An aspirational asset class

While luxury residential real estate never goes out of fashion as it is an aspirational asset class, at times it does take a back seat to align with markets and economic environments. The current disrupters for luxury residential realty in the given scenario are:

Government initiatives providing a fillip for affordable housing

In the Union Budget for 2017-18, the government announced infrastructure status to affordable housing. It is offering various tax incentives and funding for development of affordable housing. These incentives have caught the developer’s attention and encourage them to build affordable housing, rather than luxury housing.

Also, the government has formulated draft Public Private Partnership (PPP) policy for Affordable housing in India, which has six models to develop affordable housing on government land with monetary benefits to the developer. This policy will enable developers to build affordable housing by bearing only project cost and recovering it by selling and cross subsidizing in other projects.

These policies may shift developer’s focus from luxury housing to affordable housing due to its tax benefit and other compensations. Renowned developers in the luxury housing segment have developed strategies to develop affordable housing and earned the benefits of it.

Regulatory reforms, such as RERA, have affected the overall residential market and developers are waiting for the clarity in such regulations. Due to this, the residential market is observing shrinkage in the launches of the projects in the segment.

Given that residential prices are increasing and commenced correction, the price correction is expected to hit luxury realty the most

Residential property prices have surged in past couple of years. Luxury apartments have big ticket sizes and can be purchased by a very limited part of the society. This price correction has happened during 2011 – 2014 and these inflated property prices will affect the luxury market.

Demonetisation is one aspect that brought cash crunch in the market and has affected the luxury housing segment. Real estate is considered as one of the best investment options to park money, earned from undisclosed income sources, but the cash component in the property purchase has reduced significantly, leaving only limited set of buyers in the luxury segment.

Amenities and benefits available to luxury projects are now being offered at premium projects as well, thus reducing significantly the delta between the two segments

Developers offer various amenities to attract buyers, however, nowadays premium and luxury housing projects offer the same quality of amenities which reduces the gap between these segments. Luxury housing projects offer technologically advanced, smart home components and exclusive brands, sponsored amenities such as interiors by famous designers, design imported from the foreign architectural firms, spa services by globally renowned brands, high end kitchens, multipurpose clubhouses and robust surveillance systems.

These amenities are provided by some premium projects which are in the peripheral micromarkets of the city, where land prices and property rates are comparatively lesser. For the buyer segment, which focuses more on the amenities, large green spaces, integrated facilities such as international schools, etc., offer a lucrative option to invest in premium properties in peripheral areas. Some of the country’s ambitious luxury projects are located in such areas where plot sizes are comparatively smaller which restricts the provision of green spaces.

GST IMPACT

GST, which has imposed its highest tax slab on the construction materials, such as building blocks, ceramic tiles, cement and prefab structural components, is bound to affect the under construction and upcoming luxury housing projects which will get costlier and the segment may observe dwindled launches for the short term. Luxury housing at places where land prices are higher might witness surge in property prices.

Key options

High prices of the luxury segment in India may lead buyers to invest in properties in international real estate markets, such as Middle East and United Kingdom.

Ravi Ahuja
Executive Director, Office Services & Investment Sales, Colliers International India