Andy Mukherjee: India’s property development market faces hard times as sales peak and funds run thin

Subscribe to enjoy similar stories. With markets from Tokyo to New York on edge this week, the warning sign flashing around a large Mumbai builder didn’t get much attention. But Indian investors were keeping a close eye.

When Oberoi Realty missed analysts’ forecasts for sales and profit and posted a smaller operating margin in its residential unit, there was a stampede out of Indian property stocks. Unease with real-estate developers in India has been growing for some time. The BSE Realty Index is down more than 30% from its peak in June 2024.

Last week, though, the sense of foreboding deepened. And the reason for that goes back to the stock market. When the economy reopened after the pandemic, retail investors’ financial portfolios were stuffed with hefty gains from the previous two years.

As some of that wealth began to chase new homes, builders’ stock prices zoomed. And they responded by buying up land at crazy prices and launching a flurry of new projects. The market saw their bulked-up balance sheets as a sign of confidence—and rewarded them with still higher valuations.

Then the music stopped. The froth in equity valuations became a drag on investor returns. With white-collar wages battling the combined threat of artificial intelligence (AI) and geopolitical uncertainty, affordability became a concern for the middle class.

It’s only India’s extreme wealth inequality that kept the market propped up last year. Buyers of homes priced above ₹10 crore did most of the heavy hitting, especially in large urban centres like Mumbai. However, nationwide sales growth has peaked and developers are feeling the pinch.