supply will
remain a challenge in the next six months. These sentiments coincide
with the market reality as well as where the project delays and lack of
quality office space in key locations have led to a supply crunch in all
the major cities of the country.
The office leasing has been holding steady in the past few years
but the leasing volumes in the first and second quarter of 2017 have
been low across cities. This is corroborated by the market sentiments
as well, where more than half of the stakeholders opine that leasing
volume will either hold steady or fall further in the coming six months.
Pressure on the IT/ITeS sector and the lack of quality supply in key
locations has all contributed towards the slowdown in leasing of office
space.
However, this lack of supply will lead to an upward pressure on
rentals. Nearly 86% of the respondents opine that office rental either
will remain the same or will move up in the coming six months.
FICCI-NAREDCO-KNIGHT FRANK
REAL ESTATE SENTIMENT INDEX | Q2-2017

NEW SALES PRICE

LAUNCHES VOLUME APPRECIATION

Expectations by the
end of June 2017

Actual by the
RESIDENTIAL end of June 2017

NEW LEASING RENTAL

COMPLETIONS VOLUME APPRECIATION

Expectations by the
end of June 2017

Actual by the end

of June 2017
OFFICE

CONCLUDING REMARKS

The analysis of the stakeholder expectations
from the residential and office sectors for June
2017 versus the actual market statistics reveals
interesting insights into the real estate market.
The survey that was conducted in Q4 2016 (October
December 2016) gave a mixed outlook for the future of
both, the residential and office sectors. The expectations
in our survey in Q4 2016 revealed optimism regarding
the residential sales in the following six months (January
June 2017); however, in reality sales volumes have
touched new lows across all major cities in India. As
for new residential launches, the survey sentiments in
Q4 2016 corroborate with the market reality and new
launches across cities have seen a steep decline.
Residential property prices have remained muted at
the end of June 2017 as opposed to the stakeholders
expectation. Contrary to expectations, office supply
failed to hit the market for the period JanuaryJune
2017. Leasing volumes remained steady and rents
firmed up in accordance to the stakeholder sentiments
for the same period.
So in a nutshell, our survey finding suggests that going
forward the residential sector will see some latent
supply of new launches and an upward movement in
prices. Demand will however stay muted. Office supply
will be under pressure and lead to firming up of rentals
across cities. Leasing volumes will hold steady in the
coming six months.

KNIGHT FRANK INDIA FICCI NAREDCO

DR. SAMANTAK DAS MOUSUMI ROY Brig. (Retd.) R. R. Singh
Chief Economist & National Director - Research Senior Director & Head - Smart Cities, Real Estate Director General
samantak.das@in.knightfrank.com and Urban Infrastructure naredco@naredco.in
mousumi.roy@FICCI.com
ANKITA SOOD
Lead Consultant - Research
ankita.sood@in.knightfrank.com

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