JLL: Gurgaon’s high pull factor for luxury home buyers

The following is the report by Santhosh Kumar, CEO – Operations & International Director, JLL India

Gurgaon is one of the major corporate hubs in the country with presence of nearly 500 MNCs and even higher number of Indian corporate giants. This is also one of the reasons why Gurgaon attracts a lot of expat population, who prefer Gurgaon because it offers them a best-in-class lifestyle equation:

• High Living Standards: Gurgaon offers a good choice of luxury housing, with a number of luxury housing projects that are either operational or nearing completion/under construction. These high-end luxury apartments boast of world class amenities that expats look for in their residences
• World-class educational and healthcare facilities
• Presence of high-end malls, shopping centres and multi-cuisine restaurants that offer food of all major world cuisines
• Good MRTS (Rapid Metro) system which has massive expansion plans
• Close proximity to airport
• Rapidly growing infrastructure

The luxury homes preferred by HNIs in Gurgaon are spacious apartments with ample daylight exposure, high end fit-outs, full power backup, well equipped swimming pools, gyms, library facilities, etc. There is no shortage of such homes. As a rule, luxury developers in Gurgaon have pulled out all the stops in outfitting their offerings with world-class interiors and amenities. True luxury in this market does not support half measures, with the target clientele being HNIs who have travelled the world and expect the best.

Many developers in Gurgaon are taking no chances at all with the aesthetics of their high-end offerings, and have tied up with globally reputed design firms to provide the edge-winning flourish to their projects. Some examples of such projects are:

Returns on investment – a more sombre story

For all the positives that can be highlighted about Gurgaon’s luxury homes market, the fact is that the capital values appreciation trend in Gurgaon has in fact slowed down considerably. From a remarkable appreciation high of 17.8 per cent y-o-y in 2011-2012, the trend tapered down drastically to 3.7 per cent y-o-y in 2012-2013 and declined further to 1.1 per cent y-o-y in 2013-2014.

At the current point in 2015, luxury capital value appreciation in Gurgaon remains at this point. Capital values for luxury apartments average at around Rs. 11,425 per sq. ft., though this figure applies only to actively selling projects and is not representative of individual projects which are sold out. Capital values three years ago ranged between Rs. 10,900-11,300/sq.ft.

Though there is not much to be currently said for Gurgaon in terms of ROI based on capital values growth, demand for luxury homes remains healthy. From our current market readings, buyers are not looking so much at appreciation as on the opportunity to secure luxury homes in Delhi NCR’s most glamourous, best-connected business hub.

Also, a significant amount of the demand for luxury homes in Gurgaon comes from investors geared towards rental income. Many high-end apartment seekers prefer taking uber luxury homes on rent over outright purchase. Gurgaon has, in fact, emerged as a well-defined market for investors focused on luxury homes, which accounts for the steady supply of rental options available in the most desired locations. This, despite the fact that luxury rental values in Gurgaon also underwent a correction of around 11 per cent y-o-y in 2012-13, thereafter seeing only a marginal recovery of less than 1 per cent .

Supply Trends

• Currently, the stock of luxury apartments in Gurgaon stands at around 32,000 luxury apartment units that have been launched
• Of this total number, a little over 4,300 units are available for sale in the primary market
• At the current sluggish rate of absorption, this represents a supply of around 75 months. However, this is not an indication of the moderate to healthy demand being seen in the secondary market for such projects.

Future Scenario

In the future, Gurgaon’s luxury real estate market is expected to pick up momentum on account of:

• Demand fundamentals remain strong on account of healthy office space absorption and the city’s position as the preferred residential destination for upper levels of management across various corporations.
• Quality of construction, amenities, specifications and proximity to social infrastructure will continue to act as drivers for improved demand momentum.
• Luxury housing is based on concepts of niche address and limited upcoming supply, especially on the Golf Course Road
• Interest rate softening may have a positive impact as end-user buyers, especially salaried professionals (the upper-tier management) are looking to upgrade to luxury accommodation by selling off older investments and bridging the gap through bank loans
• Secondary market transactions for completed and close to completion projects is likely to inject momentum in the primary market going forward.