Unlike China, real estate is driving India’s economy
Data and forecasts point to robust growth, although it is hard to predict how the market will fare in the long run. Growth in disposable income among Indians and economic policies implemented under Prime Minister Narendra Modi are the main factors. Foreign investors are also shifting from China to India.
New Delhi (AsiaNews) – India’s real estate market is showing robust and rapid growth, in stark contrast to that of China whose economy is in doldrums. It is no secret that India sees itself in competition with its northern neighbour; however, many are wondering if and for how long, growth in this sector will last in India.
Despite rising supply, the price of real estate in India rose by 7.21 per cent in the second quarter of 2023, up from 6.78 per cent in the first and 2.83 per cent in the second quarter in 2022.
Compared to last year, property sales increased by more than 16 per cent in Mumbai.
The construction industry in India employs more than 50 million people and accounts for 7 per cent of GDP, but it is likely that, with the current trend, it could reach US$ 1 trillion by 2030 and contribute 13 per cent as early as 2025.
According to other forecasts, India’s economy could reach US$ 33 to US$ 40 trillion by 2047 (centennial of India’s independence), and the real estate sector could grow up to 12 times hitting US$ 5.8 trillion (last year it was worth US$ 477 billion) or more than 15 per cent of economic output.
Several factors have contributed to India's vibrant housing market. As the economy grew, city residents have acquired more disposable income, driving up demand for new homes, while the older housing stock has deteriorated with more extreme weather.
The economic policies implemented by Indian Prime Minister Narendra Modi after the property crash a decade ago have also played an important role.
Due to a series of court cases that ended in convictions, corruption within the sector was exposed, and many projects were not completed while demand was not sufficient to support the growth of the sector.
After coming to power in 2014, Prime Minister Modi forced property developers to pay above-market interest rates on late project deposits, incentivising their completion.
Diverting deposits to different projects was banned, while financial institutions were asked to cut lending and monitor loans more closely.
Hundreds of housing projects are still insolvent (308 in Maharashtra alone) but bankruptcies have decreased. According to The Economist, this marks a stark difference from China, whose domestic economy is experiencing the effects of a depressed property market.
For the third month in a row, data from the National Bureau of Statistics of China show that house prices have fallen again, despite the government’s efforts to breathe new life in the sector.
The consequences of this will also be felt on the global economy, the International Monetary Fund warned two days ago.
Real estate investment in China is down by 9.1 per cent in the first nine months of 2023, a sign of the low confidence of investors, who are turning to India.
Although it is not possible to predict the performance of India’s real estate in the medium to long term, it is clear that the sector has managed to maintain economic momentum and ensure gains in the stock market as well, despite a slowdown in exports.
Singapore-based Capital Land Investment Limited, for example, has announced plans to double its real estate assets in India over the next three years. Gaw Capital Partners, a Hong Kong-based investment giant, is also planning to open an office in the country.
But foreign companies are not only interested in housing construction; several Japanese companies are focusing on emerging markets for office construction.
Sumitomo Realty & Development will complete a US$ 3.34 billion redevelopment project in downtown Mumbai by 2030, following a series of successful investments in the metropolis itself.
Mitsubishi Estate has also invested in a fund set up by a Singapore-based manufacturer that plans to complete its project, in Chennai, India's fourth-largest city, by next year.
After building an office building in Bangalore, Mitsui Fudosan is now working on the second phase of the project.
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14/06/2023 18:33
