India’s luxury housing conundrum
The opening up of ‘trophy’ locations in prime areas of cities has led to the construction of larger clusters of luxury projects
In India’s competitive real estate market, luxury housing projects have been launched aplenty over the last couple of years. So much so that a conservative market like Chennai, for instance, is likely to witness about 1,500 units of ultra-luxury homes—budgeted between ₹ 5 and ₹ 20 crore—within the next 12 months. This is because most developers aspire to a piece of the premium development pie in their portfolio for raising their brand value. In addition, profitper-apartment is much higher in this segment, leading investors with deep pockets to prefer luxury housing projects over other property assets for better capital appreciation in the long term.
For homebuyers, the advantages of owning luxury homes are predominantly aspirational, with their homes reflecting their socio-economic standing. Owning a luxury housing property is more about making a lifestyle statement.
Location is luxury
Location forms the crux of most luxury projects. Homebuyers are now looking at areas that are either in proximity to or are better connected to mass transit infrastructure like Bus Rapid Transit Systems (BRTS), monorails, and Metro rail projects that improve connectivity, and create social infrastructure within urban corridors, raising property prices. Developers are also focusing on new developments that are located in proximity to such infrastructure.
The major features of most luxury housing projects typically entail a prime location with great access and a spectacular view. Developers use themes such as lifestyle, sports, nature and so on to bring in brands to their projects. In addition to architectural and interior design, luxury housing themes also include amenities, premium construction material, landscape design, concierge services, and high-end security.
A growing trend over the last decade or so has seen large land parcels being unlocked by developers for luxury properties in less matured markets like Pune, Chennai and Hyderabad. What one may term as ‘trophy’ locations in these cities—instances would include Mumbai’s mill lands—have become available, making it possible for larger number of units to be constructed. Where the erstwhile trend for luxury property used to be for 10–15 luxury units at best in the heart of a city, in cramped locations, today a slew of larger luxury projects are possible because of the availability of such large land parcels in prime locations.
This trend may be attributed to the oversupply of properties in peripheral locations and a lack of good opportunities in the CBD (central business district) areas of cities like Chennai, Pune. Some of the properties that developers pick up are ‘trophy properties’, catering to the aspirations of homebuyers. Luxury projects within the CBD also enhance the brand value and equity of housing development firms.
Execution would be one of the most uphill tasks faced by developers of luxury property across India. The average national delay time of completing projects is about 13 months. Add to that credit availability, which is usually a major issue for developers. Non-availability of good land parcels also restricts developers to rethink their strategy on luxury homes. The key challenge is the velocity at which one can dilute one’s stock; and the key for the success of such projects is to build a minimum threshold volume with respect to sales in a project.
At present, the luxury residential market in India is going through a phase of slow demand and low sales velocity. Given the premium charged, buyers take longer to complete transactions. In addition, HNIs have become sceptical of the capital market due to economic instabilities across the globe; and this in turn has forced them to turn to the real estate sector where growth is demand-driven and not based on speculation. This segment will work when the real estate cycle shows an upward curve.
Unlike pure-play end-use buyers in the housing segment, luxury homebuyers do not respond to any necessity factors for their purchase decisions. Consequently, the sector is interwoven with the state of the economy at large, and to the inherent cyclicality prevalent in the housing market. In the recent climate of an economic slowdown and weak market sentiments, homebuyers have clung to safe investment decisions. The luxury element typically thrives in a feelgood market, when the financial environment too is performing well; and the sector is expected to pick up in the next quarter or two, with green shoots of revival becoming visible in the economy.