Is India’s luxury real estate market on the verge of a revival?

[ecis2016.org] While various policy initiatives by the government resulted in a slowdown in the luxury real estate segment, India is also expected to witness a strong rise in the number of HNIs. We look at how these factors will affect demand for luxury properties, in the near future

The market dynamics for the residential luxury segment, are different from other asset classes, primarily due to the target end-user segment and their expectations from such assets. Owning a prime piece of residential real estate – whether it is a bungalow in Delhi’s diplomatic enclave or a high-end apartment near the ‘Queen’s Necklace’ in south Mumbai or a colossal mansion in Bengaluru’s Sadashivnagar – is a matter of pride for the owners, as one’s ‘pin code’ matters in social circles. For top industrialists, bureaucrats, politicians, doctors, lawyers, civil servants, film fraternity, etc., these locations exude a vibe that is synonymous with their lifestyle. Location has always been the prime factor that defines the luxury quotient attached to a property. As a result, many locations near the centre of power – whether political, economic or cultural – bore a significant influence on residential property prices in the vicinity, elevating such boulevards to pricing brackets which defy rates prevailing in other micro-markets for comparable products.

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Locations across the top cities with high concentration of luxury residential properties that command the highest prices

Source: Knight Frank Research

* For products in the primary market

Apart from the above locations, the following micro-markets also have a huge inventory of luxury residential real estate. However, due to the low vacancy in these micro-markets for such assets, hardly any properties are available. Even if they do become available, often such transactions are closed privately, through word-of-mouth or references, due to which it is difficult to arrive at their ‘actual’ prices in the secondary market. For such locations, the sky is the limit, as far as pricing goes.

• New Delhi – Prithviraj Road, Chanakyapuri, Golf Links Road
• Mumbai – Malabar Hill, Tardeo, Bandra (west)
• Bengaluru – Langford Gardens, Sadashivnagar, Indiranagar
• Kolkata – Alipore, Ballygunge
• Chennai – Boat Club, Poes Garden

The changing dynamics of the HNI segment and its impact on luxury properties

As per the findings of Knight Frank’s Wealth Report 2019, the ultra-wealthy population (individuals worth USD 30 million) has increased by 4% between 2017 and 2018, in Asia. Over the next five years, a strong growth of 39% in the ultra-wealthy population is projected for India, which bodes well for the consumption of luxury residential products over the long term. The last decade has seen a significant change in domestic family structures among the wealthy class. The traditional family structures, headed by a patriarch and multiple generations living under the same roof, are giving way to nuclear families, with Ivy league-educated younger generations that are keen to chalk out their own paths. Exposure to cosmopolitan cities globally through education, travel and work, have been instrumental in shaping the housing preferences of these end-users who seek modern environs, community living and the latest amenities, while also maintaining exclusivity and privacy of their residence.

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Such evolving tastes for home ownership led real estate developers, as early as 2010, to come up with diverse residential formats. During the period between 2010 and 2013, a wave of new residential products emerged, with a lot of branded residences and themed developments that were promoted by brand ambassadors from the entertainment and sports industries. Villas with Spanish architecture, Disney-themed apartment complexes and Swarovski or Sharapova-associated residential projects, were marketed extensively to lure the crème de la crème of the society. Nevertheless, monetary and policy interventions proved challenging for residential markets. Demonetisation, the Goods and Services Tax (GST) and the Real Estate (Regulation and Development) Act (RERA), all left their mark in the last couple of years, with luxury prices rising by just 0.6% in Mumbai. However, market confidence is now improving, with the wealthy younger generations demanding opulence draped in contemporary ‘luxury’ amenities.

Luxury real estate in India: What do home buyers seek?

Today, location is not the sole defining factor of luxury real estate. Western concepts of penthouses, condominiums and contemporary residences, are fast catching on in India’s luxury residential realty scene. Homes with a high component of automation and integration of technology for home management, such as mobile app-enabled switching on and off of household appliances, drapes and security, are now increasingly becoming synonymous with luxury. Equally popular are exclusively designed residences from international designers. It is not uncommon to find apartments with branded gymnasiums, spas, salons and concierge services in Mumbai or Delhi, which are a class apart. For the corporate honchos and social climbers, living in a luxury apartment complex comes with additional perks, as they get a chance to expand their social circle and network with people from a similar strata.

Trends to watch out for in luxury real estate

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As Indian residential market comes of age, some trends will redefine and enhance the proposition of luxury residential real estate in India. These trends are likely to act as precursors, to increase the supply of such assets in the primary market and engulf new formats.

a) Buyers in the luxury segment are not cash strapped but changing lifestyle habits and a global outlook, will boost the demand for luxury apartments that are managed by hospitality chains. The design elements of these products, coupled with branding, will be preferred due to their service, amenities, security and investment yield potential. For developers venturing into the supply of such residences, market differentiation and branding will be key drivers, to undertake such projects. Four Seasons Private Residences in Embassy One in Hebbal, Bengaluru, is one such example.

b) Tier-2 regions with a healthy tourism market such as Goa, will see an inflow of such projects, as developers try to position such markets as a second home destinations for the ultra-rich. Owning a piece of luxury real estate in the lap of nature, be it the mountains or the beach, is the new thing.

c) Homes crafted by international architects, interior designers and joint ventures with leading developers from other countries, will remain popular with buyers. In cities with low proliferation of new products in the luxury space, such as Kolkata, the upcoming Trump Tower and Forum Atmosphere, have struck the right chord in the target segment.

d) Affordable luxury is emerging as a key theme, owing to the changing market dynamics following the policy reforms. The growing popularity of affordable luxury in the middle-income groups, will keep the suburban markets with good connectivity and social infrastructure on the radar of developers, as homes with luxury amenities will help people meet their lifestyle aspirations. For cities such as Bengaluru, Gurugram, Noida and Navi Mumbai, affordable luxury will be the new mantra in the long term.

e) Technological innovations play a huge role in our lives and home ownership is no different. Homes with sophisticated automation systems and advanced features, vis-à-vis reduction in energy consumption, waste management and safety and security, will attract the new age buyers. With artificial intelligence and machine learning improving cost efficiencies in different sectors, real estate will not be left behind either and a high-tech home of the future will be a new benchmark of luxury, apart from its location.

f) With the depreciation in the value of the rupee, moderation of prices after demonetisation and the enhanced transparency in Indian real estate transactions on the back of policy reforms, non-resident Indians (NRIs) have started finding the Indian real estate market attractive again. With high disposable incomes and a preference to head back home after retirement, NRIs will dominate Indian luxury real estate sales.

The rise of the ‘demi-millionaire’ club in India, coupled with India’s growing stature, augurs well for this product category. In times to come, this class of real estate is expected to evolve further, with home-grown, as well as international players ruling the market.

(The writer is assistant vice president – research, Knight Frank India)

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Category: Lifestyle