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 Rs. 5-20 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, profit-per-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 home buyers, meanwhile, the advantages of owning luxury homes are predominantly aspirational, with their homes reflecting their socio-economic standing. Purchasing or owning a luxury housing property is more about making a lifestyle statement rather than fulfilling any basic necessities.
Location is luxury
Location forms the crux of most luxury projects. Typically, end-users pay a premium for the location alone, with the remaining cost merely reflecting aspirational lifestyle add-ons. Home buyers are now looking at areas that are either in proximity to or are better connected to mass transit infrastructure like bus rapid transit system (BRTS), monorail, 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 run through or are located in proximity to such infrastructure, since such factors help sell properties at a premium.
Luxury living involves creating an overall experience that not just meets the expectation of customers, but attempts to exceed it. 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 arrangements. The luxury connotation varies individually; and its perceived value varies with one’s specific needs and aspirations.
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 fact there’s an oversupply of properties in peripheral locations and a lack of good opportunities in the CBD areas of cities like Chennai, Pune and other similar cities. Some of the properties that developers pick up are ‘Trophy Properties’, positioned with all the amenities and luxury one can think of—catering to the aspirations of home buyers. Luxury projects within the CBD also enhance the brand value and equity of housing development firms.
Execution would be the 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 be able 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 skeptical of the capital market due to economic instabilities across the globe; and this in turn has forced them to turn towards 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, while enabling it with a differentiation for the end-user which is difficult in the sector.
Unlike pure-play end-use buyers in the housing segment, luxury home buyers 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, home buyers have clung to “safe” investment decisions. The luxury element typically thrives in a feel-good market, when the financial environment too is performing well; and we expect the sector to pick-up in the next quarter or two, with green shoots of revival becoming visible in the economy.
The luxury segment does not operate along the lines of traditional housing construction cycle, where there is a perceptible price difference between the pre-launch to the near-completion stage of a property. In case of a luxury property, however, from the inception to the completion of the project, there is just about a negligible price escalation where the operating keyword is “construction”. Since the investment quantum is so significant in a luxury project, buyers typically invest in it only when there is a perceivable change in construction status. Especially in the present market scenario, where there is a significant amount of inventory in almost all housing segments, the end customer has enough and more choice. In such a scenario, luxury projects can only hope for interested buyers at the completion and near-completion stages, where the home buyer is assured of a premium product.
We expect the luxury segment to gain some momentum in the long term, when prices are likely to rise again. As far as smart purchase decisions in the segment are concerned, the coming few months could be the right time for home buyers. In the wake of subdued demand and investment in the realty market, developers with liquidity issues will be more open to negotiations and concessions.