The real estate market may be
going through a rough patch, but developers still seem to be betting big on the
high-end residential projects. In the first nine months of this calendar year,
the number of launches in the high-end residential segment has grown by 142 per
cent as compared to the corresponding period last year, says a note by real
estate consultancy Cushman & Wakefield (C&W). The number of new
launches in the high-end segment stood at 24,032 between January and September
as against 9,940 last year.
The stupendous rise in new
launches in this segment is happening at a time when the overall launch of new
inventory across all housing segments remains muted. As per C&W, in
January-to-September period, residential units launched in all segments put together
– affordable, mid-market, high end and luxury – was a meagre five per cent.
According to market experts, low demand is forcing developers to go slow on
introducing new projects.
Real estate research firm Liases
Foras estimates the cumulative nationwide unsold inventory at 670 million sq
ft, or roughly 600,000 units, as on June 2013. The situation is the worst in
Mumbai where builders are sitting on unsold inventory of over 50 months.
Lalit Kumar Jain, President,
Confederation of Real Estate Developers'
Associations of India (CREDAI), says that more developers are gravitating
towards high-end projects because the profit margins in that segment continue
to be attractive. "There has been a sharp cost escalation (of around 60
per cent) in the past two years for everyone. Not only has construction cost
spiked, developers are paying hefty charges to civic authorities to get
clearances. The situation has come to a point where low-end projects are no
longer profitable," he adds.
In such a scenario, developers
are left with two options: either to wait for sale prices to rise or get into
high-end projects, especially when developers have land in decent locations.
The profit margin for an affordable project is around five per cent as compared
to 50-100 per cent for high-end projects.
The trend of high networth
individuals (HNIs) shifting from independent houses to apartments is also
fuelling the demand. "India's growing affluent population increasingly
wants residential apartments that offer superior amenities and round-the-clock
security," says CREDAI's Jain. According to the World Wealth Report 2013,
released by Capgemini and RBC Wealth Management, India clocked a growth of 22.2
per cent in its HNI population last year.
Big developers actively launching
high-end projects include Tata Housing, Indiabulls, and DLF, Sobha Developers, Unnati fortune world
and Unitech. Interestingly, Delhi NCR, and Gurgaon in particular, recorded the
highest contribution to high-end launch activity among the eight metro cities.
The definition of 'high-end
segment' varies between cities but any apartment above 2,000 sq. ft. size would
qualify. Selling prices also differ. For instance, a rate of over Rs 10,000 per
sq ft in the other cities and Rs 20,000 per sq ft in Mumbai is classified as
high-end. "Demand from end users, which comprise a majority of high-end
segment buyers, continues to be strong. If the product justifies the price, the
demand will be there," says Shveta Jain, Executive Director (Residential
Services), C&W.
