The value of the luxury residential apartment market in India

November 15, 2012 / By

Luxury housing is emerging as one of the most vibrant and dynamic real estate segments in India. The growing demand for luxury housing that can be attributed to the rise in the number of HNWIs, the rapid pace of urbanisation, the influx of global lifestyle trends and fast-growing service industries are propelling many middle-income group individuals into the HNWIs bracket. The recent fall in the value of the Indian rupee in the global financial markets has boosted Non-Resident Indian (NRI) buyers’ interest in investing in luxury housing and encouraged most celebrated developers to launch projects with exceptional facilities.

The difference in the cost of construction between a mid-end/high-end apartment and a luxury apartment is less compared to the premium that can be obtained from the sale prices of such properties. It is 30-40% more expensive to build a luxury residential project instead of a mid-end/high-end project, while the sale price of a luxury project is 60-80% higher. Of course, this price depends on location and varies from city to city, as luxury residential projects could have higher risks and longer gestation periods compared to mid-end/high-end projects.

Value of Luxury Residential Projects Launched in 2008-2012

*2012 figures include projects launched in 1Q-3Q12
Source: Research and REIS, Jones Lang LaSalle

Around 200 luxury residential projects were launched between 2008 and 3Q12 across India’s top-seven cities. Following the global financial crisis, the value of new luxury residential projects peaked at USD 9.9 billion in 2010. Year-to-date in 2012 the value has fallen to USD 4.7 billion due to developers being more focused on completing existing projects.

City-Wise Market Share of Luxury Residential Projects Launched in 2008-12

*2012 figures include projects launched in 1Q-3Q12
Source: Research and REIS, Jones Lang LaSalle

NCR-Delhi, Mumbai, Bangalore and Chennai had the greatest market share of these launches. The luxury residential segment is emerging in Tier II cities. NCR is the clear leader of new launches, holding a large market share in the last five years. In 2012, the share has fallen to 24%, which may be due to developers focusing on selling un-sold inventory and executing existing projects.

Mumbai is most affected by any global financial crisis. As such, the city showed poor performance from 2008-2009 in terms of luxury launches. However, the city’s activity resumed in 2010, before falling in 2011 and 2012 due to the freeze of approvals for new launches. The Bangalore and Chennai markets are quite stable and growing significantly in the luxury housing domain.

The residential market is currently going through a phase of slow demand, although the growth of luxury housing looks moderate and demand is stable, giving buyers the opportunity to negotiate. Despite the fact that the values of luxury homes are likely to increase significantly over the medium-to-long term, over the short term, no price increases are expected.

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