India’s Housing Market Is Booming. What’s Driving the Big Gains.

India is on a roll. Its economy is thriving, its population is growing, and real estate has become an obsession for an increasingly wealthy population looking for new homes in a very hot market.

No place is hotter than Mumbai, India’s largest city. These days, it often feels like a construction zone, with a maze of dug-up roads every half-mile. Parks are hard to find, but many streets are filled with a line of buzzing restaurants, stationery shops, cafes, and sometimes an overwhelming line of fish sellers.

The exception to the chaos is South Mumbai—known as the city’s SoHo. It’s home to old, iconic British-era bungalows alongside luxury stores and the boutique shops of Bollywood’s biggest designers. Rickshaws aren’t allowed, large towers rise to the sky, and there is even open space, something lacking in much of the rest of the city, where older buildings are squat and look rundown. But even that is changing, as newer ones push higher where big builders have consolidated properties and broken ground on modern apartment complexes.

It’s there that Shivangi Chaturvedi, a 32-year-old video producer and crochet artist, lived in rented apartments with her family for over a decade. They wanted to own a top-floor unit, but the money just never added up. That changed in August, when a vacant property they owned in a far-off town sold for nearly $110,000, Chaturvedi got approved for a $100,000 loan by HDFC bank, and a 15th-floor apartment opened up in Mumbai’s solidly middle-class Kandivali neighborhood, home to many of their friends. By March, they had the keys to a new 2.5-bedroom unit.

“We had just accepted the fact that we’re not going to be able to afford a house in this area,” said Chaturvedi, now a first-time co-owner. “But so many things worked out right.”

Chaturvedi is just one of many middle-class Indians navigating an increasingly active real estate market, where financing, patience, and a little luck are needed to find a new home. It is emblematic of both India’s promise and its problems. The country is booming—its economy grew at an annualized rate of 8.4% in the final months of 2023—juiced by a strong technology sector that has boosted wages for the middle class and the affluent. India’s recent attraction as a manufacturing hub for companies looking to diversify out of China has also helped. The rapid increase in wealth has created an environment ripe for spending on anything marketed as luxury—but also one where less affluent citizens are being left behind. It has also boosted the stocks of builders and construction companies listed in India.

In the past, the housing market was loaded with debt, and smaller developers would often divert money among projects—and then fail to deliver the promised apartments. The introduction of the Real Estate Regulation and Development Act, or RERA, in 2016 brought some structure to the chaos. A new tax mechanism and the limits placed on the circulation of paper currency also facilitated the move away from “black money” and standardized taxation across different states.

“In the past six to seven years, we have seen a complete shake-up and cleanup of the Indian real estate market,” says Anuj Puri, chairman of property consultancy Anarock.

Now, sales are booming, with some 86,345 units sold in eight major cities during the first quarter of 2024, nearly the most in six years, according to Knight Frank India data. That’s on pace to beat out 2023, when 330,000 units changed hands, the most in a decade. Prices have risen 26% since 2020, according to Anarock, creating an environment where DLF, a top builder, can say its unbuilt luxury high-rises sold out in 72 hours in January and nobody bats an eye.

Mumbai is at the center of the action. In the latest quarter, 23,743 units were sold, up 17% from last year and the most of any city in India. Real estate in the country’s financial capital is driven by purchases of higher-priced apartments, which more than tripled in the city. That’s a far cry from New York City, where 7,904 homes sold in the first quarter, down 11% from a year ago, according to StreetEasy. In Mumbai, those sales have been accompanied by new transit systems, airports, and more sea bridges being built, despite some of the world’s worst air pollution.

Mumbai “is in the middle of a massive infrastructure boom,” says Siddharth Jain, deputy portfolio manager at GQG Partners. “We think people are underappreciating what is happening.”

