Covid-19 has forced people to make decisions rationally, on what is important: health, safety, and protection of wealth and income. The pandemic has created convergence between “luxury real estate” and “quality of life”. The spaces we live in, and more importantly, what we demand of them, stand to remain altered forever. Around the world, people recognised the value of a “home”—a ‘safe’ haven, a de-facto school, an impromptu office, or gym. Work from home (“WFH”) as a potential new constant has raised the demand for larger homes that incorporate workspaces. People also want additional facilities such as gyms, yoga rooms, and home theatres to make them fully self-sufficient units.
Savvy millennials who previously preferred renting properties over buying have now adjusted their perception with a focus on acquisition. We expect a 40% growth in revenue during this fiscal as demand for ultra-luxury homes, priced above ₹5 crore, has improved in the last six months, spurred by the changing needs in a pandemic. Here’s a recap of the trends observed that are structuring the growth of luxury housing.
Location, location, location
We saw a significant increase in buyers seeking properties in elite neighbourhoods including Lutyens' Delhi. Luxury properties in tier 1/metropolitan cities like Delhi NCR, Mumbai, and Kolkata, and picturesque destinations at hill stations and by the beach across India have garnered rising interest from both domestic and NRI buyers. Bungalows and spacious apartments in Delhi's Sunder Nagar, Golf Links, and Jor Bagh are being quoted at ₹8 lakh to ₹12 lakh per square yard, depending upon the plot size and other factors.
While owners start out by asking for almost the same prices as were being quoted pre-Covid, they are open to negotiations. Prices in Shanti Niketan and Westend are being quoted at ₹7 lakh to ₹8 lakh per square yard, while asking prices in Vasant Vihar are hovering around ₹5.5 lakh to ₹6.5 lakh per square yard. However, for smaller plot areas, per square yard price may increase marginally. In Mumbai, high value transactions in the most sought after locations, such as Malabar Hills, Bandra, and Worli, are steadily making a comeback.
Growing interest in second homes
Buyers are clamouring for space outside cities and of late HNI and UHNI buyers are increasingly on the lookout for picturesque and self-sufficient properties in hill stations and holiday destinations in Goa, Maharashtra (Alibaug), Kerala, and Uttarakhand. Holistic living has a new meaning and has paved the path for investing in a luxurious second home.
Second home destinations like Goa, Dehradun, and Alibaug have become all-year destinations and sometimes even primary homes, with the new norm of WFA or work from anywhere. These locations are hot favourites for the luxury client with their exceptional offerings of outside-inside architecture style villas, easy connectivity, favourable weather conditions, and better AQI (air quality index) among others. These destinations are witnessing a sharp uptick in resale of standalone bungalows in the ₹5 crore-₹15 crore range. We also see a surge in demand for farmland in the outskirts of large cities and this trend is likely to continue with UHNIs realising the importance of large homes surrounded by nature.
A reduction in interest rates and stamp duty
Interest rates for housing loans are at a historic low with premier lending institutions offering attractive home loan options in the range of 6.75% to 7.5%. Home loans at prevalent interest rates allow for considerable savings while creating an asset for the purpose of end-use or investment. In fact, a lower interest rate provides borrowers an option to raise the loan amount, helping broaden their choice for a more luxurious property, inclusive of finer amenities and lifestyle facilities in premium neighbourhoods.
The big pickup in Mumbai’s luxury real estate has also been spurred by a stamp duty cut in Maharashtra to 2% till December 31, 2020, and 3% till March 31, 2021. In a recent address, Minister for Housing and Urban Affairs, Hardeep Singh Puri, has urged other states to follow suit. Low interest rates, coupled with lower stamp duty, could keep sales buoyant throughout 2021.
Earlier this year the International Monetary Fund (IMF) and the United Nations (UN) released a report on the world economy. Despite a weakening global economic environment and limitations over foreign exchange, the study estimated that the Chinese and Indian economies can be expected to rebound by 2021. This scenario, coupled with growing incentives such as the value depreciation of the Indian rupee (by nearly 10%) against the American dollar has piqued the interest of NRI (non-resident Indian) investors with a strong financial foothold. The value depreciation puts the U.S. dollar to rupee conversion rate at its highest mark ever, coupled with increased FPI flows bringing stability to the rupee. This means increased purchasing power for NRIs in India as it makes the U.S. dollar stronger.
To add to that, the implementation of numerous reforms and RERA in India has resulted in boosting the confidence of NRI investors looking to reap rewards from premium value real estate opportunities. RERA offers more transparency, registered properties, a simpler manner of engagement, and trustworthy developers which has only made the prospect of buying properties in India more appealing to NRIs despite Covid-19. It is anticipated by many in the real estate industry that investments from non-resident Indians will reach a substantially large figure of $13.1 billion by FY21.
Countries beating the Coronavirus are getting ‘rewarded’
Just as we have seen a growing demand from NRIs, similarly we see Indian investors seeking out properties in countries such as the U.S., U.K., Canada and the U.A.E, who demonstrated resilience and were able to handle crises better. The London market, which has always been placed as a safe haven of investment, has seen a considerable bounce back of demand and very quickly. Latest data from the U.K. Office for National Statistics shows that the London property market is up over 4% year-on-year and the rest of England even more at 4.9%. Countryside localities like Surrey in the U.K. have also become a hot favourite with buyers. The average cost of a British home is more than a quarter million pounds for the first time in history, signifying the continued interest of UHNIs from across the globe in the U.K. and London property markets. The stamp duty holiday in the U.K. till March 31, 2021, has also helped fuel this demand.
On the other hand, there is New York where residents have actually moved out of the city to the suburbs or smaller cities, leaving over 20,000 apartments vacant. This has thrown a great buying opportunity for Indian UHNI buyers for right priced inventory, in this most sought-after gateway city of the world.
All in all, a pick-up in luxury real estate has been the silver lining from the pandemic crisis and with almost everyone banking on a sharp V-shaped recovery. With the arrival of the Covid-19 vaccination, 2021 is poised to be a strong one, for high value home transactions.
Views are personal. The author is president, India Sotheby’s International Realty.