India's Luxury Real Estate Market Thrives Despite Global Slowdown

India's housing market is remaining strong even as other markets around the world have seen declining sales and prices. This is due to a number of factors, including strong economic growth, low interest rates, and an increase in the number of first-time homebuyers. As a result, India is poised to become one of the world's leading housing markets in the years to come.

Indians who are affluent and continued working during the pandemic are now returning to the country's housing market in force. This is driving up both the volume of new home sales and prices, which had been stagnant in the years leading up to the pandemic.

Sales of new residential units in India’s major cities are on track to be the highest in at least eight years, according to Knight Frank Research. The country’s 11 large listed developers are likely to 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.

Manish Shah, managing director of Godrej Capital Ltd., believes that the real estate market is finally starting to rebound after seven years of decline. Shah sees this as an opportunity for his company to provide lending services in an otherwise uncertain market.

Home sales in the United States have declined significantly this year due to the sharp increase in interest rates. The 30-year fixed mortgage rate has more than doubled, reaching approximately 6.3%. This has made it much more difficult for potential buyers to afford a home.

Prices that haven't fallen much from their record highs have discouraged buyers.

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.

Mortgage rates in India have been relatively stable in recent years, staying in the 6.5% to 7.5% range. The Reserve Bank of India has kept interest rates relatively low in order to keep inflation from rising and to prevent the Indian currency from losing value against other currencies such as the US dollar.

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

Cities in India such as Mumbai, Delhi, Gurgaon, Bengaluru and Hyderabad have seen the most home sales and new housing starts. Companies like JPMorgan Chase & Co., Meta Platforms Inc. and Alphabet Inc. have their headquarters in these cities.

Nishant Singal, a 38-year-old banker, 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. Singal lives with his parents, wife and two children.

Mr. Singal's apartment complex includes high-rise towers with luxurious hotel-style lobbies and a variety of amenities like a pool, tennis court, clubhouse, restaurants, and salon. According to Mr. Singal, "All the jingbang is here!"

Developers who cater to upwardly mobile buyers are seeing a boom in business. "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.

Prestige Group was not alone in seeing slow sales for their project in 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 new in India, where a majority of the population still lives in villages.

In the early 2000s, there was a boom in new-home construction in and outside of major cities. This was due to rapid urbanization, a growing economy, and easier availability of finance. Developers launched high-rise towers and gated complexes with names such as “Orange County” and “Wish Town.” These complexes boasted swimming pools and clubs, and promised middle-class Indians a way to move up in life.

Between 2009 and 2019, approximately five million apartments and villas were launched for construction, according to PropEquity, a real-estate research company. However, delays in obtaining government clearances and mismanagement of funds by developers led to a severe cash crunch, and many developers were unable to complete the promised homes.

Since the government introduced regulations to monitor home construction, buyers have returned, 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 6½ years behind schedule according to PropEquity.

Demographic trends are looking positive for the home-building industry. According to Renu Sud Karnad, managing director of Housing Development Finance Corp. Ltd., by 2030, 40% of India’s population will be living in cities, up from 32% currently.

Ms. Karnad believes that the growing economy will lead to increased demand for housing, and she remains optimistic about the future of the housing sector.