Luxury homes continue to fly off the shelves, but will prices moderate?

Delhi based real estate major DLF recent launch 'Privana West' comprising 795 luxury flats in Gurugram valued at ₹5,590 crores were sold in just three days. 27% of buyers were NRIs. This follows January’s sales of nearly ₹7,200 cr of Privana south prelaunch, also in Gurugram. The luxury housing segment has been buzzing in India post-pandemic and shows no signs of slowing down. In the company’s earnings call, MD and CFO of DLF Ashok Tyagi says anything which is more than ₹18,000, ₹19,000 a square foot, the company now classifies as luxury. While Privana which in its earlier phases could have been a premium segment, is now turned into luxury segment, given the price realisation of nearly ₹19,000 per sq ft.

While the price points of luxury across metros vary and continue to be so, even the definition of luxury homes differs among real estate companies. For instance, in MMR and NCR, luxury home price points could start at ₹5 cr and above, in others like Bengaluru and Hyderabad, a home priced at ₹2.5 cr or more could fall in this bracket.

Chalking a 5 year trend of the luxury home trends in India Anuj Puri, chairman – Anarock group states that the pandemic has been an indubitable boon for the previously lacklustre luxury homes segment, with sales and new supply increasing manifold since then.

According to Anarock research, in pre-Covid 2019, luxury homes accounted for 11% of the overall new supply in top 7 cities. In Q1 2024, the share of the luxury housing segment has gone up to a whopping 25%. While 2019 saw only around 25,770 units launched in the luxury segment throughout the entire year, in just the first quarter of Q1 2024 nearly 28,020 luxury homes have been launched. (GFX - Incase there is time to make it - Luxury Housing Supply Share across Top 7 Cities last 5 years) "Besides the demand escalating across cities for luxury homes, increased new luxury supply by branded developers (particularly in cities like Gurugram) has also led to a major uptick in sales across many cities. Moreover, post covid, buyers are looking for bigger homes, which is one of the key features of a luxury home," says Puri.

The need for larger homes, coupled with renewed faith in the real estate segment as an investment mode, along with increasing numbers of people entering the luxury home affordability bracket, has helped fuel the demand in terms of large volumes in this segment, according to Abhishek Kapoor, ED & group CEO of Puravankara "It is the economic strata that is changing, with more and more people moving for upper middle income buying in luxury segment. Even within the luxury category, people are moving from large homes to even larger homes with newer amenities as they move up the wealth ladder," he says pointing out that most of the buyers in this segment are looking for an upgrade.

Puravankara Ltd is also betting on luxury and ultra-luxury as it plans to enter this segment in Mumbai, central pune, central Chennai and Bengaluru and as a strategy looking to have a little over a third of its revenue coming from the luxury segment.

It is not just the volumes of sales in luxury projects that have increased; the segment has also seen a good hike in price points. According to a recent joint report on house prices by Credai, Colliers, and Liases Foras, average housing prices in India rose 10% YoY at ₹10,485 per sq ft during Q1 2024. While eight metro market segments saw an annual increase in housing prices, Bengaluru witnessed the highest rise at 19% YoY, followed by Delhi NCR at 16% YoY. On a quarterly basis as well, housing prices across most cities witnessed a noticeable 2-7% increase, according to the report.

However, Ravi Shankar Singh, managing director, Residential Transaction Services at Colliers India, says that considering the complete stagnation from 2014 until the end of 2021, the current price hikes might not seem phenomenal. "If we compare the last two years to where it is now, it's mind boggling, but if one takes into account when the last such hike was seen in the segment, it is just around 8-9% CAGR." Singh also attributes the startup money, especially ESOP money flowing into real estate as a significant factor for the luxury segment, with late 20s and early 30 year olds entering this segment of the market.

That said, Abhinav Joshi, head of Research, India, Middle East & North Africa at CBRE, who believes that 2024 will witness an even bigger and stronger buyer appetite for luxury and slightly more premium homes, says that this segment in India is reaching a certain size and scale now.

"When you are at a much smaller scale and base the growth is faster, when the base is much larger, the growth would normalise, and prices stabilise and we can't consider this segment niche anymore," says Joshi.