India’s Construction Boom Spurs Economic Growth Amidst Surging Housing Demand

India's Construction Boom Spurs Economic Growth Amidst Surging Housing Demand

This week’s GDP data underscores India’s remarkable housing boom, signaling optimism that the construction sector will be a driving force behind the country’s economic growth in the coming years.

The construction industry displayed its strongest performance in five quarters, recording a significant 13.3% expansion from July to September compared to the same period last year, up from 7.9% in the previous quarter, as revealed by Thursday’s released data.

India has emerged as one of the world’s major economies, growing at an impressive rate of 7.6%, surpassing forecasts. In contrast, China grapples with a real estate-induced debt crisis, while Western economies face challenges from high energy and interest rates.

The much-anticipated boom has generated millions of jobs, marking a recovery from approximately six years of debt accumulation and a pandemic-induced downturn. Strong population growth, a severe housing shortage in major cities, and increasing incomes have fueled this resurgence.

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Last year, the world’s most populous country faced a shortage of about 19 million urban housing units, a number expected to double by 2030, according to government estimates.

“The robust growth in construction has significantly contributed to economic growth—and is likely to play the same role in the next couple of quarters,” notes Sunil Sinha, an economist at India Ratings and Research, an arm of Fitch.

Builders express long-term optimism, with many anticipating the boom to last two to three years, and some even more sanguine, suggesting the housing market could perform well for another three to four years. According to Sanjeev Jain, Managing Director at Parsvnath Developers, India is in the initial stages of a housing growth cycle.

In the country’s seven largest cities, including Mumbai, New Delhi, and Bangalore, home sales surged 36% to over 112,000 units in the July–September quarter compared to the same period last year, despite an 8–18% increase in prices, according to real estate consultant Anarock.

Prashant Thakur, Head of Research at Anarock, notes that the surge in home sales is driven by first-time buyers, with nearly 80% of the houses purchased by end-users. There is also strong demand from existing homeowners looking to move into more spacious apartments.

Demand remains high in Mumbai, even with an approximate two percentage point increase in interest rates, according to Jayesh Rathod, Director of Guardian Real Estate Advisory.

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Notably, salary increases in major industries have been a driving force behind demand, with average increases above 10% for the second consecutive year, according to EY estimates. A Reuters poll predicts that home prices in India will grow faster than consumer inflation in 2019.

Construction companies report a significant surge in housing demand in smaller cities in southern states like Tamil Nadu, Karnataka, and Gujarat. Worker migration from rural areas and income increases are attributed to this growing demand.

Government initiatives, including subsidies, aim to increase the supply of affordable housing, fostering development in India’s smaller towns and cities.

Unsurprisingly, real estate company stocks have surged, with the Nifty real estate index rising by about 67% and notable gains for companies like Prestige Estates Projects, DLF, and Godrej Properties

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