October 10, 2023

Role of China in Indian real estate market

The real estate market in China, among the largest in the world, has been in free fall for a while, with property sales dropping by 60 per cent at a conservative estimate. The crisis was exacerbated by the Chinese authorities clamping down on excessive borrowing by developers, coupled with the pandemic-induced slump.

On the flip side, the Beijing’s enormous stimulus to prop up the economy also found its way to the real estate market, leading to a serious supply overhang, corroborated by an IMF (International Monetary Fund) report. This has forced many investors to turn to overseas markets instead.

China’s loss is India’s gain

China’s loss could well be India’s gain. A large number of these investors are in fact looking at the Indian market, which is sure to have an incremental effect on the Indian real estate market. With increasing consumer spending leading to further augmentation in urbanization and infrastructure, the demand for both residential and commercial real estate in India is on the rise, as opposed to the China scenario.

The fundamentals of the Indian real estate market are intrinsically stronger than those of China. India is only second to China in the quantum of steel production. Besides, with the Chinese realty market crumbling, commodity prices will slide, boosting the Indian market, which is anyway more resilient and stands to benefit massively from the Chinese meltdown.

While there is a definite buoyancy in the Indian real estate market at this juncture, the government must work in tandem with the developers to ensure a right balance between growth and sustainability so that the market doesn’t become overheated. There should be some semblance of equilibrium between the demand and supply sides.

Lessons from China

For the Indian real estate developers’ fraternity, it’s important to take heed of the China syndrome and shore up strategies so that they can cut financial risks substantially and thus, steer clear of potential pitfalls.

The movement of property prices in the two countries is another indicator of the widening chasm in market health. While the average price of a new property in China’s 70 largest cities fell by 1.6% annually in October last year according to the National Bureau of Statistics of China, a Reuters poll confirms that real estate prices in India will look north by 6% this year and next year. Market analysts predict the demand for real estate to spike by 15 to 18 million sq ft by 2025.

A leading industry expert feels the fall in prices of steel, aluminum and copper would work in favour of the Indian realtors. He adds that India has witnessed significant rise in the demand for housing, data centres and warehousing space in the wake of the pandemic. This is sure to lure big investors away from China to the Indian real estate market, he is confident, resulting in “billions of dollars of fresh investments”.

Yet another market analyst feels, rules and regulations governing the real estate industry as well as investment instruments should be nimble and not shaped by “mindless social norms” so that that the developers and investors are not scalded and the market doesn’t collapse. Also, in today’s VUCA (volatile, uncertain, complex and ambiguous) world, it is prudent to be patient and not take needless risks that could plunge the market into a crisis.

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