The Pandemic Flipped The Housing Market. It Stays That Way.
The real estate sector's recovery from the pandemic is two-speed, with the luxury segment outperforming.
India’s economic recovery from the Covid-19 pandemic was two-speed, with the affluent shrugging off its impact sooner than the bulk of the lower-income earners. Residential real estate still encapsulates the trend, with luxury homes continuing to outperform affordable housing.
While high-end and luxury housing has seen a rise in share of new launches post-pandemic, affordable housing has seen a fall, according to data from property consultancy firm Anarock.
Affordable homes, priced under Rs 40 lakh, continued to lose share, making up 20% of all new launches, in the April-June 2022 quarter.
Mid-segment homes, priced Rs 40-80 lakh, continued to dominate new housing supply, making up for 33% of all new launches.
The high-end residential units, priced between Rs 80 lakh and Rs 1.5 crore comprised 29% of all new launches.
The luxury and ultra-luxury segments comprised a steadily rising share of new launches at 12% and 6%, respectively. While the luxury segment includes units priced at Rs 1.5-2.5 crore, the ultra luxury segment includes all units priced above Rs 2.5 crore.
This is according to data collected from NCR, MMR, Bengaluru, Pune, Hyderabad, Chennai and Kolkata.
Indian luxury housing has performed remarkably well as the Covid-19 infections receded, with overall sales rising across the top seven cities, according to Anarock.
Of about 1.84 lakh units sold in the top seven cities in the first half of 2022, 14% were luxury homes- 25,700 units approximately, up from just 7% in the entire 2019.
Of 1.84 lakh homes sold in H1 2022, approximately 57,040 units were in this budget category, showing a dip to 31% in H1 2022, from 38% in 2019.
Murtuza Arsiwalla, director at Kotak Securities, said the luxury segment has grown faster than the average growth in affordable housing. Though there is no available breakup by income, the skew between the high- and the low-income groups continues to increase with the high income segment increasingly deploying their money in real estate of high ticket size, he said.
Anuj Puri, chairman at Anarock, also said that there is a clear takeaway on overall economic performance. Post-pandemic, affordable housing was significantly impacted because its target audience took the biggest economic hit.
High-End And Luxury Housing: Drivers
Pre-Covid, the luxury residential market was never at its peak between 2012 and 2020, Ram Raheja, managing director at S Raheja Realty, said. “Post-Covid is when they have really seen an upswing. Demand has come back in a big way. People want more space, bigger homes and everyone is looking for upgrades to their lifestyle, especially in cities such as Mumbai where space was a constraint and land is limited.”
In cities like Mumbai, premium reduction by the local municipal corporation has also helped drive a burst of development in micro markets, Raheja said.
According to Niranjan Hiranandani, vice chairman of National Real Estate Development Council, a rise in wealth, affordability, along with greater funding by banks, have helped drive growth.
“With work-from-home, those who were living in a 1 BHK wanted to move to a 2 BHK and those in 2 BHKs wanted to moved to 3 BHKs and so on,” he said. Land cost continues to be bigger cost in luxury housing and hence demand remains relatively unaffected by higher cost of raw materials compared to affordable housing where builders are unlikely to be able to pass on the entire rise in costs, he said.
But affordable housing, Arsiwalla said, continues to hold greater potential. Demand potential in affordable housing continues to far outstrip what can be delivered, Hiranandani also said.
A Buoyant Year Ahead
The growth trajectory of the residential real estate market could be described as a testament to its strong fundamentals despite a spike in construction costs owing to high input costs, which caused a rise in housing prices but are now stabilising, and the Reserve Bank of India’s monetary tightening measures that began in May, CBRE said in a note.
There could be a marginal impact of the rise in home loan rates on housing sales, but the overall health of the residential sector is likely to remain strong on account of positive homebuyer sentiments, it said.