Indian real estate sizzles, fueled by infrastructure push, NRI demand

Global private credit flow into India’s real estate market is booming as the government’s policy to bolster infrastructure drives up prices in the sector.

About half of the more than $4 billion global private credit that entered the country from January to June this year was invested in the real estate sector, an analysis by global consultancy EY showed.

A survey of fund managers by the consultancy in the half-yearly report showed that more than three-fourths of the respondents expected real estate and manufacturing sectors to corner most private credit deals over the short term. Less than half of the respondents preferred financial services, the survey showed.

Demand from non-resident Indians (NRIs) is another factor driving up prices, with investments from this segment of the population rising steadily over the past five years, a report by real estate broker NoBroker showed.

NRIs accounted for about 10% of India’s total real estate investments between 2019 and 2020, a figure that has risen to 15% currently, the report said, adding that by 2025, NRIs will comprise 20% of the Indian real estate market.

The S&P BSE Realty index has surged about 70% so far this year, with some of the key constituents of the index, including Prestige Estate Projects Ltd, Sobha Ltd and DLF Ltd, soaring between 70-150%.

Ultra-luxury homes that are priced above ₹40 crore have had an unprecedented bull-run this year, with both the number of sales and the sales value of such assets hitting new peaks, research by real estate consultancy ANAROCK Research showed.

Total sales value of ultra-luxury homes has seen a staggering 247% yearly surge, ANAROCK said.

“Since the pandemic, we’ve seen a significant surge in demand for both luxury and ultra-luxury properties. High net-worth individuals (HNIs) and ultra-HNIs are increasingly purchasing these homes for investment and personal use,” said Anuj Puri, chairman at ANAROCK Group.

“The rise in ultra-luxury home demand is partly due to HNIs reshuffling their investment portfolios, anticipating stock market volatility from ongoing geopolitical tensions. Consequently, leading Grade A developers are ramping up their supply in the ultra-luxury segment. There’s a distinct FOMO (fear of missing out) among wealthy Indians to secure the most desirable properties quickly,” Puri added.

In the September quarter, India’s economy grew past most analysts’ expectations, expanding at 7.6%, fueled by manufacturing, mining and construction sectors, government data released in the beginning of the month showed.

Gross domestic product (GDP) growth for the second quarter narrowly missed the 7.8% mark achieved in the June quarter, but was notably higher than the 6.2% seen in the September quarter of the previous year.

Following the release of the data, the Reserve Bank of India (RBI) last week kept the policy repo rate unchanged at 6.5% for the fifth consecutive time against the backdrop of looming risks to food inflation.

As the Indian economy shows strong growth and RBI maintains a steady repo rate, the housing market is experiencing a surge. The continuation of stable home loan rates is expected to further boost positive consumer attitudes, analysts said.

“India’s residential markets have been on a record-setting spree with January-September sales at a 15-year high of 196,000 units and expected to touch 260,000 units by the end of the year,” Samantak Das, chief economist and head of research and real estate investment services, India at consultant JLL, said.

The recent spike in real estate demand follows a prolonged market downturn, particularly during the covid period, with commercial spaces also witnessing increased activity across the Asia-Pacific.

“Relative to other markets, workers in APAC have returned to the office in force, with research showing that the region leads the world in metrics like office bookings,” global real estate consultant Colliers said in its outlook for next year, adding that key hubs such as Singapore, Tokyo, and Seoul boast some of the world’s lowest office vacancy rates.

Seoul, in particular, is outperforming most global office locations and remains a landlord-favored market, it said, adding that investor interest has been strong, and as such, the largest office asset trade in the region this year was the Samsung SDS Tower, valued at $630 million.

On India, the consultant said that more investors are keen to capitalize on emerging niche sectors such as data centers, “underscoring the strong demand fundamentals of a massive data boom and a growing millennial workforce.”