A year ago, Arvind Parekh, a director at real estate developer Omaxe Ltd, was refusing bookings for premium apartments at a brisk pace. Today, he is not so quick on the trigger.
Softening demand: If the current slowdown continues, there could be a price correction of up to 20% in the market for luxury homes, say some developers and analysts.
“Earlier, when you launched a scheme, there were 500 bookings on a day. While it would be inaccurate to say there is a major slowdown, the luxury market has cooled down a bit from the peak levels we have seen,” says Parekh, who now spends less of his time turning customers away.
Caught unawares by a falling stock market, inflation, and high interest rates that show no signs of giving way, the demand for luxury homes is slackening.
In part, it’s led by unreasonably high property prices and the exit of investors from the market, who are cashing out ahead of a possible softening. If the slowdown continues, there could be a price correction of up to 20% in the luxury market segment, say developers and analysts.
While most developers still say that business has not suffered, some like Omaxe agree that the demand for luxury homes has turned sluggish.
Omaxe is developing luxury homes in Noida and Faridabad near New Delhi. There has been a softening of demand in the past six-eight months, the company says.
As India’s economy has grown, the wealthy have become wealthier and their lifestyles have become more lavish. They have been dipping into their kitty to buy everything from luxury cars to the odd yatch to swanky homes, which mimic the concept of luxury that was once confined to glossy brochures.
Luxury homes now come as apartments or villas with golf courses, swimming pools, jacuzzis, terrace gardens and personal plunge pools. The apartments are priced at a minimum of Rs2-3 crore, and the price can go up to as much as Rs10-15 crore, depending on the location.
Bouyed by enough takers, developers have been putting in their money in developing luxury homes as these yield higher margins than middle-income homes.
But now, the mood is turning mellow. Real estate agents marketing luxury homes say bookings have slowed down considerably.
“The demand for luxury homes has come down 10% in the last 3 months and this is going to fall 10% more,” says Pramod Kumar Jain, a partner of Piyush Jain and Co., a property broker that has sold properties of developers such as DLF Ltd, Unitech Ltd and Suncity Projects Ltd.
There are no buyers in the real estate market, says Deepak Kohli, director of real estate agency Deep Realtors Pvt. Ltd. “People who invested in the stock market have lost money. There is not enough money to invest in the stock market, gold or real estate. The liquidity is just not there.”
According to Makaan.com, an online realty portal, the number of enquiries related to properties above the Rs1 crore range has come down. In December 2007, out of the 9,709 properties searched on the site in Delhi and its suburbs, 8.5% was for homes priced above Rs1 crore. In March, the figure slid to 6.07%.
“In my opinion, there are two or three strong reasons for the slump in demand,” says Aditya Verma, business head of Makaan.com. “If you look at properties, prices have escalated 40-45% in the last two years, whereas salary levels have only grown 14-15% during the same period.”
A person who could afford a house in the Rs60 lakh range in 2005-06 will now have to shell out Rs1.25 crore for the same house, says Verma.
“There is a definite slowdown in demand,” says Aditi Vijayakar, residential director at Cushman and Wakefield, a real estate consultancy firm. “While the end-user demand is there, the surge of investors has gone away. I don’t see investors purchasing luxury homes at the current price levels.”
Still, not all developers are willing to concede a slowdown.
“I wouldn’t agree that demand has come down,” says Vibhor Gupta, assistant general manager of marketing at Jaiprakash Associates Ltd. “The reason I am saying this is because the response we are getting for our projects has been very good.”
Gupta says that 80% of the inventory in the company’s premium township project in Noida has been sold. The demand for luxury homes has got to do more with having the right quality product at the right price, he maintains.
To be sure, not all luxury home developers are feeling the pain. The super rich continue to snap up luxury homes in the tony areas of south Delhi and south Mumbai.
“Luxury apartments by good developers in good locations are still finding buyers,” says Pankaj Renjhen, managing director of Mumbai region of Jones Lang LaSalle Meghraj, a real estate consultancy firm.
Real estate developer Unitech, which launched its luxury project Unitech Grande on the Noida Expressway in July last year, says that it has seen a good response to the project.
Unitech Grande is a premium lifestyle destination offering luxury apartments across 347 acres of prime land. Apartment sizes here range from 2,200sq ft to 5,500sq ft. Out of the 450 units in phase one of the project, about 50% or 225 units have been booked so far.
“End consumers who appreciate quality are willing to pay for it,” says Bhaskar Basu, vice-president of sales and marketing at Unitech. “Investors have moved from the market but that’s what we want, too. Unitech Grande is meant for consumers who want to live there.”
Location and pricing of the apartment are certainly deciding the demand for luxury homes. “If it is a luxury apartment on the outskirts of a city, people are waiting and watching in the hope that prices will fall,” says Omaxe’s Parekh. “The demand is at a lower price. There is a perception that prices will fall and people are expecting interest rates to come down.”
Analysts and developers say the slump is also because of an excess supply in the luxury home market.
“All the builders have been targeting the Rs1 crore plus housing segment,” says Kaushik Sengupta, vice-president of marketing at Eros Group. “Whereas, the actual demand is for homes priced at Rs50 lakh and below. But builders have done nothing in this segment.”
The top of the pyramid is limited, says Renjhen. “You are asking people to buy a Bentley when the consumer is currently buying a Honda City,” he says, refering to a middle-level sedan.
Parekh says in some sectors, such as Gurgaon, prices have already softened 5-10% in the past one month.
While there has not been an immediate correction in the market, property prices will start correcting in the third and fourth quarter of the current fiscal year, says Vijayakar.
“Prices in some areas where supply is far more than demand will come down. But I don’t think prices will fall to 2001-02 levels.”