Pandemic Home-Buying Boom Marks Turnaround For One Of Asia’s Priciest Cities
People play cricket near a Godrej Properties Ltd. residential housing complex in the Chembur suburb of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Pandemic Home-Buying Boom Marks Turnaround For One Of Asia’s Priciest Cities

Before the pandemic, Mayank Vora, 34, and his wife were struggling to afford a one-bedroom apartment in one of Asia’s costliest cities. Now they are the proud owners of a two-bedroom home in a high-end residential complex on the outskirts of Mumbai they bought for 10.9 million rupees ($150,000).

“What was unaffordable a few years back is now our dream come true,” Vora said. “Everything fell into our budget this time.”

They’re not the only one jumping in. Home sales in the city, India’s commercial capital, jumped to an eight year high in October, according to data from Knight Frank.

The residential complex where Mayank Vora owns an apartment. (Photographer: Dhiraj Singh/Bloomberg)
The residential complex where Mayank Vora owns an apartment. (Photographer: Dhiraj Singh/Bloomberg)

It’s an abrupt turnaround for a market that’s spent three years in the doldrums after a prolonged shadow banking crisis strangled access to credit. At the end of June, prices in Mumbai were 0.45% lower than the same quarter in 2018, according to data from the central bank.

India isn’t alone in seeing a resurgence in property despite the grim economic backdrop — the likes of New Zealand and the U.K. have also seen prices jump. Rather than worrying about the prospects of a bubble though, in India authorities are grateful for the rebound.

With millions out of work, a resurgence in house sales and corresponding increase in building could boost output everywhere from banks to builders to consumer goods factories. Construction creates the most jobs in India each year.

Residential Rebound
Mumbai home sales are surging as easier credit boosts confidence

Source: Knight Frank Research, Department of registrations and stamps, Government of Maharashtra  
Source: Knight Frank Research, Department of registrations and stamps, Government of Maharashtra  

Already financiers are getting in on the act. Post-pandemic, mortgages are back in vogue among executives who see property loans as a relatively safe asset in a country where owning a house is a symbol of security and defaulting on loan repayments is a social taboo. Bad loans overall at the nation’s banks are estimated to swell to a two-decade high of 12.5% of credit by March.

Also read: Banks Pin Hopes on India Festival Season With Retail Loan Boost

Home loans grew 2.6% between April and October, even as overall loans shrank 0.5%, according to the Reserve Bank of India.

An advertisment for real estate develop Ashar Group in Thane on the outskirts of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
An advertisment for real estate develop Ashar Group in Thane on the outskirts of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

ICICI Bank, India’s second-largest private lender, wrote a record value of home loans in October and new players are also jumping in.

Godrej Housing Finance, a new unit of the Indian conglomerate that manufactures industrial and consumer goods as well as building homes, launched its mortgage offering last month with the lowest rates in the industry. It aims to have a loan book of 100 billion rupees in the next three years, according to Chairman Pirojsha Godrej.

“People who were on the sidelines have now taken a call to buy”

This easier credit means buyers are finding their money is going further. The combination of interest rates at a 16-year low, price discounts and tax reductions in some regions means affordability across India’s 10 biggest cities has improved as much as 35% compared to five years ago, according to CRISIL Ratings, the local arm of S&P Global Ratings.

Downhill Ride
Lending rates are at 16-year low, making home buys more affordable

Midpoint of lending rates charged by five major banks

Source: Reserve Bank of India NOTE: Data as on September 5, 2020  
Source: Reserve Bank of India NOTE: Data as on September 5, 2020  

“People who were on the sidelines have now taken a call to buy,” Mohit Malhotra, Chief Executive Officer of Godrej Properties, the second largest listed developer, said at a recent industry event. “Prices have bottomed out.”

Adding to the attraction of property is a general inflation rate of 7% which, if wages in key sectors keep up, offers the prospect of substantially eroding the real value of people’s debt.

Developers in top cities are also offering incentive schemes including delayed payments, free amenities, festival discounts, rent guarantee and absorption of state tax. Taken together, these typically knock between 5% and 15% off the effective price, Anarock Property Consultants Pvt Ltd. estimates.

A Godrej Properties Ltd. development in the Chembur area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
A Godrej Properties Ltd. development in the Chembur area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Of course buying a property in the pandemic isn’t for the faint-hearted. India’s economic recovery will depend on whether it manages to prevent a renewed wave of the virus taking root in the major cities and how it manages the complex task of vaccine rollout across the vast nation. India has the second-highest number of Covid-19 cases globally after the U.S.

For now though Vora couldn’t be more pleased with his decision. He got a festival bonus and also expects a salary increment in March. Cheaper prices and credit also meant he had to use less of his saving than anticipated to buy the property, leaving him with more of a buffer.

“We took a calculated risk and it has paid off,” Vora said. “The pandemic has come as a blessing in disguise for home buyers like us.”

— With assistance by Jody Megson

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