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If affordable and mid-segment housing projects are struggling to find home buyers right now, the state of luxury real estate projects is even worse. The Coronavirus pandemic and the resultant lockdown in various countries, have created an unprecedented business environment and cash-rich home buyers are putting their plans to buy properties, on hold. While the situation in real estate’s luxury segment is not expected to improve over the next few quarters according to industry experts, data suggest that such properties were not in demand before the pandemic either.
According to Proptiger.com data, around 7,364 units which are priced at Rs 3 crores and above, which were launched between December 2016 and December 2019, have remained unsold as of January 2020. Cities like Mumbai, Hyderabad and Bengaluru have most of the unsold luxury apartments (priced Rs 1 crore and above).
Is COVID-19 impacting real estate sales?
With oil prices collapsing and western economies taking the most severe blow from the pandemic, the rich have been hit by the market turmoil. Financial liquidity is at a low and there is no finite timeline for the crisis to end. Experts around the world have reported a drop in luxury housing sales, especially in hotspots such as New York, Paris and London. In India, while luxury projects are witnessing marginal traction, queries have been curtailed over a period of time.
“The luxury market is expected to contract for a short period, due to the uncertainty in the market. There have been a few transactions following the pandemic, which were finalised before the lockdown. New queries have slowed down, as people are holding back their final decisions,” says Ashwin Jain, president, the Association of Property Professionals (APP) -Delhi/NCR.
“While the Coronavirus pandemic is expected to slow down the real estate sector, we continue to see traction from potential customers for our holiday homes property in Goa, as most of them are financially backed-up,” says Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group.
In other markets, buyers are adopting a wait-and-watch approach, especially in cities. This could make investors prefer suburban, second-home markets, which can offer better value propositions, along with lower risk.
Will property prices go down due to Corona?
Luxury housing is divided into three segments – holiday homes, condominiums and villa properties. While Rodrigues says that the buyers investing in his holiday homes are not price sensitive, this also means that prices may not reduce in the near future. Other luxury real estate builders, who are developing apartment complexes in Gurugram, Mumbai and Bengaluru, are trying to woo customers by offering refundable bookings and price assurance but there have been no clear indications on whether they are planning to offer discounts on prices.
According to global real estate consultancy Knight Frank, “The residential market of Mumbai is expected to see a price drop of 5% in 2020. For 2021, Mumbai’s prime residential market is expected to witness a price decline of 3%.”
Besides the demand and supply equation, the cost of construction will play a major role, in deciding the cost of luxury properties in the near future. Since supply chains have been broken and construction work halted, projects that are under-construction will face major challenges in avoiding wastage of materials, etc.
“A lot of developers in India depend on China, for the supply of fixtures, furniture and fittings and that will be impacted to some extent. Going forward, we will have to keep a watch on the overall macro level, as the longevity of the crisis is uncertain. A silver lining in all this, is that this crisis has offered developers an opportunity, to rethink their strategy and make the segment more attractive for buyers,” Rodrigues maintains.
Due to the ongoing border crisis with China, Indian markets may also have to come up with an alternative option, to establish a supply chain for importing building materials, to avoid escalation of prices, or else it may further erode the profitability of the sector. Another choice would be to find opportunity and suppliers in the domestic market, which would also be in line with prime minister Narendra Modi’s AtmaNirbhar Bharat programme.
Future of luxury housing in a post-pandemic world
In the pre-pandemic era, when the Indian economy was sagging, key luxury developers, including Lodha Developers (now known as Macrotech Developers), announced a shift in their focus, from luxury to affordable and mid-segment housing options, to manage their cash flows. On the contrary, developers based in south India were more optimistic and launched a number of projects in the premium range. That was the time when market sentiments were positive, vis-à-vis ready-to-move-in projects in Mumbai and Bengaluru and many developers, including Sobha Ltd, were planning to enter Delhi and Hyderabad with premium offerings. Those plans have now been put on hold.
While the rich and the wealthy will continue to invest in the property market, developers would have to be prepared for a paradigm shift in consumer choices and behaviour. From sustainable designs to lifestyle changes, these luxury homes would now be seen as personal havens, especially if one were faced with a lockdown, where life would be easier. Moreover, according to industry experts, the demand for luxury properties will shift from urban cities to holiday destinations which have good connectivity, in terms of transportation and internet, serene environment and easy access to all facilities.