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Luxury Real Estate Coming of Age in India
Suhas- 25th Mar 2017
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For two years now, real estate has been on a loose end for India. Negative news about this sector has been long lurking in Indian markets, and luxury real estate, especially, wasn't in good shape at all. But the scenario right now is really a turn on. Let's see what the change is, and the attributes that brought about this change:
- India's GDP growth for FY17 has been pegged at 7.1 per cent. The number of Indian ultra-HNIs jumped to 2.36 lakh currently from 1.84 lakh in 2014 and is expected to reach 4.83 lakh by 2025.
- GDP per capita income in India is $2,000 and is expected to increase to $3,500 by 2020. Higher incomes automatically lead to higher luxurious housing.
- The country's realty market will almost double to $180 billion by 2020 from the $93 billion it accounted for in 2014, thereby accounting for 13 per cent of the GDP compared to the current 5-6 per cent. Luxury housing constitutes almost 4-5 per cent of the total real estate market and with overall pie increasing; share of luxury housing is bound to increase.
India is a constantly growing country, and its housing deficit is the stuff of legends. Currently, at around 17.5 million units, most of the deficit is in affordable housing. This is the segment where demand is the highest.
Mid-income housingserves the better-off middle class and sees a lot of demand, but only if it is in good locations with competent infrastructure, priced right and within understandable deadlines. The oversupply that exists in this field is mainly due to the reason that many projects have not been able to fulfill all of these necessary factors. By excess supply, wemean the number of months it will take for it to be sold. The majority use in India is from end-users, not investors. From this, we realize that investors no longer remain the powerhouses in the residential market.
The past few years have seen quite some frolic in the real estate markets.Investors were literally bulk-buying into cheap under-construction housing projects in hot emerging development corridors. Their intention purely was to buy cheap and sell at considerable profit when the projects were complete, the locations picked up and demand for homes there rose. Developers were quite used to this phenomenon, and launched housing projects by the dozen.
Luxury housing, too, caught pace as young software professionals, seduced by astonishing fat salary packages took gargantuan home loans from banks and bought into fancyhomes with embellishments and accoutrements for an aristocratic air. Their managers and chief executives, in turn, went in for even fancier abodes, again deeply leveraged through loans. Stock market speculators, also zooming fast with massive profits, were not far behind.
NRIs, as we all know, were making astronomical figures by running successful businesses abroad, and were, too, constantly pouring money into lavish mansions back in India. Not surprisingly, investors were snapping up luxury condos as fast as developers could churn them out. Then came the Dotcom bust, and the global economic meltdown after Lehman Brothers collapsed - and things were never quite the same again.
In India, developers of luxury housing took a very long time to wake up and smell the coffee. Luxury housing involved fat profit margins which they didn't really want to say good bye to. However, the writing was on the wall - mass investor bookings in luxury projects were now a thing of the past. Moreover, Prime Minister NarendraModidemonetised the most circulated high-value currencies in November 2016. Luxury housing had almost always involved a lot of cash in the transactions, making it an ideal place to park unaccounted cash.
Almost 45,000 luxury residential units were launched in FY16 in the top 9 cities, constituting almost 21 per cent of total residential launches. Bengaluru leads with 30 per cent of luxury home launches, followed by Mumbai (17 per cent) Bengaluru also leads with almost 29 per cent of total luxury home sales in FY16, followed by Mumbai (16 per cent) and Pune (15 per cent). Experts, who predicted that luxury housing in India was finished, ignored that luxury housing caters to a specific segment of demand which, like the demand for budget and mid-income housing, has not gone away. The country's wealthier homebuyers still want high-class homes with all the bells and whistles of sophistication in great locations.
Unlike affordable and mid-income housing, the market for luxury homes is not driven so much by home loans as by personal wealth. Where home loans are involved in such housing, they are backed by sizeable down payments and fully-assured repayment power. Nobody who is not confident of his or her ability to see such a transaction to successful completion will even considering such a purchase today. Also, investors active in this segment operate within a fail-proof inner circle of well-heeled clients for whom the question is never about the money but about the opportunity. The market for luxury homes and luxury real estate in India continues to thrive within the specific segment of discerning, affluent buyers who continue to looking for nothing but the best.
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