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

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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.

Emerg­ing trends

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.

Cur­rent chal­lenges

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.

Way ahead

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