With HNIs and millennials serving as the main purchasers, recent trends indicate a bright future for luxury projects
The real estate market is back on track with home sales rising to 2,32,396 units in the first nine months of 2022 in India’s eight major residential markets. This represents a 40% increase over the 1,63,426 units sold during the same period last year.
The sector is anticipated to outperform its pre-Covid growth rate due to a significant increase in demand for homes and a flurry of new launches. In addition, the luxury segment will attract High Networth Individuals (HNI) and Ultra High Networth Individuals (UHNI) home buyers, and significant investment from the NRI community, who plan to visit their homeland after almost two years.
Festivals uplift the real estate industry
The Indian festive season has emerged as the yearly real estate high point as it has been traditionally regarded as a great time to invest in assets that increase wealth. Furthermore, if actual leasing figures and pre-leasing commitments are any indications, the momentum for leasing office properties is still growing despite the acceptance of pandemic-driven work-from-home and hybrid options. Experts predict that the commercial real estate market will reach new heights by the end of 2022, perhaps even surpassing the record-breaking year 2019.
This increase in housing sales coincides with multiple increases in the benchmark lending repo rate by the Reserve Bank of India (RBI). The banking regulator raised the repo rate three times in a row between May and August 2022, raising it from 4% to 5.40%, a 140-basis point increase. As a result, starting in May, financial institutions nationwide raised the interest rates on home loans. This marked the end of a historically low-interest rate regime, during which housing loans were offered at interest rates as low as 7% annually. Meanwhile, the average price of real estate has gone up in all of India’s major cities, primarily as a result of a general increase in the price of building materials that are being driven by geopolitical tensions.
So, what accounts for the industry’s continued expansion?
People today are looking to either purchase or upgrade to the best home they can afford. Following Covid, there has been an increase in demand for large homes outside of crowded cities. Second homes have become a sought-after option for the HNI and UHNI segment, from an investment and long-stay use perspective. Finally, as some industries, particularly in technology, have embraced remote working, there is a certain migration from Tier-1 cities to the areas outside the cities. As a result, the third quarter of 2022 saw the highest home sales in Mumbai, Bengaluru, and the National Capital Region (NCR). In the top eight markets, Mumbai accounted for 29% of all home sales with 21,450 units sold. Bengaluru recorded the second-largest sale volume in Q3, 2022, selling 13,013 units. During that time, 11,014 units were sold in the Delhi NCR.
Growing HNI investment
HNIs have become one of the biggest investors in upscale properties thanks to their strong economic position and abundance of highly disposable income. Some of the most sought-after luxury properties include expansive township offerings, opulent condominiums, villas, second homes or vacation homes, and large plotted developments. Sales of high-end luxury real estate reached 12% overall in Q1 2022, up from 7% in Q1 2019. The UHNIs’ preference for larger homes and lavish settings, as well as their propensity to invest in luxury housing over other types of real estate, are major drivers for this.
Founder & CEO, MYRE Capital
Commercial real estate has recently become another preferred asset class for HNIs. The democratisation of commercial real estate has now made it possible for HNIs and UHNIs to invest in fractional ownership of properties both in India and abroad. By investing in pre-leased commercial properties at a discount, several tech-enabled fractional ownership platforms are today assisting such investors in building their Grade-A asset portfolio.
The assets are chosen using strict criteria that take into account tech expertise and years of industry knowledge. Long-term lease agreements with MNC tenants guarantee investors a stable monthly rental income of 8% to 10%, as well as a 13% to 20% annual capital gain.
Conclusion
Moving forward, it is anticipated that both residential and commercial real estate demand will rise even in 2023. With HNIs and millennials serving as the main purchasers, recent trends indicate a bright future for luxury projects. It has put in a standout performance since the pandemic and made a powerful comeback. It will keep producing figures in Tier-1 and Tier-2 cities, which will also be a much-needed improvement in the Indian real estate market.
