Luxury properties make a good bet, but only if you are buying for self use

Don't get into high-end homes to make quick money, as the market is currently witnessing a correction and there is less capital appreciation in the short term

Badly bruised by the long slowdown in real estate, further precipitated by the disruption caused by key reforms of demonetisation, RERA and GST, luxury real estate is showing signs of recovery, albeit with a little difficulty.

While the year 2018 saw some recovery in residential real estate, with pick up in affordable housing, luxury housing is still struggling to stage a comeback. The market statistics are a pointer to this. 

According to Proptiger.com data for January-October 2018, a total of 10,591 luxury units were sold in top nine cities. The data compiled by real estate research and advisory Meraqi shows that there is a slowing demand of homes priced above Rs 50 million, with an inventory of 2,000 units. The segment on an average clocks sale of 150 units a year. As of today, the fate of around 640 units hangs in balance, with over 50 per cent of inventory being over five years old. Anarock data shows that there was a total decline of 41 per cent in supply in 2017 compared to previous year. Luxury homes  (above Rs 15 million) registered maximum fall of a staggering 49 per cent. Out of total unsold stock as on Q3 2018 across seven top cities, luxury housing comprised 12 per cent.

The slowdown in luxury housing demand, according to Sanjay Dutt, MD & CEO, Tata Housing is there as everyone waits for  better values. He says it is locations that are not established or least established  in HNI markets, but are promoted through branding and architecture, which have taken a strong hit. Anuj Puri, Chairman, Anarock Property Consultants says that luxury housing has been most hit due to demonetisation, as the segment attracts the bulk of unaccounted money in both primary and secondary real estate markets. Niranjan Hiranandani, Co-Founder & MD, Hiranandani Group adds that buyers' shaken faith in under-construction properties has seen lower offtake of luxury housing across India.

Sudhir Pai, CEO, Magicbricks.com  attributes sluggish demand in luxury housing to flat prices coupled with relatively low yields of about two per cent. And as such wealthy investors who invested in luxury housing, have now moved on to other investment avenues for better returns. Gorakh Jhunjhunwala, MD, Meraqi  endorses Pai, saying that owing to 3-4 per cent appreciation in luxury homes over the last 7-8 years, cash rich individuals /investors are now evaluating non-traditional real estate asset classes to optimise their investment values and returns. Ankur Dhawan, Chief Investment Officer, Proptiger.com attributes poor performance of luxury housing to increasing rental yields in the commercial segment, which has emerged as an alternative investment vehicle for business persons.

Small is beautiful

Developers like Hiranandani say that the slowdown in luxury housing has been accentuated as builders have not been paying heed to what the market wants. "As per market feedback we tweaked our models and offered 2-BHK boutique homes in Hiranandani Gardens, Powai, Mumbai and had good sales".  

Sudhir Pai endorses the view that  developers of luxury segments have taken to compact boutique homes and affordable villas. In southern states, rich individual investors are investing in plotted developments of good developers. It is a win-win for both developers and buyers.While for developers, sales are healthier, with faster monetisation of land, for buyers, it is a low and  risk-free investment with high liquidity value. Hiranandani Group reaped rich dividends by offering premium villa plots within Hiranandani Parks Oragadam, clocking healthy sales.

In order to beat slowdown, developers of luxury housing have been offering deals and discounts. The trend of affordable luxury also caught the fancy of home buyers. " There is always demand for such projects as they are targeted towards aspirational buyers while also offering some amenities generally offered in the luxury segment,"says Samir Jasuja, MD Prop Equity. Affordable luxury homes , according to Anuj Puri have all the trappings of luxury but are not in established locations. Developers are  leveraging lower land  values in suburban locations in order to deliver luxurious experience to budget buyers. 

Dutt of Tata Housing says that the trend of affordable luxury is visible in locations which are lesser established but may have future prospects. 

The luxury housing market has been seeing other distinct trends in the recent years. The market has moved from investors to largely end-users. Ankit Kansal, MD, 360 Realtors says that most of the high-end buying is for end use. And since they have little appetite for risk taking, they are preferring ready-to-move units compared to under-construction units to avoid development risk. With the emergence of new breed of self made and flamboyant millionaires, developers, according to Jhunjhunwala, are taking to bespoke luxury homes. And above all, as the luxury housing market has turned end-user and unlike in the past, speculators with an eye on profitable resale are missing, sales are driven more by end-users than investors.

Year 2019 likely to be better

Going forward, what is the outlook for luxury housing and does it make a business sense to invest in it?   Kansal says that there are loyal customers of luxury projects including NRIs, businessmen, CEOs, political figures, big farmers, industrialists and such like. Dutt of Tata Housing sees good prospects for luxury housing, adding that with highest remittances and increasing billionnaires, luxury housing will witness luxury housing taking larger share in terms of value in the coming years. Jasuja is also hopeful of luxury housing doing well. "Barring a few cities, overall supply and absorption have marginally increased in comparison to previous year. Projects nearing completion are seeing good demand besides there is healthy demand from NRIs," he says. 

Hiranandani expects 2019 to be a rocking year as reforms bring in transparency and security.

What are the prospects for investing in luxury housing and what should be the right investment strategy? Jasuja sees good prospects considering that it is going to be buyers market for next 6-8 quarters. But as the market is currently witnessing a correction and there is less capital appreciation in the short term, one should invest in luxury housing for self use only. Puri says that one should not expect exuberant profits in the short term in the current market, though investors with a bigger budget and higher risk appetite for a long-term may invest in luxury housing. He advises to go for sound location for future appreciation, checking the financial capability of developer to avoid risk. Kansal calls for checking the credentials of the contractor, project management and consultants, apart from the developer. Sums up Hiranandani, "Largely, real estate  investment is about enhanced capital values or rental income. For some, real estate is ideal for wealth creation. For such people going into 2019, a luxury real estate investment will be an attractive option, as it will emerge as an asset class of choice offering excellent ROI." 

What's on offer in the luxury space
City	Project	Developer	Location	Min Budget	Max Budget
Gurgaon	The Magnolias	DLF Group	Golf Course Road	154,000,000	267,000,000
Gurgaon	DLF Aralias	DLF Group	Golf Course Road	133,500,000	242,000,000
Mumbai	Indiabulls Sky	Indiabulls Distribution Services Ltd.	Lower Parel	100,000,000	200,000,000
Delhi	Unity The Amaryllis	Unity Group	Karol Bagh	15,600,000	75,400,000
Delhi	DLF Capital Greens	DLF Homes	Moti Nagar	12,400,000	23,600,000
Mumbai	World Crest	Lodha Group	Lower Parel	108,000,000	180,000,000
Chennai	Express Exclusive	Express Infrastructure Pvt Ltd	Mount Road	67,402,500	165,700,000
Mumbai	10 BKC	Radius Developers	Bandra Kurla Complex	44,000,000	130,000,000
Bangalore	Embassy Lake Terraces	Embassy Group	Hebbal	39,000,000	130,000,000
Pune	Verde Residence collection	ABIL	Kalyani Nagar	47,700,000	59,700,000
Hyderabad	Brigade At No 7	Brigade Group	Banjara Hills	45,600,000	70,300,000
Source: Magicbricks.com