FCC

The state of the real estate sector in India

2023-02-25

The real-estate sector is a key component in any thriving economy. The impact of real estate on the overall economy can be clearly understood when we take a look at any nation’s growth story. Against the backdrop of the COVID-19 crisis, global economies took a hit. In the face of this disaster, the Indian real-estate sector remained largely resilient and bounced back once the pandemic was over. However, recent developments, including the global housing crisis and the layoffs by big tech, have investors worried.

China's rapid economic expansion was largely because of its housing boom. However, the property market, which accounts for about a quarter of China's GDP, is experiencing delayed growth. The IMF, too, has pointed out that China’s real-estate crisis isn’t over yet. Consequently, it will have a significant impact on the country’s economic growth. Likewise, a number of reports from the West have painted a very gloomy picture for the real-estate sector. As a result, real-estate investors in India are a worried lot. However, it is essential to understand that Indian real estate is not in a precarious situation so far, and much of this gloom and doom is related to how individual governments managed the COVID-19 crisis.

“In the US and Europe, the governments doled out a huge quantum of fiscal stimulus,” says Vivek Rathi, Director, Research, Knight Frank (India). “In the US, it was as high as 10 to 12 per cent of the GDP. When it comes to India, even during those times, fiscal stimulus stood at about 1 per cent of GDP. Credit extended to creditworthy borrowers stood at 5 to 10 per cent; the NPA risk the Government was willing to take stood at 2 to 5 per cent. So, when the effect of inflation came into play, inflation levels abroad shot up to from 2 per cent to 9 per cent whereas in India, it touched 8 to 8.5 per cent; this is something we have been exposed to in the past...