NRI, HNI demand drives growth of luxury homes in India

The purchasing power of NRIs has increased in the past couple of years with the steady increase in the exchange rate of the US dollar.

NRI, HNI demand drives growth of luxury homes in India

Two factors that have spurred the growth of luxury housing in India, at a time when growth in the real estate sector has in itself been sluggish, are dropping prices on the one hand and increase in exchange rate of the dollar as compared to the rupee, on the other hand. Market surveys indicate sale of luxury realty went up in the year 2019 as buyers realised no time could be better than book units than when prices are low so that there could be high returns when the real estate market shows growth.

As per a study, over 2.3 lakh new housing units were launched in the year 2019 in the top seven cities of the country: Bengaluru, Chennai, Hyderabad, Pune, Mumbai Metropolitan Region, National Capital Region and Kolkata. Out of these, nearly 23,000 units or 10 per cent of the total number of housing units launched belonged to the luxury and ultra-luxury segment.

Luxury housing sales are basically driven by investor interest. The fact that 23,000 new luxury housing units were launched in the major cities of the country in a year of sluggish growth points towards the fact that investor activity in this segment has increased on the back of falling prices.

The purchasing power of Non-Resident Indians (NRIs) has increased in the past couple of years with the steady increase in the exchange rate of the US dollar. The US dollar (USD) which stood at around Rs 69.70 in January 2019 strengthened itself continuously over a period of 12 months and now stands at Rs 71.33 as of January 2020. Inward remittances by NRIs settled particularly in the US, the UK, Canada, the Middle East countries and some of the Southeast Asian nations have consequently increased. These remittances have been pumped into real estate with sizeable investments made into luxury residences.

Investments by NRIs in luxury housing units, including penthouses, villas and bungalows, have increased.

The NRI investor wants to pump money into luxury residential units which stand out from general housing units and have a niche for themselves. Partly it is due to the pursuit for social status. However, if the dollar continues to witness its northward growth over the next year, sales of luxury housing are set for an increase this year.

Another important factor for the growth in the luxury housing segment has been absolute increase in the number of high networth individuals in the country and their demand for residential units in this segment. As per a study published last year, India now boasts of 2,697 ultra networth individuals each having a networth of at least $30 million. The number of these individuals in the country grew by 118 per cent in between 2013 and 2018. The growth in numbers is expected to be 37 per cent in between 2019 and 2024.

High networth individuals often invest in multiple luxury houses. The prime factor driving this demand is location: it could be the hills, the lakes or sea beaches. With Asia poised to remain one of the key developing regions across the globe, the number of high networth individuals in India is only set to rise over the next decade. The challenge for developers would be to provide aesthetically designed luxury units to these individuals at the best locales across the country within stipulated time periods.

Demand for high-end luxury houses in attractive locales has consequently given birth to real estate micro-markets in territories of the country that had been previously uncharted by real estate developers. Millenials want luxury! And, therefore, key indicators considered by buyers while booking luxury or ultra-luxury homes go beyond swimming pools and recreation clubs.

Brand value of the builder developing luxury residential units is one of the primary factors at the back of the mind of buyers while going for purchases. Geographic locality, quality of construction and social profile of the neighbourhood are also considered as important factors while booking luxury or ultra-luxury residential houses. Appreciation of property value is yet another factor considered by buyers in booking luxury homes.

Over the past few years, real estate developers in India have roped in internationally-acclaimed designers and architects to keep up to the growing aesthetic demands of buyers in the luxury homes segment. State-of-the-art fittings for washrooms and kitchens including tiles and flooring material, best available technology as well as aesthetic and ergonomic designs are being imported by developers for constructing luxury homes.

The demand for luxury homes has driven real estate developers to scout for new land and avenues. Hubs of luxury residential units have been developed in Sohna Road and Golf Course areas of Gurugram, Whitefield in Bengaluru or the Central and North areas of Kolkata. Areas like Cuffe Parade and Bandra in Mumbai or Banjara Hills in Hyderabad, however, still command the best prices in luxury residential units in the country.

(By Vijay Verma, CEO, Sunworld Group)

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