The Necessity of Luxury

With India’s HNIs expected to triple by 2018-19 and a growing interest among NRI investors, luxury real estate grows at 26% as affordable housing plunges by 80%

Published: 12th July 2015 03:43 AM  |   Last Updated: 12th July 2015 03:43 AM   |  A+A-

Tall virgin towers, dressed-up, made-up, stand on either side of big broad roads, waiting to be picked up. Like mistresses conscious of self-worth, they tempt and trap those who can afford the lust of their lure. Meanwhile, the affordable homes that promise shelter and companionship for a lifetime are aging without having met their suitors. Realty just got real.

Affordable housing has two segments: houses in the price range of Rs 7-15 lakh (low income group) and Rs 30-80 lakh (middle income group). The luxury segment starts from Rs 3-4 crore. According to property consultant firm Cushman & Wakefield (C&W), the affordable housing sector saw a 50 per cent year-on-year decline during the first quarter of 2015 over the corresponding period a year ago, with new ventures touching just over 24,700 units. The report went on to indicate that new launches in the high-end segment saw 26 per cent growth but affordable housing plunged by a sharp 80 per cent. Recently, New Modern Buildwell, a Lucknow-based builder, has decided to invest Rs 1,000 crore in a tie-up with Fashion TV to develop an ‘ultra-luxury’ residential project in Lucknow. “India’s luxury real estate segment is the fastest growing in the sector with an investment portfolio totalling up to 40 per cent in the realty market across the nation,” the company said in a statement.

Luxury homes adhere.JPG 

Shubhranshu Pani, managing director, Infrastructure Services, Jones Lang LaSalle, says the luxury segment isn’t entirely insulated from economic turbulence, but is suitably cushioned by virtue of the surplus capital involved. “Today, affordable housing doesn’t have as many sales to justify construction and EMI cost, which are the two major cash outflows. The luxury developer, on the other hand, will make one sale and be able to sustain himself,” he explains. Also, the number of houses in a luxury complex wouldn’t be more than 20, and a minimum of 100 to 200 apartments form a regular residential complex. So, the chance of an affordable home remaining vacant is higher. Making the divide sharper is the government’s new norm that requires buyers to put out a 20 per cent down payment. Obviously, it is far easier for a luxury buyer to cough up that amount, as the masses would rather choose to wait for a fall in prices. “Between 2006 and 2012, the appreciation was huge so buyers were relentlessly looking at properties. Right now the appreciation in most real estate markets has stopped, so there is no hurry,” says Pani.

Amarjit Bakshi, managing director of luxury residential estates Central Park, Gurgaon, points out that luxury real estate enjoys a large purchase cycle. This means the time lag from decision-making to purchase is high. “Given the high investment involved, prospects generally take 6-12 months in finalising the property, checking if the amenities offered fit with their lifestyle,” he says. 

Luxury 1.JPGAccording to a report by Ernst & Young and Kotak Wealth Management, the number of HNIs in India, which stood at 117,000 in 2013-14, is projected to nearly triple to 343,000 by 2018-19. In the current scenario, Tata Housing is growing its luxury portfolio and related customer base through sales, offline and online. The company has sold more than 30 units in the premium and luxury segments in 2014-15 for Rs 75-80 crore just through its e-commerce portal. “Today’s globe-trotting Indian consumer has experienced world-class luxury and is demanding products that echo European, Singaporean, Spanish and Mediterranean styled residences,” says Brotin Banerjee, managing director of Tata Housing. The company launched India’s first residential development Myst, designed using biophilic architecture in Kasauli, Himachal Pradesh. Prive, their luxury villas in Lonavala, a hill station in the Pune district, have been designed on the theme of open architecture. Here, the integration between outdoor landscaping and indoor space has been ‘synchronised to maximise views’.

Is luxury identifying and declaring new pin-codes of pride?

“Yes, that is the belief with which long-term investments are made, says Rajeev Talwar, managing director of DLF Developers Ltd. “What seems remote at the moment might soon be seen as well-spaced-out compared to congested colonies. New landmarks, new perspectives,” he says and cites the example of Malcha Marg in New Delhi and Banjara Hills in Hyderabad that turned into prime properties much after they were constructed upon. Does this mean tier 2 and tier 3 will find new purpose through luxury homes? While Talwar limits the prospects to a possible ripple effect. Amit Modi, vice-president, Confederation of Real Estate Developers Association of India (Credai), Western UP, says new locations don’t become luxurious unless there is an exceptional reason behind it. “Projects catering to religious tourism in places like Shirdi or vacation homes in Goa, Shimla and Kasauli are catching up. But if you go by numbers and demography, the Tier 1 cities have an edge due to population advantage,” says Modi. The geographic worth of the landscape and the property’s spatial interaction with it is paramount.“This is why luxury living is still concentrated in South Mumbai and some pockets of Gurgaon,” explains Pani of JLL.

Luxury.JPGRecently, there has been a decline in prices in luxury housing in cities like Singapore and London and India still has a huge real estate inventory to take care of. This leads to an excess of supply with corrective pricing that is enough to draw in HNIs and NRIs who make multiple investments in this segment. Pankaj Kapoor, managing director of realty research firm Liases Foras says there are certain pitfalls to this. “Foreign investors expect 20 to 25 per cent return on equity and Indian real estate cannot offer this. We are a housing shortage country and big money is being spent on brokers to attract foreign buyers,” he says, damning the concept as a disservice to the country. Less than 50 per cent of luxury properties are occupied. Talwar of DLF says the problem lies in the artificial time lines the developers set for themselves. “In most countries, it takes at least six to seven years before the house is ready to move in. In India, there’s pressure to churn out houses in three to four years,” he says. This leads to delays and puts the credibility of the builder into question. In a long cycle industry, people cater to booms and then repent. “When the boom comes and you announce a project, a price bubble is formed. If the cycle doesn’t last, foreign investors want to pull out their money and crash-abandon the project,” adds Talwar. 

The road ahead needs to be better paved, on both sides. One side is to be managed by the government, which needs to introduce policy shifts. “We need cheaper capital. Anything less than 15 per cent is manageable, far less than the 20 to 25 per cent that exists today,” says Kapoor. Along with this, they should ease bank lending to developers, impose vacant land tax and curtail the investor’s participation in the construction. The other side can be fixed by developers, who need to build a niche within their segments. “Why should affordable projects not offer club facilities or a swimming pool? There is no need for a niche to draw investors. Build credibility by offering quality services that allow individual buyers to customise their homes to the pull of their purse strings,” feels Talwar, envisioning a smoother confluence of necessity and luxury.

Neither a mistress of whimsy nor a wife of basic survival should wait vacantly on either side of a road in a country where people are largely homeless.

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