India's Real Estate Sector Set for Sustained Growth Over Next 3-5 Years: UBS Report

Real Estate Sector is experiencing the lowest inventory overhang in 15 years

According to a recent report by UBS, India’s real estate sector is poised for significant growth, entering a “sweet spot” driven by a combination of favorable factors. The report outlines a positive outlook for the residential sector, supported by record-low inventory levels, strong affordability, supportive regulations, and increased consolidation among developers.

Key Drivers of Growth

The UBS report identifies several tailwinds contributing to the robust outlook for the Indian property market. These include:

• Record Low Inventory: The sector is experiencing the lowest inventory overhang in 15 years, expected to drive demand.
• Strong Affordability: Despite recent price increases, the affordability index is at its highest level in 15 years, making housing more accessible to buyers.
• Interest Rate Trends: A potential shift in the interest rate cycle could further enhance affordable housing options.
• Developer Consolidation: The share of top developers has increased significantly, rising from 7-8% to approximately 25% over the past decade.
• Regulatory Support: Strong regulations such as the Real Estate (Regulation and Development) Act (RERA) are in place to protect homebuyers.
• Demographic Factors: Increasing urbanization and the trend of nuclear family formations are also expected to drive demand.

UBS forecasts a 15% compound annual growth rate (CAGR) in residential pre-sales between FY24 and FY29, contrasting sharply with the decline observed in the pre-COVID years. The report emphasizes that India’s housing market is better positioned structurally compared to other global markets during their peak years, benefiting from favorable demographics, low household debt, and improved affordability.

Comparison to China’s Property Boom

The report draws parallels between India’s current macroeconomic scenario and China’s early 2000s, a period that marked the beginning of a prolonged property boom in the latter.

In addition to the residential sector, commercial real estate is also rebounding as work-from-office trends gain traction and global capability centers (GCCs) expand. Favorable regulatory changes have further bolstered this segment. UBS projects a 26% topline CAGR for the commercial segment from FY24 to FY29, making it an attractive area for developers willing to invest upfront in projects to secure high-margin annuity income.