It was a year when speculation was rife that there could be price stabilisation and perhaps even a correction given the stagnant market. Instead we see all around us several new housing projects — all within the city, all in the luxury segment. When there is quite obviously a shortage of affordable housing, why this push on luxury homes? We decided to find out.
Catering to HNIs
Biju Ashokan, CEO, Metroplots.com, a real estate services company, explains the trend, “Usually in a down market, the lower and middle income groups are extremely risk averse. But this is the time when HNIs (High Net Worth Individuals), who are very smart about investing, take advantage of the market. We have noticed this pattern in the last five years. Our enquiries from HNIs have increased a lot in the last six months. They can be NRIs or residents.”
There’s another reason. Kalpana Murthy, Associate Director - Residential, Cushman & Wakefield, explains that affordable housing projects are usually planned as mass developments with 200-500 units. These are constructed in stages with longer timelines and financial commitments. For developers, profit margins are often lower, and slower, in affordable housing. Thus, even as realtors struggled with unsold units, some moved on to the assured returns of a luxury project.
Ashokan explains this further. He says that in the present market, most customers interested in an apartment at the lower end, are thinking twice before signing up because consumer confidence is very low. “Even though it’s a few big builders who are in a rough situation, investors think everyone is struggling. This has created a slump in sales in the affordable housing segment. Builders want to come out of this situation, and they see quick money in launching high-end luxury projects that they are confident will sell,” he says.
Luxury projects require large financial investments but they are smaller projects, quickly finished and targeted at a niche group that offers higher returns. “In 2013, Chennai saw many projects with 12-16 units, some with 6-8 units only. Developers are well aware that the elite are willing to pay a premium for exclusive, customised units that offer modern amenities and posh addresses,” Murthy points out.
Dr Kumar, Founder-MD, Navin Housing, points out that land within the city is extremely expensive.
“When builders spend several crores in procuring land, it doesn’t make financial sense to work on affordable units. Instead, they spend a little extra and create high-end projects.”
Does this mean that the city will only see the launch of swanky homes making it impossible for the middle or low income groups to live here? Murthy says, “Affordable housing projects are more feasible in the outskirts of the city as land is cheaper and relatively more easily available. There is also the possibility of deriving benefits of scale in these areas, enabling developers to offer cheaper units to buyers.”
Ashokan also points out that the resale market of properties that are 10-20 years may be worth a try despite their inherent inconveniences.