New Delhi: China’s skyline once gleamed with towering apartment buildings, symbolizing prosperity and growth. But behind the shine, serious issues were brewing. Excessive debt, ghost towns filled with empty homes, and a focus on speculation rather than real demand led to a major property crisis.
Today, as China grapples with alarming economic challenges, the focus is shifting to countries like India. Can India learn from China’s mistakes, or are there warning signs already appearing? To get insight on this issue, we spoke with Santhosh Kumar, Vice Chairman of ANAROCK Group.
Structural Issues in China
Santhosh explains that China’s crisis arose from a mix of overbuilding backed by the state, risky presale housing schemes, and skyrocketing land costs. Although land prices rose 17% annually, home prices lagged at just 9%. When demand dropped, local governments faced fiscal woes, relying on land sales for up to 40% of their income. Additionally, a demographic decline that started in 2022 deepened the crisis.
The Importance of Real Estate in Growth
Real estate has been a massive part of China’s economy, accounting for up to 29% of its GDP at one point. Households invested around 70% of their wealth in property. However, the situation unraveled in August 2020 when the government limited developer borrowing with its “Three Red Lines” policy. This left everyone—developers, local governments, and families—overexposed.
Failure of Stimulus Measures
Even stimulus measures have failed to restore confidence in the market. Santhosh points out that the problem is structural. With a staggering 762 million square meters of unsold homes, buyers are wary after many developers, including Evergrande, defaulted on properties they had already sold. So, demand stimulus often attracts only marginal buyers, especially as the population shrinks.
Parallels with India’s Market
Santhosh identifies some similarities between China before its crisis and India’s current real estate scene. Both are seeing fast price increases and growing developer concentration. However, India’s market has different structural features. For instance, there’s less pressure from presales, and land is often privately owned.
India’s Real Estate Overview
India’s real estate demand is largely driven by end-users rather than speculation. With an urbanization rate of 36%, many people are expected to move to cities over the next two decades, creating a steady need for housing. Unlike China, India has not built in anticipation of a population decline.
However, there are signs of trouble. In some areas like the National Capital Region (NCR), prices have surged by 19% over the past year, while in Hyderabad and Bengaluru, they rose by 13% and 12%, respectively. Yet, inventory is piling up, with Delhi-NCR holding a 19-month supply.
Unsold Luxury Inventory and Affordability
There’s a growing concern about unsold luxury properties. Data shows a stock of over 509,000 unsold units, with the affordable housing segment shrinking significantly. Developers are increasingly focusing on higher-end markets, leaving many potential buyers out of the loop.
Risks of a Market Correction
While a full-blown collapse like China’s seems improbable, a significant correction could still happen if global conditions worsen. Areas like Hyderabad and the luxury market in NCR could be especially vulnerable.
Indicators to Watch
Santhosh highlights critical signals for investors and policymakers to monitor. A city or segment holding onto inventory for more than 18 months could indicate rising stress. Declining demand for affordable housing, coupled with rising home loan costs, adds pressure on prospective buyers.
Keeping a close eye on such indicators can help stakeholders navigate the complex landscape of real estate in India.
For more details on these trends and what they mean for the future, you can refer to market reports from trusted sources like the ANAROCK Group.
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ANAROCK GROUP, SANTHOSH KUMAR ANAROCK, CHINA PROPERTY CRISIS, INTERVIEW AITH VICE CHAIRMAN OF THE ANAROCK GROUP SANTHOSH KUMAR INDIAN PROPERTY MARKET
