US recession may impact demand for residential and commercial properties in 2023: Anarock

• The overall demand for residential properties is expected to sustain in the first quarter of next year but will remain skeptical later - depending on the impact of repo rate hike.
  
• In comparison to the previous quarter, new launches grew by 57%, but saw a 24% decline on a year-on-year basis in NCR in Q3.
  
• The number of Grade A office leases across the top 7 cities is down by 6–10% over 2021 by the end of the third quarter this year.

Despite recording an upbeat performance in residential properties in terms of sales, the year 2023 will continue to witness controlled supply of new launches in most of the top cities, says Anuj Puri, chairman — Anarock Group.

“The launch trend in 2022 was calculated caution, with developers refraining from putting more inventory on the market than it could reasonably absorb - especially in already abundantly supplied markets,” Puri said.

NCR is a clear example of this. In 2022, NCR saw restricted new supply, which played a major role in reducing unsold inventory, added Puri. The NCR region accounted for 7% of the total new supply in Q3 2022 across the top 7 cities (MMR, NCR, Chennai, Hyderabad, Kolkata, Bangalore and Pune).

Approximately 6,400 new residential units were launched in NCR between July and September 2022, as per Anarock’s Q3 2022 Residential Market Overview - Delhi-NCR report, which came in November. In comparison to the previous quarter, new launches grew by 57%, but saw a 24% decline on a year-on-year basis in NCR.

“Reduced stock earnings suppress the appetite for discretionary spending and making long-term financial commitments, especially in the cost-intensive housing sector that stays afloat on home loans. Developers have already factored in this possibility, causing them to hold an even tighter rein on new supply until more clarity emerges,” Puri further said.

Ready to move in properties will continue to draw the most demand among homebuyers in 2023. The overall demand for homes will sustain at least in the first quarter of next year and is expected to remain skeptical afterwards - largely depending on a few important factors like repo rate hike and consequently, hiked home loan interest rates.

The demand is expected to contract if the home loan interest rate rises above 9.5%, according to Anarock’s most recent Consumer Sentiment Survey.
Commercial real estate sector may be impacted by global recession
Puri believes that the commercial real estate sector in India depends heavily on expansion by domestic and international corporate companies, and global recession could have direct and considerable repercussions on the Indian commercial office market.

After witnessing a dull year in 2020, the demand for commercial properties picked pace in 2021 with supply and demand recording a 21% and 34% growth respectively, over the previous year. The first half of 2022 also remained upbeat with companies started opening their offices, and asking for employees to work from the offices.

But the imminent threat of recession in the US considerably changes things.

Currently, 70% of offices in this country are occupied by foreign companies who focus on cost advantages like sub-dollar rentals for good quality Grade A offices, and almost 80% lower operating cost per full-time employee in India compared to the tier II cities in the US, according to Puri.

However, the number of Grade A office leases across the top 7 cities was down by 6–10% over 2021 by the end of the third quarter this year.

In fact, Puri shared that with each passing quarter the pace of decreased leases has increased - leading to increased caution and reticence by MNC occupiers in the last quarter of 2022.

A recession in US in 2023 will only compound this caution, further slowing down MNC leasing. However, the deals concluded in 2022 offer a sliver of hope.

“Though the number of leases is declining, the deals that were concluded in 2022 showed that occupiers are confident about the future and are taking positions that are leading to an increase in rentals,” said Puri

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