India’s construction sector grows and spurs the economy

In the third quarter of 2023, the construction sector grew by 13.3% on the same period in 2022, while forecasts for the whole 2023 reveal a robust 9.6% real-term expansion.

In contrast to Western economies which have been squeezed by high interest rates and energy prices, India is in the midst of a huge housing boom. The construction sector grew by 13.3% in July-September 2023 compared to the same period in 2022 and by 7.9% compared to the previous quarter, driving up the country’s GDP. In general, there was a 24% increase in new residential projects being launched. Forecasts for the whole 2023 reveal a robust 9.6% real-term expansion.

The long-awaited boom - which has created millions of jobs - comes after about six years of debt and pandemic-induced downturn and is driven by rising per capita income, a severe housing shortage in big cities and strong population growth. The world’s most populous nation had an urban housing shortage of around 19 million units last year, and that is expected to double by 2030 according to government estimates.

Home sales in India’s seven largest cities, including Mumbai, New Delhi and Bangalore, rocketed 36% in the July-September quarter from a year earlier to more than 112,000 units, despite an 8%-18% increase in prices, according to real estate consultancy Anarock.

Estimates suggest that the housing market could continue to perform well for another three to four years. Based on a Reuters poll, property analysts expect growth to be driven by higher earners snapping up newly built luxury residences in cities. Housing demand has also picked up significantly in smaller cities in the southern states of Tamil Nadu, Karnataka and Gujarat, spurred by migration of workers from rural areas.

The government is also trying to boost the availability of affordable housing by providing subsidies, which is encouraging construction in India’s smaller towns and cities.