If you are scouting for a property deal in the luxury segment, strike now

If the current uptrend in demand persists, prices could begin to inch up

The entire real estate market witnessed a slowdown starting from 2014-15 (the starting date and severity would vary in different parts of the country), with the luxury segment being among the worst affected. However, the segment appears to have turned around in recent months. If you have been scouting for a high-end property, this is a good time to close a deal. If current trends persist, prices could only head north from today’s levels.

Turnaround in luxury

Real estate consultancies that deal primarily in luxury housing have seen an uptick in their business. “The revenue of our India business grew 40 per cent in the year ended March 2021. We anticipate similar growth in the current financial year, going by the transactions concluded so far,” says Samir Saran, managing partner, India Sotheby's International. Most of the firm’s transactions are for properties priced between Rs 13 crore and Rs 30 crore, with Rs 20 crore being the average.

Other real estate consultancies also attest to the uptrend. “The registration records for the Mumbai Metropolitan Region show that the number of transactions for properties of Rs 10 crore and above have jumped 15-20 per cent this year over the previous one,” says Anand Moorthy, business head, data intelligence and asset management, Square Yards. He adds that similar trends have been witnessed in Delhi, Bengaluru, Hyderabad, and Pune, though those cities witness fewer transactions in the Rs 10 crore and above segment.

According to ANAROCK Research, the share of housing sold at the premium end of the market (which it defines as those priced at above Rs 1.5 crore) has arisen to 12 per cent in the first three quarters of 2021, compared to seven per cent in 2019, and six per cent in 2020.

Desire for bigger homes  

Experts say the turnaround began in August 2020. “A larger-size, which is the key characteristic of a luxury home, became a priority for many during the pandemic,” says Anuj Puri, chairman, ANAROCK Research. According to industry experts, luxury properties are usually of 3,500-4,000 square feet in Mumbai and of around 6,000 square feet and above in other cities.

Attractive prices are another driver. “Prices within the luxury segment corrected by around 15-20 per cent between the start of 2019 and March 2020. They have not moved up since,” says Moorthy. 

Adds Puri: “High net worth individuals (HNIs) and non-resident Indians (NRIs) have realised this is a good time to enter the residential luxury segment as prices are attractive and can’t possibly go lower.”

Interest rates are touching new lows. As part of their festive offers, banks are willing to offer home loans to customers for as low as 6.4 per cent.

The state governments of Maharashtra and Delhi have also played a part in the turnaround. The government of Maharashtra reduced stamp duty rates from 5 per cent to 2 per cent (between August 2020 and December 31, 2020) and subsequently to 3 per cent (between January 1 and March 31, 2020). The reduction in circle rates by 20 per cent till December 31, 2020, by the Delhi government also amounted to a reduction in stamp duty.

The bull run in equity markets has also contributed. “People made big money in equities. They are directing their gains into buying luxury properties,” says Moorthy.

Many promoters of start-ups, after selling their stakes, are putting the money in luxury housing, with tax planning being a major consideration. “According to the provisions of Section 54F of the Income-Tax Act, individuals and Hindu Undivided Families (HUFs) can claim exemption on long-term capital gains arising on the transfer of a capital asset by purchasing or constructing one residential house property in India,” says Suresh Surana, founder, RSM India.   

Location is the key

As with all real estate purchases, location is the key even in the luxury segment. “Location plays a significant part in deciding whether a property will appreciate in the future. Properties situated close to prominent commercial establishments tend to appreciate more,” says Puri. Saran adds that the prestige of the zip code becomes the key factor in the purchase decision when buying a house in metros like Mumbai and Delhi.

Second homes have become an important constituent of the luxury segment. Demand for such homes is high in Goa, Alibaug, and hill stations like Dehradun, Rishikesh and Mussorie. “In case of second homes, aesthetics plays a significant part. Customers want houses that offer a view of the sea or the mountain,” says Saran, whose firm concluded a deal for a second home worth Rs 80 crore in Goa recently.

Comprehensive due diligence is imperative

Check the title, especially when purchasing from the secondary market. “The title should be marketable. There should be a proper trail of documentation since the property was allocated to the first buyer,” says Saran.

Watch out for issues such as disputes within the seller’s family. “Either the property or the seller should not be embroiled in court cases,” says Moorthy. He further warns that a lot of non-performing assets are coming into the market, so buyers should be wary of being sold a mortgaged property.

Since most buyers would find it difficult to conduct thorough due diligence themselves, they should hire a real estate consultancy firm to carry out this task on their behalf.

Check the prices at which recent transactions happened within the building in which the property is located. This will ensure you pay a price in sync with current market rates.

Also, get physical measurement of the property done. Given the high per square feet rate of these properties, even a small discrepancy of 100-150 square feet would amount to a considerable loss.

Before buying an under-construction property from a builder, check his financial capacity. “Building a luxury project requires a huge sum. If the builder does not have the necessary liquidity, your investment could turn into a risky proposition,” says Puri.

Finally, bear in mind that luxury properties come with high maintenance costs. If you are not going to live in the house yourself, and don’t plan to rent it out either (many don’t for fear that the tenant may not vacate), then you will have to dole out a considerable sum each month from your own pocket for maintenance.

How to avail of Section 54F benefit

• This benefit can be availed on the sale of any capital asset (barring residential house property), including stake in a company
• The gain must be long-term capital gain
• A residential house property must be purchased to avail of this benefit
• The house property must be bought one year before the date of transfer of capital asset or within two years of date of transfer (three years if you are constructing a house)
• The new house should not be sold before three years
• Assessee should not own more than one residential house property on the date of transfer of capital asset
• The assessee must not purchase or construct any house property during the two/three-year period
• The entire net consideration received must be invested in the new residential house property to fully exempt the capital gain
• If this is not done, the assessee will be eligible to claim exemption proportionate to the amount of investment    

Source: RSM India

Table: Projects in the luxury segment that are available today

City	Project	Developer	Starting price (Rs)	Project status
Gurgaon	Krrish	The Eiffel Krrish Group	27 crore	Delivered
Gurgaon	Puri Diplomatic Greens Villas	Puri Construction	10.62 crore	Delivered
Gurgaon	Ambience Caitriona	Ambience Group	11 crore	Ready to Move
Greater Noida	Gaur Mulberry Mansions	Gaurs Group	14 crore	Mid stage
Delhi	DLF Kings Court	DLF	18 crore	Ready to Move
Delhi	KST Chattarpur Villas	KST Infrastructure	14 crore	Delivered
Gurgaon	DLF The Camellias	DLF	18 crore	Ready to Move
Gurgaon	DLF The Magnolias	DLF	14.50 crore	Ready to Move
Bengaluru	Prestige Edwardian	Prestige Group	10.55 cr	Ready to Move
Bengaluru	Nitesh Park Avenue	Nitesh Estates	10.56 cr	Mid Stage
Mumbai

HBS Tower HBS Realtors 15.81 cr Under Construction Mumbai Lokhandwala Minerva Mahalaxmi Lokhandwala Infrastructure 13.86 cr Under Construction Mumbai Radius One Mahalaxmi Phase 1 DB Realty 10.46 cr  Under Construction

Source: Square Yards Research