Empty quarter: a motorcyclist rides past an unfinished development at Greater Noida, near New Delhi © Stephanie Findlay

On the highway to Greater Noida, a sprawling extension of India’s capital city New Delhi, a stretch of unfinished apartment buildings runs for kilometres, the empty shells testament to a property slump that is being prolonged by the coronavirus pandemic.

Vinod Kumar, one of more than 200 construction workers waiting on the kerb to be picked up for a day’s work, says that hundreds of buildings are in limbo. Daily labourers like him are working just 15 days in the month, down from 20 before the pandemic hit.

“Our wages have gone down,” says Mr Kumar, wearing a black face mask and a faded brown shirt. “We go to work yet we come back empty-handed.” 

The fortunes of the workers reflect the deep malaise among India’s property developers, who binged on a lending spree that ultimately crashed five years ago and contributed to a crisis in the country’s financial sector. 

Today, apartments worth Rs2.8tn ($38bn) are “stranded”, meaning they are still under construction and not being completed, jeopardising loans worth Rs1.2tn ($16bn), according to a recent report by investment researchers Kotak Institutional Equities. 

From boom to bust. . .

India’s real estate turmoil was years in the making. A decade ago, when the country was one of the world’s fastest-growing large economies, developers took loans from non-bank lenders and private equity firms to launch building projects that would cater for a booming middle class. 

Many flats were sold to homebuyers before they were built. When such “off-plan” sales were at their height, between 2010 and 2013, 400,000-450,000 new residential units were launched every year. This was more than three times the number from just five years before, leading to an unprecedented build up in inventory. 

The bubble popped after a series of events put massive pressure on developers, some of which were already struggling to complete projects that off-plan purchasers had already paid for.

One was the introduction of the Real Estate (Regulation and Development) Act in 2016, which sought to protect people from widespread malpractice in the sector, including delivery delays and multiple bookings for the same property. 

Then came demonetisation, when the Indian government made the sudden decision in late 2016 to ban high-value banknotes to fight corruption, and the introduction of a new goods and services tax regime in 2017. Both reforms squeezed the amount of black money circulating in the property sector, severely restricting liquidity. 

Finally, the collapse in 2018 of the country’s biggest non-bank lender, IL&FS, led to funding for new projects drying up as non-bank financial institutions — a key source of credit for property developers — came under scrutiny.

The combination of new regulation with a broad economic slowdown in India has landed one-third of developers with ratings below investment grade, says the Kotak report, adding that “Covid-19 induced disruptions have dealt another crushing blow”. 

“These events broke the back of a lot of developers, they couldn’t service their debt, that’s the story of the real estate sector,” says Samir Jasuja, chief executive and founder of PropEquity, a real estate analytics firm. 

Hundreds of thousands of people are waiting for their investment to materialise, says Mr Jasuja. “I'm one of them,” he admits. “I bought a flat in Bombay that hasn’t been delivered in the past seven years. There is nothing you can do except wait and watch and hope the developer doesn’t go under.” 

The slowdown in the property sector, which contributes around 6 per cent of India’s GDP and is a significant source of employment, led to 421 real estate developers filing for bankruptcy in 2019 — twice as many as in 2018. 

. . . and back again?

However, there are signs that consumers are looking to buy from developers with strong balance sheets and that appetite is growing for flats that are ready to move into. 

Measures introduced by the Reserve Bank of India in October to make home loans cheaper may bolster that appetite, but analysts warn that it will take years for the market to recover because of the pandemic.

Chart showing that India's property sector could start to recover after 2021

“[The measures] will make a difference at the margins and help push up demand,” says Madan Sabnavis, chief economist at CARE Ratings. “[But] housing is the only sector that shows promise — commercial real estate is down as people work from home.” 

Launches from developers perceived as being in good financial health, such as Sobha, are seeing signs of a revival, though sales are “substantially below peak sales”, according to real estate analyst Amit Agarwal at brokerage Nirmal Bang in a recent note.

The commercial market has been hit particularly hard by the pandemic. Entire office blocks in the New Delhi area and the country’s tech hub of Bangalore have “for sale” signs plastered on their windows, as companies ask employees to work from home while coronavirus cases continue to rise. 

Yet some private equity firms have concluded that this is the right time to scoop up office space. 

Canadian asset manager Brookfield plans to acquire 12.5m sq ft of offices and co-working spaces from developer RMZ Corp in a deal valued at $2bn, RMZ statement said last month. Private equity firm Blackstone, one of the largest owners of commercial real estate in the country, is also reportedly close to finalising a $2bn deal with Prestige Group. 

In Noida, however, the cranes over the buildings remain immobile. Mr Kumar and other workers may be in for a long wait before work picks up again. 

With additional reporting by Jyotsna Singh 



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