India’s upscale housing market strengthens, defying global trend

Affluent Indians who kept working during the pandemic but throttled back on spending are returning to the country’s housing market in force. They are driving up the volume of new home sales as well as prices, which stagnated in the years leading up to the pandemic.

Sales of new residential units in India’s major cities in 2022 are on track to be the highest in at least eight years, according to Knight Frank Research. The country’s 11 large listed developers will likely sell homes worth around $8 billion in the year that ends March 31, up 25% from the previous 12-month period, estimates Crisil Ratings Ltd., a unit of S&P Global Inc.

“Real estate is finally coming off of a seven-year down cycle,” said Manish Shah, managing director of Godrej Capital Ltd., a lending company. “We see a clear opportunity of being an island of relative calm in an otherwise mad neighborhood.”

U.S. home sale volume has slumped largely because interest rates have skyrocketed this year, doubling the 30-year fixed mortgage rate to about 6.3%.

Buyers have been further discouraged by prices that haven’t fallen much off their record highs.

India’s benchmark mortgage rate is in the 8.7% to 9.7% range. That is higher than it was one year ago. But Indian home buyers haven’t been as jolted as have those in the U.S. because the rate in India hasn’t increased as much in percentage terms.

Indian mortgage rates were in the 6.5% to 7.5% range until this year. The Reserve Bank of India didn’t raise interest rates as much as the Federal Reserve did in the U.S. to keep inflation from rising and keep its currency from losing value against other currencies such as the dollar.

Demand for new homes in India has come from executives at startups, outsourcing and technology firms, financial services, pharmaceutical and other companies. These businesses flourished during the pandemic while working from home convinced many to shift from renters to owners.

Cities such as Mumbai, Delhi, Gurgaon, Bengaluru and Hyderabad—home to companies like JPMorgan Chase & Co., Meta Platforms Inc. and Alphabet Inc.—have seen the most home sales and new housing starts.

Nishant Singal, 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 apartment. “During the pandemic…we were a little crunched for space,” he said.

Mr. Singal’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 the jingbang is here,” he said.

For developers that cater to upwardly mobile buyers, business is booming. “We’ve had the highest sales ever as a company,” said Irfan Razack, chairman of the Prestige Group, a major developer in southern India. He cited the example of Prestige Golfshire, a 275-acre property in Bengaluru comprising around 200 independent villas, a private lake, an 18-hole golf course and a JW Marriott hotel.

Like many developers, Prestige Group saw slow sales in this project the years leading up to the pandemic. “Post-Covid, everything was sold,” said Mr. Razack. “In 2023, I believe we will see the same momentum.”

Large-scale, planned home construction by private developers is relatively nascent in India, where a majority of the more than 1.3 billion-population still lives in villages.

In the early 2000s, rapid urbanization, a growing economy and easier 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 such as “Orange County” and “Wish Town,” which boasted swimming pools and clubs and promised middle-class Indians a way to move up in life.

Around five million apartments and villas were launched for construction between 2009 and 2019, according to PropEquity, a real-estate research company. But delays in getting government clearances, and mismanagement of funds by developers led to a severe cash crunch and many developers couldn’t complete the promised homes.

The government has since introduced regulations to monitor home construction, prompting buyers to return, albeit cautiously. The number of new home units launched this year in the country’s largest cities is still 40% below the peak in 2010, according to Knight Frank. Around 500,000 homes worth $43 billion are running on average 6½years behind schedule according to PropEquity.

Demographic trends bode well for the home-building industry. By 2030, 40% of India’s population will be living in cities, up from 32% currently, said Renu Sud Karnad, managing director of Housing Development Finance Corp. Ltd.

“This in itself will lead to huge demand for housing,” said Ms. Karnad. “So, we remain extremely optimistic about the future of the housing sector in the years to come.”