Diaspora gives wings to India luxury housing boom

Selling dreams. India’s diaspora is fuelling a property boom in the world's fifth-largest economy. New launches of luxury homes by saleable area in the top seven cities hit 231 million square feet in the year through March, up 48% year-on-year, according to ICRA, a credit ratings agency. Average prices of luxury homes in places including New Delhi, Bengaluru, and Chennai jumped 18% in the three months to end June. It's a helpful tailwind for GDP growth.

After a decade-long slump in the housing market through 2019, real estate is hotting up again as an investment choice including for ultra-high net worth individuals. Since the pandemic, consumers also prefer bigger homes. Plus landmark regulation introduced by Prime Minister Narendra Modi 's government calls for timely project delivery and is restoring the confidence of everyday buyers.

Non-resident Indians are emerging as an especially strong source of demand; they will be the source of 20% of overall primary sales by 2025, up from 10% in 2019, according to NoBroker. The appetite of these buyers looks robust: they have a strong emotional connection to their motherland and plan to use the properties in the future, notes the technology-led real estate services firm.

The frenzy has put stocks of top developers in India into overdrive. Shares of $24 billion DLF, the largest listed real estate company in India, soared 57% in the past one year and those of Macrotech Developers - part of the Lodha group – jumped 53%. Over that period, the Nifty Realty Index has outperformed the broader Nifty 50 benchmark by 47 percentage points. Investors this week placed bids worth $39 bln for the initial public offering of Bajaj Housing Finance, a mortgage lender focusing on well-heeled borrowers. By contrast, new launches of affordable property are stagnating as overall consumption in the economy remains subdued.

The luxury boom, and non-resident Indian purchases, matter because property is an important source of overall investment - which accounts for about a third of GDP . Private real estate demand, including for dwellings, was leading the uptick in investment, more than public capital expenditure, HSBC economist Pranjul Bhandari pointed out in a research note in March.

India’s blistering economic expansion is starting to moderate; GDP growth slowed to 6.7% in the April to June quarter. Demand for luxury housing is easing to a less frothy pace too: new launches will rise about 27% year-on-year in the current financial year, per ICRA. Overseas Indians will remain important buyers, however. They send remittances to the country and answer official calls to purchase diaspora bonds, issued by the government at times of crisis. Now they are flattering investment too.