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A New Chapter Opens for Indian Luxury Housing

Indian Housing

The residential real estate sector in India has had its ups and downs for two years now. Negative news about real estate seem to be all the rage with the media these days. Luxury real estate, in particular, has been getting very bad press of late. Let us take a quick look at what is really happening on the ground, and what is driving it:

  • India’s GDP growth for FY’17 has been pegged at 7.1%. The number of Indian ultra-HNIs jumped to 2 lakh in 2015 from 1.84 lakh in 2014; it currently stands at 2.36 lakh and is expected to reach 483,800 by 2025. India is currently home to the world’s fourth-largest population of millionaires in Asia Pacific region.
  • GDP per capita income in India is USD $2000 and will increase to USD $3500 by 2020. Higher incomes naturally translate into a higher appetite for luxury housing. Meanwhile, prices of luxury housing have corrected post demonetisation. They will not fall further, but the luxury homes buyer segment – including NRIs – is keenly aware that this is an optimal time to invest.
  • The Indian real estate market will almost double to $180 billion by 2020 from the $93 billion it accounted for in 2014, thereby accounting for 13% of the GDP compared to the current 5-6%. Luxury housing constitutes almost 4-5% of the total real estate market and with overall pie increasing, share of luxury housing is bound to increase

India is a constantly growing, developing country, and its housing deficit is the stuff of legends. Currently at around 17.5 million units, most of the deficit is in affordable housing – meaning very low-priced homes to house the bulk of the country’s homeless or those living in informal housing such as slums. This is the segment where demand is the highest.

The Mid-Income Housing Story

Mid-income housing – or housing that caters to the better-off middle class – also sees a lot of demand, but such housing needs to be in good locations with sufficient infrastructure, priced right and within reasonable completion timelines to attract the latent demand. The oversupply that exists in this segment is largely because many projects have fallen short of a few or all of these fronts.

Given the huge pent-up demand for mid-income housing, this supply will eventually be absorbed – excess supply is usually measured in the number of months it will take for it to be sold. In most Indian cities, there is excess supply in this segment because most of the demand is from end-users, not investors. There is a basic lesson here that Indian developers were slow to learn, and by the time they woke up to it, they were saddled with a lot of very slow-selling inventory. The lesson is that investors are no longer a major force on the residential market – most markets are primarily driven by actual buyers.

The previous boom years had seen a lot of real estate speculation happening. Investors were literally bulk-buying into cheap under-construction housing projects in hot emerging development corridors. Their intention was to buy cheap and sell at considerable profit when the projects were complete, the locations picked up and demand for homes there rose. Developers had gotten quite used to this phenomenon, and launched housing projects at breakneck speed.


The Luxury Housing Story

At the height of India’s initially exuberant Infotech boom, luxury housing was also in great demand. Young software professionals, seduced by unnaturally fat salary packages, took massive home loans from banks and bought into fancy homes with all the trimmings and accoutrements of a wealthy, enabled lifestyle. Their managers and CEOs went in for even fancier abodes, again heavily leveraged through loans. Stock market speculators, also riding high on the waves of massive profits, were not far behind.

NRIs drawing astronomical salaries or running successful businesses abroad were constantly raking money into luxury homes back in India. Not surprisingly, investors were snapping up luxury condos as fast as developers could churn them out.

Then came the Dotcom bust, and the global economic meltdown after Lehman Brothers collapsed – and things were never quite the same again. India’s economy took a series of crippling hits. Software techies saw their salaries shrink, stock market profits evaporated, jobs became scarce and a large chunk of hitherto prosperous NRIs were struggling to stay afloat in their countries of residence.

Back in India, developers of luxury housing took a very long time to wake up and smell the coffee. The rollercoaster ride was over, but that fact was hard for them to digest and even harder for them to act on – the news was just too grim to take seriously. Luxury housing involved fat profit margins which they didn’t really want to say good bye to. However, the writing was on the wall – mass investor bookings in luxury projects were now a thing of the past.


And if that wasn’t enough, Narendra Modi demonetized the most circulated high-value currencies in October 2016. Luxury housing had almost always involved a lot of cash in the transactions, making it an ideal place to park unaccounted cash.


  • Almost 45,000 luxury residential units were launched in FY’16 in the top 9 cities, constituting almost 21% of total residential launches. Bengaluru leads with 30% of luxury home launches, followed by Mumbai with 17% of luxury home launches.
  • Bengaluru also leads with almost 29% of total luxury home sales in FY’16, followed by Mumbai with 16% of sales and Pune coming third with 15% of sales. In total, 47,000 luxury units were sold in top 9 cities, making up 17% of the total residential sales in the country.

Evidently, the much-hyped gloom and doom story is vastly exaggerated. The fact that media stories which predicted that luxury housing in India was finished ignored is that luxury housing caters to a specific segment of demand which, like the demand for budget and mid-income housing, has not gone away. India’s wealthier homebuyers still want high-class homes with all the bells and whistles of sophistication in great locations.

Unlike affordable and mid-income housing, the market for luxury homes is not driven so much by home loans as by personal wealth. Where home loans are involved in such housing, they are backed by sizeable down payments and fully-assured repayment power. Nobody who is not confident of his or her ability to see such a transaction to successful completion will even considering such a purchase today. Also, investors active in this segment operate within a fail-proof inner circle of well-heeled clients for whom the question is not ‘if’, but ‘what’, ‘how much’ and ‘when’.

The market for luxury homes continues to thrive within the specific segment of discerning, affluent buyers who continue to looking for nothing but the best.