Opinion | India’s trend-defying property market is a sight to behold

Fourth, India is taking advantage of the geopolitical reshaping of supply chains as multinational companies seek to increase their resilience to future shocks. Asia’s third-largest economy is more open than China’s, with fewer curbs on foreign direct investment, particularly in the technology sector, “which means [multinationals] are able to participate more actively in India’s growth story”, Morgan Stanley notes.

Yet, it is the exceptional performance of India’s economy and its enormous potential that are driving sentiment in the property market. “There’s a gale of tailwinds. India has taken off like a rocket ship,” said Matthew Bouw, chief executive, Asia-Pacific, at Cushman & Wakefield.

The residential sector is leading the boom in real estate. According to data from JLL, sales in the top seven cities last year reached their highest level since 2008. The number of launches, moreover, also hit a post-2008 high, underpinned by strong and well-capitalised developers with solid track records.

Knight Frank notes a “significant shift towards premiumisation”, with the premium segment – home values over 10 million rupees (US$120,300) – the “stand-out performer” last year, enjoying sales growth of 33 per cent.

Although higher mortgage rates have increased affordability pressures as house prices continue to rise sharply, rates are still significantly lower than in the aftermath of the 2008 financial crash while household incomes are outpacing prices, providing a strong buffer.

Global trends in the property industry are being bucked more spectacularly in India’s fast-growing office market, which is being propelled by the country’s competitive advantages stemming from its large engineering talent pool, low-cost labour, infrastructure, and world-renowned information technology (IT) outsourcing sector.

According to CBRE, gross leasing volumes in nine leading cities last year reached 61.6 million square feet (5.7 million square metres), the second-highest level on record. Global capability centres – offshore units of multinationals traditionally focused on back-office services but now increasingly serving as innovation hubs – accounted for 40 per cent of leasing activity.

Indian cities offer occupiers much lower rental costs while institutional landlords are setting new standards and benchmarks for the sector. Rental values in the top seven cities are the lowest among the leading office markets in the Asia-Pacific region while green-certified buildings’ share of the grade A stock exceeds 50 per cent, data from JLL shows.

The development of a listed Reit market has acted as a catalyst for increased participation by domestic institutions in a real estate sector hitherto dominated by foreign investors. Earlier this month, Cushman & Wakefield and Nuvama Asset Management announced they had formed a joint venture designed to provide investment opportunities to domestic investors in Indian commercial property, with plans to launch a fund focused on prime offices.

The retail sector – which has been out of favour with investors in the US and Britain due to oversupply and the disruption to physical stores caused by the surge in online shopping – is also benefiting from far-reaching structural trends in India’s consumption-driven economy. According to JLL, 40 million sq ft of shopping mall stock is expected to be delivered in the top seven cities alone by the end of 2027. A quarter of the supply, moreover, will come from institutional landlords.

In May 2023, US private equity fund Blackstone launched India’s first shopping centre-backed Reit with best-in-class properties in 14 cities in a sign of the potential for further institutionalisation of real estate across the country.

Established developers such as Phoenix Mills operate investment-grade shopping malls in Tier 2 cities. “The market has made a distinction between who can run the show [in Indian retail] and who can’t,” said Vivek Rathi, national director of research at Knight Frank India.

Nicholas Spiro is a partner at Lauressa Advisory