_India's Resilient Real Estate Market Amidst China's Real Estate Woes: A Comparative Analysis

Despite China's real estate troubles causing economic ripples, India's real estate thrives due to congenial economic conditions.

Gulam Zia November 02, 2023

India's Resilient Real Estate Market Amidst China's Real Estate Woes
A Comparative Analysis

Evergrande and Country Garden's financial troubles have rocked China's real estate market. Evergrande's 2021 default sent shockwaves, and now, Country Garden is facing scrutiny over offshore debt. Amid this, India's real estate sector is thriving, with a recent surge in real estate stocks. Can India's market sustain this momentum and outperform China?

China’s Real Estate Challenges

Chinese real estate developers, responsible for almost 40% of home sales in China, have grappled with a significant issue of defaulting on debt since 2021. They've defaulted on over $114.6 billion of the $175 billion in outstanding dollar bonds. Factors include the ongoing COVID-19 impact and government regulations to control financing methods. These measures aimed to maintain financial stability and control property price surges, limiting funding options for developers.

Country Garden, a significant player in the ongoing financial turmoil, with $191.7 billion in total liabilities and 3,100 real estate projects, nearly four times more than Evergrande. A potential default could disrupt the real estate supply chain, impacting suppliers and contractors, leading to a domino effect on construction and home deliveries. This comes as buyer confidence wanes, and prices in tier-two and tier-three cities fall, indicating a housing market slowdown despite China's post-lockdown recovery. Chinese homebuyers have lost confidence due to incomplete projects and lax regulations allowing developers to redirect funds from escrow accounts. China's real estate sector accounts for about 30% of its GDP, while India's contributes only around 7%.

India’s Resilient Real Estate Market

India's real estate sector is currently valued at $477 billion, making up 7.3% of the economy. Projections foresee substantial expansion, reaching $5.8 trillion by 2047, contributing 15.5% to the total economic output. This growth is driven by increasing demand for better living spaces due to rapid urbanization.

The crucial difference between China and India is the sustained demand from end-users. India's real estate sector has shown stable demand, even during economic downturns like the 2008 Lehman crisis. Challenges in India were more about developers overleveraging funds from homebuyers. China, on the other hand, faced difficulties with many builders struggling to make timely payments, worsened by limited access to funds due to the global economic situation.

India's real estate market is resilient, supported by the Reserve Bank of India's stable repo rates, the approaching festive season, increased housing demand, and positive Q2 business earnings from real estate firms.

RERA: Transforming India’s Real Estate Sector

A pivotal transformation in India's real estate sector is the implementation of the Real Estate Regulatory Authority (RERA), which has boosted transparency, regulation, and consumer protection.

Conclusively, India's real estate sector stands out due to its sustained end-user demand, allowing it to overcome obstacles. China faces significant challenges, while India's market is poised for growth, driven by urbanization. Lessons from past challenges and regulatory reforms have made India's market more resilient and consumer-oriented. The outlook for India's real estate sector is optimistic, making it better positioned for stability compared to China’s counterparts.