The Indian Express (Delhi Edition)
Developers double down on premium housing as affordable launches stagnate
With dwindling inventory levels, the scales appear tilted towards the premium end of the market
DEMAND FOR big-ticket housing in India’s residential real estate sector is set to rise in the next decade, in line with a significant shift observed over the last five years, where launches of highend residential units priced above Rs 1.5 crore skyrocketed by a staggering 1,000 per cent between 2019 and 2023. In the meantime, new launches of units priced below Rs 75 lakh, including affordable housing, remained stagnant in the country’s top seven cities, even as sales grew by 27 per cent.
With dwindling inventory levels, currently the lowest in a decade, and a 26 per cent spike in average prices over five years, the scales appear tilted towards the premium end of the market, where developers are gravitating due to soaring demand and better margins. While affordability is better now than in 2014, the surge in big-ticket launches coupled with stagnation in affordable housing options raise questions around affordability moving forward, particularly for first-time buyers.
In both 2019 and 2023, developers in the top seven residential markets including Delhi, Mumbai, Bangalore, and Chennai launched roughly 74,000 units priced below Rs 75 lakh, as per an analysis of JLL India data. However, the share of launches in this small-ticket segment dropped from 55 per cent in 2019 to 25 per cent in 2023. The share of small-ticket launches dropped even as the share of sales in the same segment remained comparatively higher. To be specific, the share of small-ticket sales was 61 per cent in 2019 and 41 per cent in 2023. In absolute numbers, sales grew by 27 per cent to over 1.1 lakh units.
The stagnation in small-ticket launches occurred as big-ticket launches of units priced above Rs 1.5 crore surged from roughly 8,000 units in 2019 to 95,000 units in 2023, a whopping growth of over 1,000 per cent. The share of big-ticket launches also increased from a mere 6 per cent to 33 per cent.
In 2023, big-ticket sales stood at around 62,000 units, up by over 230 per cent from 18,000 units in 2019. The share of big-ticket sales also increased from 13 per cent to 23 percent. while sales in the big ticket segment are far behind launches in 2023, compared to the small-ticket segment where the ratio is flipped, the demand for big-ticket units is robust and expanding, according to experts.
“Currently, buoyed by stronger economic momentum, wealth creation and consumer’s aspiration towards home purchase, the residential real estate sector in India is experiencing an upcycle,” a Cii-knight Frank report released Friday said. The demand for luxury housing will be fueled by an increase in the share of HNIS and UHNIS households in India, which will triple from 3 per cent now to 9 per cent in 2034, the report added.
In addition to the expansion of India’s wealthy class driving demand for premium housing, other factors are also at play. For instance, following the outbreak of Covid-19 in 2020 where lockdowns and work-from-home policies confined employees to their homes, demand for larger units shot up considerably. The averageflatsizein2023was1,300 square feet, 11.4 per cent higher than 1,167 square feet in 2020, as per data from Anarock Research. For example, in the Delhi-ncr region, the average flat size jumped by 51 per cent from 1,250 square feet in 2019 to 1,890 square feet in 2023. Similarly, in Hyderabad and Bangalore, the average flat size increased by 35 per cent and 16 per cent respectively over the last five years.
“A lot of mid-segment buyers now want projects with better amenities. They want to be closer to markets, city centres, or locations with heavy social infrastructure. If they are moving a little farther away from the city, they’re wanting bigger homes because of work-from-home. Let’s not forget, even if India’s return to office numbers are okay, there is still a substantial portion of people who work from home now. These are young couples with kids, who need additional rooms and flexible configurations, so they are looking for bigger houses. The moment I start looking for a bigger house, my ticket size goes up,” said Rohan Sharma, director at JLL India.
The demand for bigger homes and better amenities has played a key role in pushing prices up. In 2019, the average housing price was Rs 5,600 per square feet; in 2023, it increased to Rs 7,080 per square feet, as per Anarock data. Apart from boo ming demand, the increase in housing prices also reflects rising input costs and property rates. Moreover, developers are preferring big-ticket launches over small-ticket ones due to better margins. “While there has been decent demand for the below Rs 75 lakh segment, developers have also seen their margins shrinking. One of the reasons why they have also followed that [bigticket] market is because that is a better margin market,” Sharma added.
The surge in big-ticket launches coupled with stag nation in small-ticket launches despite growth in sales is set to impact affordability, especially when inventory levels dropped to their lowest in 2023. Inventory overhang measures the amount of time it would take to sell all current listings, provided there are no new listings. In 2019, it was 30 months, which increased to 55 months in 2020, indicating a high quantity of residual stock. In 2023, inventory overhang dropped to a decade low of just 15 months. The drop in inventory is likely to be the most pronounced for the small-ticket segment, where sales have consistently outpaced launches in the last five years.
While prices have gone up, affordability levels were better in 2023 compared to 2013, according to the JLL Home Purchase Affordability Index (HPAI) published in December last year. HPAI is the ratio of the average householdincome to the eligible household income, which is defined as the minimum income a household needs to earn to qualify for a home loan on a 1,000 square feet apartment at the prevailing market price. An HPAI value above 100 indicates affordability whereas an HPAI value below 100 indicates unaffordability. For example, the HPAI value in the Delhi-ncr region stood at 65 in 2013 and increased to 119 in 2023. In Bangalore, the value has increased from 90 to 158. Mumbai is an exception, where the value having increased from 43 to 88 continues to indicate unaffordability.
“Among the critical elements of affordability, while prices remain on a trajectory that is likely to worsen affordability levels, stronger income growth should act as a good buffer. Repo rate trajectory is likely to be impacted by global economic signals even as a strong domestic economy is likely to cushion the impact and pave the way for a rate cut down in the road in 2024,” the JLL HPAI report said.
With drastic changes in bigand small-ticket launches in the last five years, the share of medium-ticket launches, that is units priced between Rs 75 lakh to Rs 1.5 crore, increased slightly to 42 per cent in 2023 compared to 39 per cent in 2019. The number of launches jumped by 130 per cent to over 1.2 lakh units. The share of medium-ticket launches in sales also increased from 26 per cent to 36 per cent, which corresponds to 98,000 units in 2023, a jump of 164 per cent from 2019.