Growth of Indian Luxury Market within the Wave of Affordability

Authored ByFarshid Cooper, Managing Director, Spenta Corporation Following the announcement of the “Housing for all by 2022” initiative by the Honorable Prime Minister NarendraModi, the real estate industry in India has experienced a significant growth in affordable housing. Today, it is, in fact, a buzz word in the sector, with countless development policies and tax reforms having been designed to drive consumption and enable growth and progress in the sector. However, a huge section of the Indian population constitutes the growing middle-class society, which is presently defined by rapidly rising aspirations and an increasing disposable income. According to the 2019 Global Salary Forecast by global organisational consulting firm Korn Ferry, salaries in India are expected to rise by 10% in 2019, which reflects the highest overall salary increase and real-wage growth in Asia. Owing to this marked growth in disposable income, as well as sizes of families, the urban middle class of India is expected to be a primary driver for the luxury home market, as well. In addition to this, the fact remains that the development of affordable homes depends on a range of specific criteria, which are not compliant with each and every location. As a result, the development of these localities is greatly dependent on the growth of a strong luxury housing market in the area. Owing to the widespread economic disparity in India, the affordable housing market continues to be several times larger than the luxury home market. It is also expected to expand rapidly in the coming years, at a considerably faster rate than the luxury housing market, thereby reflecting a huge influx of potential and opportunities for growth in the affordable segment. Despite this, the luxury housing market can never be completely overshadowed by this rising growth, being a significant contributor of business for the sector. With India being a country of more than 1.2 billion citizens, 30% of whom reside in urban areas, the luxury market will continue to be an essential part of its economy. Furthermore, it is a proven fact that luxury properties also accrue a much higher incremental value compared to those in the mid-segment. Owing to this, the luxury housing market is today a popular investment choice for affluent NRIs and HNIs. Reports state that close to one-fourth of the Indian luxury real estate market was driven by NRI investment in the financial year 2017-18. Until 2013, only 20 per cent of the properties in the segment were purchased by NRI investors, but last year, that number increased massively. Investment by NRIs in properties valued at over INR 5 crore was found to be as much as 27 per cent in NCR, while in Bangalore, it was 24 per cent, and in Hyderabad, it was 18 per cent. Therefore, while it is safe to say that the demand for affordable homes will surely skyrocket in the years to come, potentially surpassing supply, the luxury housing segment will also experience simultaneous growth, although at a slightly lower rate. This growth will predominantly be concentrated in the urban areas, where the supply of luxury housing might taper, but the demand for the same will remain constant.