Mumbai isn’t alone. In India’s quickly urbanizing cities, including Delhi and its districts, Bengaluru, and Hyderabad, sales of luxury property—defined as houses costing more than $480,000—rose an average of 75% in 2023 from a year ago. Luxury sales accounted for just 4% of overall sales last year but doubled from the prior year. Meanwhile, affordable housing, with costs under $54,000 a unit, is at its lowest level in 10 years at 19% of overall sales, according to real estate consultancy group CBRE India.

Bengaluru, India’s Silicon Valley, is among the world’s fastest-urbanizing cities. Once dubbed the Garden City, it has seen a 1,055% surge in new roads and concrete structures over the past five decades, resulting in the loss of green cover and lakes, and a water shortage. North of Bengaluru is Hyderabad, where Micron Technology has set up design centers to develop hardware components—DRAM and SSDs—contributing to the artificial-intelligence boom. The city houses over 11 million people and hosts Google, Goldman Sachs, and Amazon.com’s largest-ever campus, offering stiff competition to Bengaluru.

The growing luxury real estate market in the developed cities is also a stark reminder of deepening inequality in India. Indians earn about $2,100 a year on average, and the country is home to the world’s largest number of poor people. Even college graduates are having a tough time, with more than 40% under the age of 25 estimated to be unemployed. The upper strata, by contrast, has benefited, with the richest 1%—some 9.2 million people—now earning a record 22.6% of the nation’s income, among the highest ratios in the world. The entry of big global wealth managers and private-equity firms over time has produced more millionaires in Mumbai than there are in Rome, and builders say they are seeing demand from young buyers whose earnings capacity has increased.

But it isn’t just tech and high finance that are helping to spur sales of new homes. The weaker Indian rupee has helped international buyers who are inclined to have stronger ties with their homeland. India, which is the world’s largest recipient of funds from migrants, received $125 billion last year, up about 12% from 2022. DLF says that Indians residing abroad now account for 20% of its net sales versus 5% two years ago. Among them was 29-year-old Tejal Kunhipurayil, who relocated to Hong Kong for a financial-technology role. One of her goals was to earn a higher salary so she could buy a house for her family, she says. She was successful. Earlier in April, her family officially moved out of their cramped one-bedroom home that often lacked running water for a newly renovated two-bedroom apartment in a gated community near a lake and temple.

India’s real estate surge is also helping stocks of developers constructing them. The biggest names—DLF, Macrotech Developers, Godrej Properties, and Oberoi Realty—gained 84% in 2023 using a market-cap-weighted composite index, outpacing the Magnificent Seven’s 76%, while the S&P BSE Realty index, which tracks the performance of India’s publicly traded real estate companies, has risen 125% in the past 12 months.

DLF, valued at $27 billion, has also gained 125% in the past year, spurred by high-ticket launches and its best quarter for advance sales. The stock can be found in the iShares MSCI India and Goldman Sachs ActiveBeta Emerging Markets Equity exchange-traded funds. The iShares fund also owns Macrotech, formerly known as Lodha. With $14.7 billion in market value, Macrotech dominates Mumbai, India’s most expensive real estate market. Its stock has gained 160% over the past year.

India’s banks, including HDFC Bank and State Bank of India, might also benefit from the demand for real estate, especially as interest rates are expected to decline this year. But competition from the country’s many shadow banks could limit the upside in the stocks. Building material company UltraTech Cement, among the world’s top cement manufacturers, is another obvious beneficiary, though much of the sentiment on the stock is driven by broader government infrastructure spending, says Siddhartha Khemka from financial advisory firm Motilal Oswal Financial Services.

Experts say India’s real estate market has legs at least for the next year or two. For U.S. investors, the simplest way to play the real estate boom would be through broader exposure to the market with the iShares MSCI India ETF or the WisdomTree India Earnings ETF, the biggest funds with expense ratios under 1%. (For more on investing in India, see this week’s Funds column.)

It isn’t the most targeted approach, but it allows investors to benefit from India’s growth, of which real estate is only one part.

Write to Karishma Vanjani at [email protected]