Indian real estate is going against the global tide

  • Indian house prices grew sub-5% in 2021, amidst post COVID recovery, bucking the global boom in home prices
  • Government policies, banking sector deleveraging and COVID had driven a decade long slump in the sector
  • The nascent recovery in demand during the pandemic may now be threatened by rising input prices, property sector deleveraging and the eventual rollback of regulatory easing

Indian real estate has bucked the global trend of booming house prices during COVID. According to the Reserve Bank of India (RBI), house prices grew sub-5% y/y in 2021, much lower than the global house price increase of 10.3% as per Knight Frank research.

Prior to COVID, India’s real estate market had been undergoing a slowdown stoked by government policy decisions and banking and property sector deleveraging. After the Delta wave subsided in H1–2021, there were nascent signs of recovery in house prices given the demand for spacious homes. However, rising input prices and regulatory rollback may halt the nascent signs of recovery.

Government policies drove a slowdown in the real estate sector since 2013:

In the first tenure of the Narendra Modi government, policy measures were introduced to clamp down on property market speculation by diminishing the tax incentives on rental homes and curbing black money transactions. In December 2016, the government shocked the country by announcing the demonetization of 500- and 1000-rupee notes in order to curb corruption, counterfeit currency and terror funding. The real estate sector took a hit as cash is an important means of financing home buying. Housing sales plummeted and stressed balance sheets drove many developers to bankruptcy.

Since 2015, India’s banking sector has been undergoing a painful deleveraging process to identify and resolve non-performing assets. This clean-up, though necessary to resolve bad debt, detrimentally impacted bank lending and hit loans towards housing and commercial real estate.

India bank loan growth (y/y)

Credit disbursal plummeted when banks began deleveraging in 2015 and again after the shadow bank crisis in 2018. This hurt growth and property demand.

Thereafter, in September 2018, IL&FS, a systemically important shadow finance company defaulted and triggered a chain reaction. This episode stoked severe risk aversion in the banking sector and drove a growth slowdown in the country, affecting the real estate sector as well.

India quarterly GDP growth (y/y)

GDP growth slowed post the shadow finance crisis as several lenders defaulted and stoked risk aversion in the banking sector.

As the economy started recovering from these successive shocks at the beginning of 2020, the pandemic hit. The government announced a nationwide lockdown between 25 March and 31 May, that resulted in a 24.4% decline in the GDP in calendar Q2–2020! House prices, much like the rest of the economy, took a hit during this period as activity came to a stand-still.

House price inflation has been subdued since 2013 due to government policies, banking sector deleveraging and the pandemic.

These successive policy actions kept house prices depressed through the last decade. Following the delta wave, home prices were recovering with the rising demand for spacious homes and salary hikes enjoyed by service sector workers.

However, input cost inflation, property sector deleveraging and the rollback of regulatory measures may keep home prices depressed.

Elevated input prices may choke the nascent demand recovery:

The delicate recovery in housing demand after the second wave of COVID may be threatened by the broad-based rise in input prices such as oil, steel, cement, bricks and sand due to global commodity shortages. Several developers in New Delhi and Mumbai are now threatening to halt construction activity as higher input prices are turning projects unviable.

Surveys conducted by suggest that home buyers are seeking flexible payments and discounts to pull the trigger on buying a house, indicating the price sensitivity of the home buyer.

Property developers are undergoing consolidation:

India’s property developer sector has undergone a significant consolidation, amidst a weak real estate market and distrust among home buyers. Instances of incomplete or delayed property construction and foul play by indebted developers drove this buyer distrust as well as a pileup in unsold inventory over the past few years. Weak demand and stressed balance sheets led many developers to close shop and shrank the number of participants in the sector. Developers are now focusing on volume growth rather than price appreciation, to maintain cash flow and continue deleveraging.

Regulatory easing will soon be rolled back:

Amidst the dismal economic performance during COVID, the government announced regulatory measures to boost consumer sentiment and demand for housing. These included stamp duty cuts and discounted registration fee to encourage home buying. Although these measures helped spur demand at the margin, the rollback of such policies in the coming months will likely dent the propensity to consume.

These headwinds indicate that the nascent signs of recovery in the Indian housing market may be short lived.

Check out my posts on macroeconomic developments and their impact on the financial market at! I teach a course on macroeconomics for foreign exchange on Skillshare.



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Meher Anand

Meher Anand


Macroeconomist and financial market strategist. Check out my latest course on applying macroeconomics to the equity market