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A significant number of home buyers in the luxury segment look at these as positive investments. With the market down, there is little optimism about the investment value of luxury homes.

According to market insiders, the luxury segment is the most stressed of all segments in the real estate sector. This can be attributed to various regulatory measures like the Real Estate Regulatory Authority (RERA) Act and to weak market dynamics. Delayed delivery due to reinforced regulations and high Goods and Services Tax (GST) has weakened developers in the segment. The luxury market has seen a gradual shift in preference, which has shifted from pre-booking of under construction homes to ready-to-move-in offerings.

A recent report from the rating agency ICRA stated that around 58% of luxury apartments (more than 1,500 square feet each) are unsold in Mumbai. It stated various measures like reconfiguration of apartments to reduce ticket size and association with stronger developers to help the stressed developers to liquidate the inventory gradually.

Anand Kulkarni, Assistant Vice President and Associate Head – Corporate Ratings, ICRA, said recently, “Mumbai is one of the largest markets for the luxury residential real estate in the country. In line with strong growth of commercial activity in central Mumbai areas like Worli, Lower Parel and Prabhadevi, demand for luxury residential segment had started to pick up in the past. Many developers, including the organised ones, beefed up the supply in the micro market expecting further boost in demand. However, due to weakened demand for over the last two to three years, central Mumbai has witnessed significant high value inventory build-up.”

The Indian government has rolled out an assistance package for affordable segment projects. In the absence of such packages for the luxury segment, recovery is likely to be slow. 

Signs of recovery

There can be a gradual turnaround in the luxury segment.

Luxury apartments that are managed by hospitality chains are the new thing. Changing lifestyles and an increasing global outlook will propel the demand for these offerings. Additionally, tier-II regions having a strong tourism quotient can also provide a fillip to the luxury segment.  Luxury developers can do well to position such locations as second home destinations for the ultra-rich.

The overall unsold inventory of luxury homes (priced between Rs. 1.5 crore and Rs. 2.5 crore) declined by 12% to reach 42,650 units in Q1 of FY19 from 48,300 units in Q1 of FY18. Bangalore led this development, recording a significant 49% reduction in unsold luxury stock within a year – from 6,370 units in Q1 of FY18 to 3,260 units in Q1 of FY19. Bangalore was followed by Kolkata with a 37% decline in the unsold luxury stock and NCR & MMR, each witnessing a 7% yearly decline.

Non resident Indians (NRIs) can provide further impetus to the luxury segment. They are looking at luxury properties with a dual perspective - a luxurious residential property to stay if they choose to come back and a robust rental income generating mechanism till they are outside - especially with the rental business back in focus after the passage of the Model Tenancy Act. This trend finds reflection in ANAROCK’s recent consumer sentiment survey which states, 28% of NRI respondents are looking to buy luxury and ultra-luxury properties across Indian cities. Large-scale price adjustments in the luxury segment can be attributed for this renewed interest from NRI buyers.