Luxury housing fuelling growth in Indian realty market, say experts

Luxury housing in India has acquired a strong foothold owing to rising disposable incomes, hiring, tax benefits, tech savviness, and a desire for a rich lifestyle.

The demand for such properties surged also because high net worth individuals (HNIs) and non-resident Indians (NRIs) have turned to investing and buying luxury homes by capitalising on tax benefits, stable property rates for the long tenure, initially a lower interest-rate regime, and currency-depreciation benefits, experts say. With favourable currency-exchange rates and reforms, even young NRIs are looking to buy luxury homes.

Realty experts say the millennial generation is moving away from investing in multiple small properties, and instead choosing to go for a single, one-time home that ensures high-end comfort.

Affordable housing, which remained the buyers’ top choice, has lost its spark in recent times among the millennials.

Niranjan Hiranandani, managing director, Hiranandani Group, said: “The affordable segment is price-sensitive and operates on narrow margins. The rising cost of development, premium charges, additional floor space index, approvals, land acquisition, and land titling are leading factors in the bleak growth of affordable housing.”

Additionally, the cap on affordable housing subsidies — restricted to homes that come at Rs 45 lakh in metro cities — has been a dampener in key markets, Hiranandani said.

On the other hand, luxury housing is interest rate-agnostic. Deals offered by developers during festivals, in support of flexible payment schemes designed by banks and other financial institutions, attract them, he added.

Experts say growth in the middle and luxury housing segments has gone up 12-15 per cent and is expected to stay the pace.

According to ANAROCK Research, of the 365,000 units sold in the top seven cities in 2022, about 18 per cent (approximately 65,680) were in the luxury category, in which those priced above Rs 1.5 crore fall. In contrast, it was 7 per cent (approximately 18,270 units) of the 261,000 units sold in 2019.

After the pandemic waned, growth in the luxury segment outpaced that in affordable housing in key markets. Developers are stepping up supplies.

Additionally, rising disposable incomes and an average increase of 10 per cent in salaries have led to preference for luxury over affordability, said Aryaman Vir, founder and chief executive officer, MYRE Capital.

Currently, HNIs are parking their money in safe assets that provide stability and security during volatile times and help them in building a safe nest back home amid geopolitical uncertainties.

“The Indian real estate market is considered a safe investment option with decent rental incomes and high appreciation values. The luxury segment, in particular, has attracted a lot of foreign investment due to potential for high returns,” said Vir.

Aakash Ohri, group executive director and chief business officer, DLF, said in the past two years, his company saw an increase in the number of NRIs looking to buy homes in India.

According to industry experts, luxury housing has become a necessity after Covid weakened and that has led to a rise in sales.

Ohri said it was a necessity for a growing segment of consumers with a greater spending capacity and needs to have an extension of their homes. Major metropolitan areas have seen consistent sales growth since the beginning of last year.

Most buyers are opting for properties above Rs 1 crore.

“Homebuyers are opting largely for 2, 2.5 and 3 BHK, typically in the price bracket of Rs 1.50-3.5 crore on a broader base,” Hiranandani said.

Ohri said according to industry statistics, 17 per cent of housing launches in 2022 were luxury condominiums selling at more than Rs 1.5 crore.

However, some experts say the immediate trigger in the rise of luxury housing demand could be the government’s move to cap capital gains.

“One major factor could be the government’s recent move to cap capital gains at Rs 10 crore. Capital gains above it will henceforth be taxed from April 2023 onwards,” said Anuj Puri, chairman, Anarock group.