Affluent Indians, who kept working during the pandemic but lagged behind on spending, are returning to the country’s housing market. They are driving up sales of new homes as well as prices, which had stagnated in the years before the pandemic.
According to Knight Frank Research, the sale of new residential units in major cities of India in 2022 is on track to be the highest in at least eight years. Crisil Ratings Ltd, a unit of S&P Global Inc, estimates that the country’s 11 large listed developers will sell homes worth about $8 billion in the year ending March 31, up 25% from the previous 12-month period.
“Real estate is finally coming out of the seven-year down cycle,” said Manish Shah, managing director of lending company Godrej Capital Ltd. ,
U.S. home sale volumes have largely subsided as interest rates have skyrocketed this year, with the 30-year fixed mortgage rate doubling to about 6.3%.
Buyers have been further disheartened by prices that have not fallen much below their record highs.
India’s benchmark mortgage rate is in the range of 8.7% to 9.7%. This is more than a year ago. But Indian home buyers have not been hit like in the US as rates in India have not gone up as much in percentage terms.
Indian mortgage rates until this year were in the range of 6.5% to 7.5%. The Reserve Bank of India did not increase interest rates as much as the Federal Reserve did in the US to prevent inflation from rising and to prevent its currency from losing value against other currencies such as the dollar.
Demand for new homes in India has come from executives of startups, outsourcing and technology firms, financial services, pharmaceutical and other companies. These businesses flourished during the work-from-home pandemic and persuaded many people to shift from renters to owners.
Cities like Mumbai, Delhi, Gurgaon, Bengaluru and Hyderabad – JP Morgan Chase & Co., Meta Platforms Inc. and Alphabet Inc. Homes from companies such as – have seen the highest number of home sales and new housing starts.
Nishant Singhal, a 38-year-old banker who lives with his parents, wife and two children, bought a four-bedroom apartment in Gurgaon earlier this year to upgrade from a smaller one. “During the pandemic … we were a little crunched for space,” he said.
Mr. Singhal’s apartment is part of a gated complex with high-rise towers whose foyers are modeled after luxury hotel lobbies. The complex includes a pool, a tennis court, clubhouse, restaurants and a salon. “All Jingbangs are here,” he said.
For developers who cater to upwardly mobile buyers, business is booming. “This is our highest ever sale as a company,” said Irfan Razak, chairman, Prestige Group, a leading developer in southern India. villas, a private lake, an 18-hole golf course and a JW Marriott Hotel.
Like many developers, Prestige Group saw slow sales in the project leading up to the pandemic. “After Covid, everything sold out,” Mr Razak said. “In 2023, I believe we will see the same momentum.”
Large-scale, planned home construction by private developers is relatively nascent in India, where the majority of its population of over 1.3 billion still lives in villages.
In the early 2000s, rapid urbanisation, a growing economy and the easy availability of finance led to an explosion of new-home construction in and outside major cities. Developers launched high-rise towers and gated complexes with names like “Orange County” and “Wish Town”, which had swimming pools and clubs and promised middle-class Indians a way forward in life.
According to real-estate research company PropEquity, around 50 lakh apartments and villas were launched for construction between 2009 and 2019. But delay in getting government approvals, and mismanagement of funds by developers led to a severe cash crunch and many developers could not complete the promised homes.
Since then the government has introduced regulations to monitor home construction, prompting buyers to tread cautiously. According to Knight Frank, the number of new home units launched this year in the country’s largest cities is still down 40% from the peak in 2010. According to PropEquity, approximately 500,000 homes worth $43 billion are delayed by an average of 6½ years.
Demographic trends bode well for the home-building industry. By 2030, 40% of India’s population will be living in cities, up from 32% at present, said Renu Sood Karnad, managing director of Housing Development Finance Corporation Ltd.
Ms. Karnad said, “This in itself will lead to a huge demand for housing. Hence, we are extremely optimistic about the future of the housing sector in the years to come.”