Luxury Housing Back on Track with NRI Investors

The Indian luxury property market may not have been very attractive to the resident Indians in the recent past – but it scores high with the NRIs due to their greater buying power. Multiple factors draw the attention of NRIs towards this segment. For one, it promises a high standard of living to them if they chose to return to their country of origin.

Also, the rentals can be decent if the property is located in a prominent employment hub. This segment has also not seen the kind of huge unsold

inventory that was witnessed in mid-income housing, largely because builders consciously restricted new supply in this segment over the last couple of years.

As per recent research by ANAROCK Property Consultants, the overall unsold inventory of luxury homes (priced Rs 1.5 crore – Rs 2.5 crore) declined by 12% to 42,650 units in Q1 2019 from 48,300 units in Q1 2018. Bangalore led from the front, recording a significant 49% reduction in unsold luxury stock within a year – from 6,370 units in Q1 2018 to 3,260 units in Q1 2019. Bangalore was followed by Kolkata with a 37% decline in the unsold luxury stock, and NCR & MMR each witnessing a 7% yearly decline.

Concurrently, unsold stock in the affordable segment saw an increase of nearly 3% as maximum new launches catered to this segment during the period.

Luxury real estate hotspots in key Indian cities

One major feature distinguishing luxury and ultra-luxury properties between various cities is its price range. For instance, properties priced greater than INR 1.5 crore are considered ultra-luxury in Bangalore while in Mumbai properties priced above INR 4 crore fall into this category.

Some prominent luxury markets in the top cities:

• Bangalore: East Bangalore localities like Whitefield has seen the highest launches in the ultra-luxury segment (`>INR 1.5 crore), closely followed by the South & North zones
• Mumbai: South Central Mumbai areas (Worli, Lower Parel, Mahalaxmi, Tardeo and Prabhadevi) accounted for 81% of the total 27,000 new units launched in the luxury category (priced >INR 4 crore) in MMR since 2013 onwards.
• Hyderabad: The city saw the launch of nearly 1,920 units in the luxury segment (properties priced above INR 1.5 crore) in 2018 – a 154% rise from 2017. Most of these launches came up in West Hyderabad.
• NCR: Gurgaon and Noida are two prominent luxury hubs in NCR. From 2013 till date, the entire region saw the launch of nearly 12,900 units in the luxury category (priced >INR 3 crore). Of this, Gurgaon and Noida collectively comprised 87% share – 63% in Gurgaon and 24% in Noida.

With the resurgence of the Indian economy and the ongoing construction activity in this segment, there has been a concurrent rise in both end-user and investor demand for luxury real estate. ANAROCK Research states that the returns on investment for luxury and ultra-luxury homes are around 3-5% and 2-3% respectively.

Investment Rationale

Historically, NRIs typically bought luxury homes either for good ROI or for their self-use. After a prolonged wait-and-watch period post the recent reformatory changes in the Indian real estate market, the trend is now decidedly skewed towards personal use. As always, they have an eye open for attractive capital appreciation – luxury properties have an edge as the incremental value is higher than affordable or mid-segment properties if prices appreciate.

This may not look handsome at the moment, but HNIs and UHNIs are nevertheless refocusing on this segment for three reasons – NRIs’ predilection towards an aspirational lifestyle, the potential for better returns when market rebound meets restricted supply in luxury areas, and the fact that price points of most luxury properties are at their lowest, with developers additionally offering lucrative deals.

The most convincing incentives for NRIs to invest in luxury and ultra-luxury properties are:

• Higher potential for capital appreciation for properties located in prime areas
• Higher and steady cash flow (via rental income) of properties in prime areas as against affordable housing in far-flung areas.

ANAROCK’s recent consumer sentiment survey also indicates that 28% NRI respondents are looking to buy luxury and ultra-luxury properties (priced INR 1.5 Cr onwards) across cities. The perennial favourite of several NRIs since long, the luxury segment saw a declining interest post the reformatory changes in Indian real estate market with many NRIs hoping for price cuts.

The survey also indicates that 31% NRIs currently prefer to invest in a property in Bangalore. While Bangalore remains the favoured destination for NRIs to invest in luxury real estate, the Mumbai Metropolitan Region is not far behind – MMR has also seen decent new supply in the luxury and ultra-luxury segments over the last 5-6 years.

Pricing Dynamics

While the luxury housing segment did not witness major corrections over the last 2-3 years, there was no hike either. Many luxury properties are now selling at their lowest-best prices.

The pricing dynamics for luxury housing vary across the top residential markets. For instance, property prices in luxury and ultra-luxury segment in MMR range between INR 40,000-90,000 per sq. ft. on carpet area while in NCR they hover between INR 12,000-20,000 per sq. ft. on built-up area. In Bangalore, prices range between INR 7,500-14,000 per sq. ft. on built-up area.