The prolonged period of slowdown in the real estate sector has smashed the myth that luxury real estate, especially ultra-luxury real estate is recession-proof because most buyers/investors are HNIs — business barons, industry captains, corporate honchos with surplus funds. A weak economy, debt-ridden corporates, squeezed money supply and overall negative market sentiment over the last 2-3 years cast their shadow over luxury housing. The high salary executives segment, which was a significant consumer of luxury housing, has been adversely affected due to the poor job/salary scenario and high interest rates on home loans.
But with the downturn cycle having bottomed out, the real estate sector is now very much on the recovery path. Commercial office real estate has already registered recovery amidst higher sales and absorption and there are enough indications of residential real estate picking up though recovery is painfully slow, especially in the wake of a tepid start to the second half of 2016.
According to a recent report by global property consultancy Knight Frank, the first half of the year showed promise with sales rising 47 per cent in 8 major cities (1.35 lakh units). A Colliers International report also pointed to a recovery in residential real estate. It noted that after a significant drop in the last 8-9 quarters, top cities saw the launch of 24,000 new units during the second quarter of 2016 compared to the 17,462 units launched during the same period last year. In the first half, the total project launches numbered 42,000. While Bengaluru, Pune and Mumbai witnessed significant traction, NCR market (Gurgaon, Noida) remained subdued due to inventory overhang.
While this uptrend in residential real estate is largely attributed to affordable housing, there are signs of a turnaround in luxury housing as well. According to Q3’16 report by online property consultancy, the share of luxury project launches (Rs 1 crore and above) rose to 25 per cent of total residential launches — more than double the launches in the last quarter and highest in the last 10 quarters.
There are positive signs on the sales front as well. The recent launch of branded luxury residences by Bhartiya City in association with Leela Palaces Hotel saw 50 per cent of apartments getting sold in less than two months. Today, although demand from HNIs who purchase luxury homes for self use is still there, those from high salaried professionals has been hit due to an unstable economy. In the present scenario where safety of investment holds key in the backdrop of large-scale project delays, buyers are preferring ready-to-move or nearly completed projects. And in case of luxury homes, it makes better sense as there is not much price difference between pre-construction and post-construction stage, unlike in the case of normal residential properties.
In the wake of the slowdown, builders have come to realise that they need to offer properties with reasonable/affordable prices to high salaried professionals/upper middle-class buyers striving for upscale homes befitting global lifestyle. As a result the concept of affordable luxury has emerged. In a market where the word ‘luxury’ is used loosely, it is easier to fit in this concept. In a smart move, developers are taking to offering compact homes, with amenities and features that are a notch above premium housing. So much so, they have come up with the niche segment of affordable luxury senior homes.
Affordable luxury homes are comfortably and conveniently located (though not in central business district or CBD), and offer comparable luxury experience to meet the aspirations of upper middle-class buyers seeking to upgrade to superior lifestyle. Premium homes costing between Rs 1 crore and Rs 5 crore (depending on city, location and size) with additional features are now positioned as affordable luxury homes. The trend of home automation which was earlier restricted to high-end homes, is now becoming part of affordable luxury homes.
Among the metros, Chennai has been the first to address the city’s need for affordable luxury. In Mumbai, for those who want to upgrade to superior lifestyle, developers have come up with affordable luxury projects within their locality. In areas like Malad, Goregaon, Thane, Vikhroli, etc., both end-users and investors are capitalising on this trend. In Bengaluru’s prime localities of Indira Nagar and Koramangala, affordable luxury homes are available in the range of Rs 10,000-12,000 per sq. feet. Such affordable luxury homes are on offer in areas like Hebbal and Yelhanka too. Unlike luxury / ultra luxury homes that account for only a small segment of the total home market and are within the reach of only a select segment (HNIs), affordable luxury homes, on the other hand, are within the financial reach of a much larger section of homebuyers. It’s a win-win for developers who are not only able to expand their buyer base but also find higher sale velocity with shorter selling cycles.
Over the last decade, luxury homes have given more than 100 per cent annual returns on investment. A report by global property consultancy JLL says that during the post-Lehman slowdown, appreciation in luxury residential real estate was hit badly. The vibrant Gurgaon luxury market that commanded a year-on-year appreciation of 17.8 per cent in 2011-12, saw it plummeting to 1.1 per cent in 2015. But due to regulatory reforms, coupled with political stability and economic rejuvenation, investor sentiment / activity is set to pick up. The green shoots are already there in the form of double digit growth in luxury home market. Growth, however, is tepid in smaller cities where economic / employment activity is weak with lesser chances of wealth creation.
Location holds the key to appreciation of luxury properties. Proximity to mass rapid transport systems, educational and health institutions and shopping centres causes faster and greater appreciation in prices of such properties. In Bengaluru’s key locations of Hebbal and Yelahanka, superior offerings at reasonable prices have high prospects of capital appreciation. There is a sustained demand for luxury homes from HNIs and NRIs who want them for self use, especially in cities like Pune. Also, there is demand from investors in cities like Gurgaon and Pune where a large population of expats translates into increased demand for luxury rented homes, fetching good rentals. In fact Gurgaon, Pune, Mumbai and Bengaluru have seen emergence of companies that have made a good business of high-end rented apartments (specially serviced residences)
While investors are skeptical about volatile capital markets, they are preferring demand – driven real estate market. According to Colliers report, in view of return on investment recorded during Q1 and Q2 this year for different asset classes, investors’ preference has turned towards real estate. Against fixed deposit, equity and gold recording 0 per cent, 11.49 per cent and 14.25 per cent change in return on investment, real estate (BSE Realty Index) saw a change in return of 31.12 per cent. Leading investors prefer luxury homes for better long-term capital appreciation.
And in the current scenario, a significant rise in the number of HNIs, emergence of young aspirational high-income professionals, healthy growth of service industries, depreciation of the rupee giving more bang for the buck to NRI buyers / investors, flexible and innovative payment schemes coupled with price deals ahead of the upcoming festive season, are all important triggers/catalysts for reviving the luxury housing market.
Credits Business World