Housing Demand Surge Buoys India’s Construction Sector And Inturn Indian Economy

The remarkable surge in India’s construction sector, fueled by surging demand for housing, stands as a substantial positive force propelling the nation’s economy to new heights, as seen in this week’s GDP data.

This development is accentuated by several key factors that contribute to its positive impact on the Indian economy.

First and foremost, the robust growth in the construction sector has emerged as a major driver of India’s overall economic expansion.

The sector’s impressive 13.3% growth in July-September, up from 7.9% in the previous quarter, coupled with the nation’s forecast-beating 7.6% GDP growth, as per the data released on Thursday shows its best performance in five quarters, positions India as one of the world’s fastest-growing major economies.

This not only signifies resilience but also showcases the sector’s capacity to significantly contribute to the nation’s economic prosperity even as Western economies have contracted owing to high-interest rates and high energy prices. At the same time, China has been engulfed in debt crises in its property sector.

The Upswing After The Pandemic
The construction boom has proven instrumental in generating employment opportunities, creating millions of jobs across various industry segments – after nearly six years of pandemic-induced downturn and debt before the construction sector marked its upward tick last year and hit a new high this year.

Thus, not only addresses the longstanding issue of unemployment but also injects vitality into the labour market, fostering economic inclusivity.

Rising incomes for a substantial portion of the Indian population are key in driving the housing demand. As individuals experience increased financial stability, creating a positive cycle of economic growth, further enhancing the nation’s economic resilience.

According to government estimates, India had an urban housing shortage of around 19 million units last year – and that is expected to double by 2030.

Builders are optimistic about the long-term outlook, with many expressing confidence in a potential two to three-year boom, and some adopting an even more positive stance.

Sanjeev Jain, the managing director at Parsvnath Developers, a prominent real estate company, anticipates that the housing market’s strong performance could extend for another three to four years. He emphasizes that India is in the initial phases of a housing growth cycle.

In India’s seven largest cities, including Mumbai, New Delhi, and Bangalore, home sales experienced a remarkable 36% surge in the July-September quarter compared to the previous year, reaching over 112,000 units. This robust performance occurred despite an 8%-18% price increase, as the real estate consultancy Anarock reported.

Further, according to data from the same consultancy, there was a noteworthy 24% rise in the launch of new residential projects.

Prashant Thakur, the head of research at Anarock, attributes the surge in home sales to first-time buyers, with nearly 80% of the houses being purchased by end users. He also notes a strong demand from existing homeowners seeking more spacious apartments.

In Mumbai, demand remains robust despite a two-percentage-point increase in interest rates, according to Jayesh Rathod, director of Mumbai-based Guardian Real Estate Advisory.

Rathod’s company has achieved a significant jump in sales, selling over 5,500 flats in Mumbai and its outskirts this year, representing a more than 50% increase compared to the same period last year.

The demand is supported by salary hikes in major cities, particularly in sectors such as e-commerce, healthcare, retail, and logistics, where average hikes have exceeded 10% for two consecutive years, according to EY estimates.

Property analysts predict that home prices in India will outpace consumer inflation next year, driven by higher earners investing in newly built luxury residences in urban centers.

Housing demand has also witnessed a substantial increase in smaller cities in the southern states of Tamil Nadu, Karnataka, and Gujarat, the home state of Prime Minister Narendra Modi.

Construction companies attribute this growth to rising incomes and the migration of workers from rural areas.

To further stimulate affordable housing availability, the government is offering subsidies, encouraging construction activities in smaller towns and cities.

Consequently, shares in property companies have experienced a notable surge, with the Nifty realty index rising by approximately 67% year-to-date, compared to a 12% gain for the blue-chip Nifty 50 index.

Noteworthy gainers include Prestige Estates Projects, which has seen a 120% increase, DLF with a 67% climb, and Godrej Properties, up by 52%

The Viewpoint
The surge in home sales, despite an increase in prices, is indicative of a healthy and vibrant real estate market.

The fact that first-time buyers constitute a significant portion of this demand stresses the accessibility and attractiveness of the housing market, fostering a sense of economic participation among a broader demographic.

Moreover, the positive trends extend beyond major urban centers to smaller cities in southern states and other regions.

This geographical diversification of economic growth contributes to a more balanced and inclusive development, addressing regional disparities and ensuring that the benefits of the construction boom reach a wider cross-section of the population.

The government’s proactive role in promoting affordable housing through subsidies is a noteworthy catalyst for growth in smaller towns and cities.

This not only addresses the pressing issue of housing shortages but also aligns with broader governmental objectives of promoting inclusive and sustainable development.

The substantial increase in shares of property companies reflects investor confidence and signifies the attractiveness of the sector as an investment destination.

This influx of investment has a cascading effect, fostering capital formation and further fueling economic growth.

The Last Bit, the flourishing construction sector in India, driven by housing demand, is a positive force that reverberates throughout the economy.

From job creation and increased incomes to regional development and investor confidence, the sector’s impact is multifaceted and is contributing significantly to India’s economic well-being.