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The Dynamics Of Luxury Housing In India.
Jones Lang Lasalle [ 05-07-2013 ]

In India’s largest cities – namely Mumbai, Delhi NCR and Bangalore – luxury and ultra-luxury residential projects have witnessed ten-fold appreciation over their launch prices over the last decade, implying more than 100% annual returns on investment.

Most of these projects saw encouraging pre-sale activity and were sold out completely very quickly. In fact, demand for luxury and ultra-luxury housing in cities like Gurgaon has always outpaced supply, which has encouraged developers to increasingly shift their focus on this segment.

Why Luxury Works For Developers

Because of the tendency of ultra-luxury projects to garner extremely good pre-sale volumes, their developers are generally able to secure significant fund flows to capitalize the completion of their projects. Luxury and ultra-luxury projects yield much higher returns to developers than projects geared towards the affordable and mid-income segments.

While it is equally true that the input costs for luxury housing are also much higher, the developer stands to benefit from the increased visibility of his brand among highly affluent, top-end clients. This means that the developer can uniquely position himself on the basis of quality luxury projects.

This increased visibility and the credibility attached to a reputation for superior construction is automatically attributed to all projects by such a developer. In other words, even mid-income housing projects that he launches benefit, and will invariably see higher sales than comparable projects by developers who have not ventured into luxury housing.

That said, there is considerable responsibility on a developer of luxury housing. He must mandatorily be able to introduce features which compare with or surpass those in other luxury projects on the market. Buyers for such projects have very high expectations and want their homes to offer as well as reflect a high lifestyle quotient. There is very little tolerance for flaws in design, construction and amenities. Thus, a botched luxury project can have significant negative repercussions on the developer’s credibility and future success.

Luxury Housing as Investment

The ultra-luxury housing segment is comparatively recession proof. As most of the buyers in this category are the C Suite of the corporate world, successful entrepreneurs and business tycoons, their financial appetite is not limited to or governed by the economic considerations that give the middle-class sleepless nights. A significant percentage of buyers for such projects is able to self-finance their investments through their saved earnings.

Recession might take a toll on the response generated and time taken in project selling out completely at the targeted price points; however, the quantum of impact that luxury projects face in times of economic uncertainty is significantly lower when compared to residential projects aimed at other categories.

India’s Hottest Cities for Luxury Housing Investment

Mumbai 

As the country’s financial capital, Mumbai still stands alone as the costliest Indian city in terms of real estate pricing. This phenomenon applies equally to all categories of housing, but is especially true for luxury homes. The city has limited land parcels left within the prime centre locations; this has direct implications on the cost of land acquisition, and therefore on the pricing of the end product. Also, most luxury housing in these areas cannot offer the kind of ambient surroundings usually associated with such projects. It is not uncommon to find a project with units priced at several crore rupees overlooking a slum.

Nevertheless, this unique variable has not subdued the appetite for luxury housing. Mumbai is home to the headquarters of the largest financial institutions as well as of multinational corporates, and the incomes earned at the highest levels are staggering. This naturally gives rise to very high aspirations when it comes to housing the city’s super-rich, who are willing to pay for the privilege of a penthouse or designer luxury apartment in areas like Prabhadevi, Lower Parel and Bandra Kurla Complex.

Price points for luxury housing in the prime locations of Mumbai range from INR 25,000/sq.ft. to INR 110,000/sq.ft.

Delhi NCR

Apart from South Delhi, Gurgaon remains a hot market for the super-luxury housing segment as it has a generous complement of buyers with high financial clout and therefore aspirations to own such homes. Gurgaon is home to a considerable number of HNIs who account for a lot of demand for any project launched in this category.

With Gurgaon having successfully positioned itself among leading MNCs as the most prime and desirable business destination in North India, the saturation of affluent CXO-level individuals in this city is high. In addition, Gurgaon is the destination of choice for investors with large investment appetite because of the handsome returns they can expect for luxury housing. For these reasons, all luxury projects in Gurgaon so far have done extremely well.

Price points for luxury housing in the prime areas of South and Central Delhi range from INR 15,000/sq.ft. to INR 65,000/sq.ft. In the prime areas of Gurgaon, they range from INR 7500/sq.ft. to INR 30,000/sq.ft.

Bangalore

As the undisputed Silicon Valley of India, Bangalore has reaped the highest benefits of the country’s IT/ITeS boom. The housing market in Bangalore has not seen major setbacks even during the worst of the real estate market slowdown.

With a stupendously high saturation of highly educated and qualified IT professionals, it has for the longest time been the city of choice for most outsourcing of software development and IT-enabled business processes. Moreover, unlike Mumbai, Bangalore is a growing market in terms of geography, meaning that it still has considerable land parcels which can be added to the real estate map.

With many software parks having come up in its peripheral rather than central locations, new catchments for all types of luxury housing have been and are still being created. Meanwhile, the incomes of the highest-paid IT professionals as well as corporate head honchos in Bangalore are more than eminently suited for luxury housing. This is a city where the growth of the luxury and super luxury residential segment is likely to continue unabated for many years to come.

Price points for luxury housing in the prime areas of Bangalore range from INR 20,000/sq.ft. to 30,000/sq.ft.

 

 

 

 
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