Staggering yet true, the recent property trend is reflecting a fall in demand for affordable properties in India, while the luxury segment is rapidly picking up this season. Demand for affordable housing properties in the budget range of up to INR 40 Lakhs has been remarkably low at national level, at only 1%. At cities, demand in this segment has been fluctuating between 1-5% only. On the other hand, the supply of affordable housing properties is increasing at a fast pace; thanks to increased liquidity of banks and lucrative returns promised by the Government to attract more developers in this segment. And this has further worsened the scenario. The gap between demand and supply in affordable property segment has been most glaring in Hyderabad and Chennai, with an over-supply of 17-19%.
However, much to the surprise, demand for luxury properties is picking up gradually. At the national level, the rate of growth in demand in luxury segment has been around 30% for properties at Rs 1 crore and above. Increased demand has also been witnessed for properties in INR 30-50 Lakhs category, demonstrating the middle class’s willingness and ability to buy. Despite of growing demand, even the luxury segment continues to remain over supplied in most cities except in NOIDA and Gurgaon where the supply matched demand in the luxury segment, and Ghaziabad, where the supply of luxury properties is lagging behind demand by around 11%.
Over the last few years, luxury properties have been abundantly launched in India, with metropolitan cities being the major target destinations. Most developers have premium property projects in their portfolio since profit-per-apartment is remarkably higher in this category and also promises increased capital appreciation in the long term over other property assets. As a result, there isn’t a dearth of luxury properties in India, with demand also picking up gradually. For buyers, the advantages of investing in luxury homes are primarily inspirational since now their homes reflect their socio-economic condition. It has become a lifestyle statement to own a luxury home, and even the middle class is not shunning back from this.
Increasing Purchasing Power of Buyers
As India demonstrates a strengthening economy, gradually pulling up from financial crunch, and witnessing a growing influx of multinational companies, there is a significant rise in income in the country. Furthermore, the IT/ITES sector is rapidly developing, bringing in a huge influx of interested property buyers with the ability to invest in luxury homes. Now, people have more money in hand and subsequently, their lifestyle patterns have also changed. Over the years, the amount of High Net-Worth Individuals, with a fatter paycheck, has increased in the country. According to forecasts, by 2023, only China, United States, and Russia will have more billionaires than India. This further demonstrates economic spur in India, with a growing rate of high-income professionals and businessmen ready to invest in luxury properties.
Luxury Properties Make a Lifestyle Statement
As the purchasing power of property buyers in India is increasing, they are aspiring for a better lifestyle. In the endeavor to upgrade their lifestyle, they need a home that reflects their money, status, and growth. A growing appetite for items of luxury and pleasure, including premium homes, is being witnessed among HNIs and millionaires. Lavish spaces with expansive terrace, marble flooring, Jacuzzi and sauna, landscaped gardens, and splash pools have become the latest aspiration for high-income property buyers nowadays. This increased willingness in luxury properties is another key reason behind demand spike in this sector.
Easy Availability of Bank Loans
As per RBI’s new guidelines, banks are given more liquidity to offer home loans at lower interest rates for buyers in the affordable housing segment. Furthermore, processing of bank loans has also been made fast and simple. This is a government initiative to attract more buyers in this category, owing to a crunch in demand for affordable properties. On the other hand, several leading banks are also offering home loans up to INR 10 Crores to senior executives, and even more, for investment in luxury properties. For a borrower with good credit report and high pay scale, securing a bank loan for luxury properties isn’t difficult today. Moreover, one can also get lucrative interest rates with quick processing for a hassle-free experience. This attracts more home buyers to invest in luxury properties.
HNIs and billionaires don’t need to worry about paying off a major chunk of their income in paying taxes. Now, you can reap lakhs in tax savings by investing in a luxury property. The new budget allows first home buyers a deduction of INR 2, 00,000 on interest payment of their home loan. But, there is no limit if you can show that it is an investment and not meant for personal use. This way, one can save up to INR 2 Lakhs in taxes. Furthermore, home buyers who are yet to get possession of their property can also gain by claiming the total accumulated interest payout during the construction period as deduction over the next 5 years once they have possession. Investments in more properties will save you even more taxes. This is yet another reason why the focus of buyers is shifting from affordable homes to luxury properties, the obvious reason being tax savings on their hard-earned income.
Growing Demand from NRIs
With more developers launching luxury properties, followed by foreign investments, a growing demand among NRIs has also witnessed in recent years. According to a latest report, NRIs is contributing majorly to growing demand for luxury properties in the country. Depreciation of the Rupee in international market, India’s strengthening economy, political stability, and lucrative interest rates for bank loans are some other factors behind the luring NRI investment in the luxury segment.
Despite the Government’s initiative to promote affordable housing scheme, demand for the same is still dull across cities. On the contrary, luxury segment is picking up fast as people now have more money in hand, aspiring to showcase a better lifestyle and status quo. Furthermore, returns on such investment are also expected to reap huge profits in years to come as the realty market is predicted to grow in future.