Business Daily: India’s real estate to remain gung ho on luxury, premium housing in 2025 as affordable takes a backseat | Mint

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India's real estate to remain gung ho on luxury, premium housing in 2025 as affordable takes a backseat | Mint

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Come 2025, India's real estate developers will double down on luxury and premium housing, leaving the affordable segment to catch up.

Developers from across India are stacking their portfolios with premium, luxury and uber-luxury projects. Delhi NCR-based M3M India has two luxury developments lined up for next year. Gaurs Group is looking at a series of ultra-luxury residential developments, townships and luxury projects in FY26. Among others, Bengaluru-based developer Sobha Ltd is planning to launch about 10 million sq. ft. of projects in FY26, including venturing into the uber-luxury category.

"We are strategically leveraging the robust demand in the luxury real estate segment by curating projects that align with the evolving preferences of modern buyers," said Robin Mangla, president, M3M India. "We have an exciting pipeline of new launches planned for next year in the luxury category." 

In the premium segment, Mahindra Lifespace Developers Ltd is turning away from affordable and launching more projects with ticket size starting from ₹2 crore. "We used to play mostly in affordable and mid-premium," said Amit Kumar Sinha, managing director and chief executive officer of Mahindra Lifespace. "Now, we will exit affordable after our commitment is over and will play in mid-premium and premium. These are two of our bread and butter segments."

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Consequently, the supply of homes in the luxury and premium segment has gone up significantly since last year. In the first three quarters of 2024, the supply of luxury homes priced over ₹ 2.5 crore surged by 59.27%, rising to 52,400 units from 32,900 units in the same period last year, according to data from Anarock Group. The ₹80 lakh to ₹1.5 crore segment saw modest growth of 2.26%, increasing from 85,475 to 87,410 units. In contrast, affordable housing supply declined significantly, with homes priced at ₹40-80 lakh dropping 14.64% from 1,04,000 to 88,770 units. This trend underscored a slowdown in affordable housing supply, while demand for higher-end homes continues to grow.

"The luxury and mid-segments have seen an uptick in supply, driven by strong demand and developer confidence," said Amit Masaldan, chief revenue officer, Housing.com. "In contrast, the affordable segment faces supply constraints due to rising construction costs and slim margins, making it less appealing for developers."

"To make the affordable segment more appealing, it is crucial to address the high cost of land, which remains a major barrier. Since land prices are market-driven, government intervention is essential to promote affordable housing, said Amit Modi, director at County Group.

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"Additionally, developers could be incentivized through subsidies or tax benefits to encourage their entry into this space, thus bridging the gap between demand and supply."

Stickiness of demand

The residential market has continued to strengthen, with demand reaching an 11-year high during H1 2024, said Shishir Baijal, chairman and managing director at Knight Frank India in its India Real Estate H1 2024 report. "A notable shift toward premiumization has taken root in the residential market, with higher priced homes driving market volumes."

The demand for luxury housing in India has been rising since the outbreak of covid-19. Growing interest from non-resident Indians, high-net-worth individuals, and rising affluence are among the reasons that driving demand for high-priced residential apartments.

"The pandemic prompted wealthy buyers to seek larger, amenity-rich homes suitable for remote work," said Anuj Puri, chairman of Anarock Group. "Additionally, increased financial market gains, growing business profitability, and a desire for wealth preservation through real estate have fuelled this segment."

NRI interest is at an all-time high at a time the dollar is strengthening, said Parthh K. Mehta, CMD at Paradigm Realty. "What has been observed is that there is an increased NRI interest towards purchasing a residence in their homeland, especially in the luxury category. Reason being the cost parity, for instance – if there is 2 BHK in the foreign country that is priced ₹7 crore and above, the same can be invested in India to buy an elevated lifestyle."

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There has also been an unprecedented emergence of young, tech-wealthy professionals, which has created a new buyer demographic for luxury properties.

Millennial and Gen Z buyers have been dominating the real estate space, accounting for over 60% of the purchases. Their penchant for premium living has driven strong demand for houses priced at ₹1 crore and above this year, said Saurabh Garg, co-founder, NoBroker. "There is a sizable chunk of these buyers that are inclined towards buying properties that have premium amenities that align with their aspirational lifestyle," Garg said. "To cater to the growing demand for premium properties, developers are increasingly focusing on this segment."

Frenzy in sales

The proof of the pudding is in the rapid sales that developers saw this year. Experts expect this trend to continue well into 2025.

