Real Estate

The changing dynamic of luxury housing in India

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The pandemic was a silver lining for residential real estate. Investors and homebuyers alike focussed their attention to spend on buying a home or upgrading their living space. Luxury housing suddenly saw a peaking interest from across demographics.

The luxury housing market was, however, not the same pre-pandemic. In the past decade, it has seen various ups and downs. 2019 was in fact not a great year for real estate overall. Prime markets like Mumbai and Delhi saw a rise in inventory, sky-rocketing rates and instability among key stakeholders. Stalled projects, litigations on developers, aggrieved buyers were on the rise.

Let’s take a step back to understand the reality of luxury housing market back in 2010. Luxury was only for the ultra-rich, HNIs or NRIs back then. Even NRIs focused on investment and opted for homes which assured good returns. Global exposure was just gaining pace and the Indian consumer was yet to evolve. Luxury was focused solely on location and pincode. It was mostly about over-paying for a property based on where it stood.

But the definition of luxury was changing. Aspirations were on the rise with increasing global exposure. As consumers would grow more aware, they wanted luxury and also their money’s worth. Value proposition would become the key focal point for the premium homebuyer.

Slowly by 2013-14, the bar for aspiring to live in a luxury home lowered as many developers started targeting businessmen and CXO level professionals. Consumers too were demanding more from their home aesthetically. Right from safety features, amenities, architecture and interior, there was a wave of increased awareness and want for better living spaces.

However, there was one major limitation. There were limited developers who were in a position to offer lavish properties and they did charge a premium for providing premium projects at prime locations. Luxury housing was limited to Mumbai and Delhi at this point, only extending to a few other metros like Bengaluru.

Bright future

Then the life-changing RERA bill in 2016 was introduced. This changed the perception of the real estate industry. It helped regularise and consolidate the entire sector. It took a year for people to completely understand and adhere to the norms set out by the regulator, but this only made it possible for residential realty to get ready for a bright future. Luxury housing benefited highly as people were willing to invest larger sums of money in their homes with the surety that RERA brought.

However, the confidence with which most developers approached the luxury housing market was misplaced. In 2018, most major cities in India were sitting on inventory that would take four years to clear. The major reason was that many developers completely ignored the aspect of location and demographic study before creating a luxury property. For most homebuyers, even the luxury segment; the purchase of a home is the largest single pay cheque they will cut in their life. This means they will evaluate every single nuance and want the home to meet each of their requirements. The evolved buyer wanted both — location and luxury. Having said that, there is no one-size-fit-all approach here. In metros and prime cities, every area, sub-area, has a different demographic and culture. Hence, thorough background research, survey and study are essential before investing in a project, which most developers failed to do.

In the major cities in India, there were two prevalent cultures that ran the residential real estate market. First being the renting culture and second was the fact that more time was spent outdoors than indoors. Thus smaller living space didn’t seem like a major hurdle.

Now let’s talk about what changed in March 2020. The COVID-19 pandemic completely changed the way people think about their homes. Consumer behaviour witnessed a dramatic change; resulting in a structural shift in how and where people live, as well as their attitudes about homeownership.

Sense of security

Many people re-evaluated their priorities and began to value the sense of security that came with having a home after being cooped up in their homes during the strict lockdown. The pandemic emphasised the importance of homeownership and fuelled demand for large homes with top-of-the-line amenities.

With people being confined to their houses for long periods of time in the new normal, the demand for homes with ultra-modern amenities skyrocketed. Those who already owned a property chose to upgrade from their current living standards. With homes becoming the sole space for all activities, there is now a need for extra rooms, as consumers look to create activity driven arenas like a study room or a workout space within their homes. The fact that people are considering a good investment opportunity as a strong reason for buying luxury real estate points to a bullish outlook on luxury home prices. Further, residences having private gardens and homes with decks or balconies are being preferred for much-needed fresh air.

The rise of the work-from-home phenomenon among UHNIs, led to a strong demand for high-end properties that may serve as catch-all compounds, live-work spaces, and provide a resort-like living experience, attracting real estate developers. As a result, the luxury real estate market in India has evolved, prompting developers to produce ready-to-move-in luxury condominiums that provide a healthy lifestyle, world-class amenities, and distinctive architecture that supports the purchasers' concept of modern and elegant living.

Knight Frank’s recent report states that residential sales momentum is expected to continue in 2022 as prospective homebuyers’ preferences for bigger homes with better amenities. Owing to the various relaxation of business establishment procedures and the ease of doing business (EoDB), many foreign players and MNC's have been attracted to India. The expected rise in the number of HNI's and India's growing stature as an economic power promises much in the luxury product segment. This real estate category is expected to continue growing stronger and evolving further with increasing domestic applications of technological innovations and fusion of aesthetics with luxury, attracting national and international players to the market.

Interest rates impact the price and demand of real estate — lower rates bring in more buyers, reflecting the lower cost of getting a mortgage, but also expand the demand for real estate, which can then drive up prices. Real estate prices often follow the cycles of the economy, but investors can mitigate this risk by buying REITs or other diversified holdings that are either not tied to economic cycles or that can withstand downturns. Government policies and legislation, including tax incentives, deductions, and subsidies can boost or hinder demand for real estate.

Luxury homes in Mumbai are anticipated to be in demand while property prices are likely to remain stable despite the buoyancy in housing demand. Post the pandemic, luxury housing market has reported significant traction; buyers are responding favourably to residential purchases across segments as sale prices have corrected in the last few quarters, making real estate investment attractive, especially in the premium segment.

The writer is Director, S Raheja Realty.

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Printable version | Feb 18, 2022 8:45:00 pm |