Visitors to India can easily witness the signs of a resurgent property market. Skyscrapers are adorned with construction cranes in cities like Delhi, Hyderabad, and more. Bandra, a chic Mumbai suburb, is witnessing the redevelopment of over 100 buildings. Across the nation, new property projects are at a level not seen since 2012, and prominent developers are experiencing double-digit increases in pre-sales.
The driving forces behind this bustling activity are the familiar factors: rising demand from India's affluent population, a shortage of supply, and the deterioration of existing buildings due to the harsh climate. However, while the catalysts have remained consistent, the underlying structure of the market has undergone significant changes. The efforts made by Narendra Modi's administration to rectify the aftermath of the mid-2010s property crash seem to be yielding results.
Prior to the crash, India's property sector had a somewhat dubious reputation. It was characterized by a multitude of small developers known for their flashy lifestyles, ties to Bollywood, and, beneath the glamour, a fair amount of unscrupulous dealings. Stories circulated about money siphoned off through inflated construction bills, unscrupulous bankers, and convoluted land acquisitions involving family members. Subsequent court cases provided evidence that these stories were not mere myths. Corruption led to project delays, extended waiting times for flats, and diminished demand for properties.
In 2016, Mr. Modi's government implemented various reforms, including mandating that developers pay above-market interest rates on deposits for delayed flat deliveries, creating an incentive for timely completion. The practice of diverting deposits for other projects was prohibited, and financial institutions were compelled to tighten lending standards and oversight. The cleanup process is ongoing, with recent reports from Maharashtra, home to Mumbai, indicating that 308 projects involving 60 companies are in various stages of insolvency. However, bankruptcies are gradually becoming less common.
Following a period of stagnation, developers with credible claims of fulfilling their projects have witnessed significant increases in their valuations over the past three years. Delhi Land & Finance, for instance, has seen its value rise from $5.1 billion to $15.8 billion, Godrej Properties from $3 billion to $5.5 billion, and Oberoi Realty from $2 billion to $5 billion. Confidence is also returning to the broader property market. Data tracked by Morgan Stanley and jll Research indicate that property purchases in the most recent quarter were 20% higher than the previous year's average. Activity has been particularly robust in cities like Bangalore, Hyderabad, Mumbai, and Pune.
Just as a sluggish residential market can negatively impact a country's economy, as seen in China, the converse is true as well. The buoyant housing market in India has contributed to the country's continued economic growth, despite a slowdown in exports and critical industries like technology. The construction sector in India employs over 50 million people and accounts for 7% of GDP. Additionally, the property industry serves as a significant customer for industries such as cement, steel, glass, and white goods, not to mention its reliance on credit. While past issues may have cast a shadow on the sector, it is now on an upward trajectory, much like the towers of Mumbai.
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