DLF Ltd, India's largest listed real estate company, sold all 1,113 high-end luxury residential units of its DLF Privana South project in Gurugram for ₹7,200 crore within 72 hours of its official launch, the company said in a regulatory filing. Gaur Group's NYC Residences at NH24 was also completely sold out within two and a half days of its launch. Birla Estates sold 50% of its ₹30-40 crore apartments within three months of the launch of its Silas tower at Birla Niyaara project in Mumbai's Worli, K. T. Jithendran, MD & CEO of Birla Estates, said.

"We announced record sales of our flagship signature tower Silas at Birla Niyaara (Worli) earlier this year, clocking ₹2,500 crore at launch," Jithendran said.

Prestige Group sold 60% of its apartments costing over ₹ 20 crore at the Prestige Ocean Towers project in Marine Lines within a year of launch, while the same kind of ticket size used to take at least 7 to 8 years to sell pre-covid.

"Notable examples through early 2024 include DLF's projects in Gurugram and Oberoi Realty's developments in MMR, where units priced above ₹4 crore were sold out within weeks of launch," said Puri from Anarock. "Looking ahead, this trend is likely to continue into 2025. The luxury segment is poised for sustained growth."

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The luxury segment (apartments priced above ₹ 3 crore) saw a notable surge in sales during the first half of 2024, with a year-on-year growth of 109%, according to JLL's September report on residential market. The share of luxury in total quarterly sales rose from 7% in H12023 to 12% in H12024. This increase was particularly prominent in Delhi NCR, where over 45% of sales in H12024 were in the luxury segment.

The share of the affordable housing segment (apartments priced below ₹ 50 lakh), however, dropped from 18% to 14% in the same period, according to the report.

Foraying into uber luxury

Driven by the demand and frenzy in luxury sales, many developers are pivoting to uber luxury, or are looking to expand their footprint in this segment.

Gaurs Group, which is preparing for an initial public offering, is planning to use the proceeds to expand its ultra-luxury residential segment among other developments. "We have several exciting projects lined up for FY26, including ultra-luxury residential developments," said Manoj Gaur, CMD of Gaurs Group and chairman of CREDAI National. "Our strategy involves not only expanding the luxury residential segment but also introducing integrated communities with high-end amenities such as private clubs, wellness centres, and sustainable infrastructure, ensuring a holistic living experience for our customers."

Rustomjee Group is also exploring opportunities to expand its uber luxury portfolio in the MMR region in prime neighbourhoods like Bandra and Pali Hill, said Rakesh Setia, president, sales & marketing.

Inventory overhang is going down

Anarock data shows that the inventory overhang across the top seven cities has come down to 14 months by 9M 2024-end, from 17 months in the same period in 2023. This is the lowest inventory overhang in the last decade.

This means that if developers stopped making more residential units, the entire existing inventory in the country will get sold out within 14 months. For comparison, at a time of recession, existing inventory would've taken 30-35 months to sell out, said Mahindra Lifespace's Sinha. 

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"City-wise, Hyderabad has the highest inventory overhang of 19 months among the top seven cities, while Bengaluru has the lowest at just eight months," said Prashant Thakur, head of research & advisory at Anarock. "In the last two years, Bengaluru saw its unsold stock drop by six months while Hyderabad saw a dip of just two months. Hyderabad also saw considerable new supply infusions in the last two years."

"This is both good and bad. The bad part is everybody thinks it's only 14 months – let's keep launching. So, there'll be too much supply," Sinha said. "On the other hand, landowners will see that there are 10 guys who are buying for the same land. So, let me charge the highest price."

Developers who then buy the expensive land have to charge more from their customers, creating a vicious cycle, he said.

Housing prices in India's top eight markets rose 11% year-on-year in Q3 2024, averaging ₹11,000 per sq. ft, according to a combined report by CREDAI, Colliers and Liases Foras. This marks the 15th consecutive quarter of price increases. Delhi NCR saw the highest rise at 32%, followed by Bengaluru at 24%. While demand remains strong, the momentum in top cities is stabilizing after record sales in the past two years.

"A major price correction seems unlikely in the short term," said Masaldan from Housing.com. Strong demand in the luxury and mid-segments has supported price stability. While adjustments may occur as buyer expectations evolve, factors like urbanization and infrastructure growth will sustain current pricing trends in the foreseeable future."

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