What Is Luxury Real Estate & Why Is It Booming In India? Here's All You Need To Know About The Investment!

India's real estate market is witnessing a seismic shift, with the luxury housing segment experiencing an unprecedented surge in demand. Factors such as rising incomes, growing aspirations for upscale living, and a preference for modern amenities have propelled this transformation, resulting in a boom in luxury home sales across the country.

In a recent development that underscores this trend, India's largest developer, DLF sold out 795 apartments worth Rs 5,590 crore within just three days of launching its latest luxury housing project in Gurugram. This follows the success of previous projects, including 'The Arbour,' which witnessed pre-launch sales worth Rs 8,000 crore in a similar timeframe.

The role of non-resident Indians (NRIs) in driving the luxury housing market cannot be understated. NRIs have emerged as significant contributors, accounting for nearly a quarter of total residential sales at major developers. The allure of luxury properties, coupled with the promise of exclusivity and modern amenities, has attracted both domestic and international buyers alike.

According to a report by property consultant Anarock Group, the share of luxury homes sold in India has tripled over the past five years, with luxury properties now constituting 21% of all residential units sold across the top seven Indian cities in the first quarter of 2024, up from 7% in 2019.

Interestingly, luxury home sales have surpassed those of affordable housing units, reflecting a changing preference among homebuyers. Affordable housing units, which once dominated the market, have seen a decline in sales share from 37% to 18% over the past five years, while the mid-range and premium housing segment maintains its dominance with a 59% share.

The shift towards luxury real estate is expected to continue, with launches in the affordable segment projected to remain muted, according to a recent report by ratings agency CRISIL Ratings. Premiumisation, coupled with rising per capita incomes, is anticipated to drive 10-12% volume growth for large, listed residential developers in the current financial year.

Ashish Kukreja, Founder & CEO of Homesfy.in, highlighted the underlying factors contributing to the surge in luxury home sales. He pointed out that India's economic momentum, coupled with projections of a doubling of affluent individuals within three years, has created a favourable environment for luxury real estate investment.

Kukreja emphasized that investing in luxury real estate offers not only opulent living spaces but also enduring value and potential long-term returns. The concentration of wealth among high-net-worth individuals has fueled demand for exclusive properties, particularly in prime locations such as Delhi-NCR, Mumbai, Pune, Hyderabad, and Bangalore.

Furthermore, luxury properties have historically exhibited lower volatility and served as a hedge against inflation, making them an attractive asset class for sophisticated investors seeking prestige and profit.

Kukreja added, "Industry analysis augurs well for the future of luxury real estate in India, projecting an 8-10% increase in property prices across key cities over the next two years, further solidifying its long-term investment potential. This projection aligns seamlessly with the prevailing sentiment among affluent investors, as evidenced by a recent survey where 56% of high net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) anticipate a reduction in interest rates by the Reserve Bank of India in 2024. This optimism is fueled by the expected rate cuts and other factors such as limited inventory and the fear of missing out (FOMO), which collectively influence purchasing behaviours, reinforcing the attractiveness of luxury real estate as a compelling investment avenue for discerning investors."

One significant factor contributing to this surge is the prevailing trend of premiumisation. With India witnessing a rapid pace of wealth creation, coupled with pent-up demand from the COVID-19 pandemic era, consumers are increasingly drawn to luxury products and experiences. This trend extends to the real estate market, where high-net-worth individuals are diversifying their portfolios by investing in luxury properties.

According to the annual Luxury Outlook Survey 2023 by India Sotheby's International Realty, ultra-high-net-worth individuals are bullish on real estate, with 75% of respondents believing that the sector will perform well in the next few years. Notably, 61% of them are eyeing ultra-expensive houses, signalling a growing appetite for premium residential properties. Key cities such as Delhi-NCR, Mumbai, Goa, and Bengaluru are emerging as preferred locations for luxury real estate investment.

Another driving force behind the luxury housing boom is the shortage of upscale apartments in prime locations. Cities like Gurgaon are witnessing a scarcity of luxury housing options, leading affluent buyers to seek exclusive properties with modern amenities and sophisticated designs. The shift from traditional bungalows to posh apartments reflects changing preferences among high-net-worth individuals, who prioritize factors such as security, convenience, and exclusivity.

The influx of NRI investments is further fueling the demand for luxury housing in India. NRIs now account for nearly a fourth of total residential sales at major developers, a significant increase from pre-pandemic levels.

Meanwhile, the surge in luxury home sales has reshaped the dynamics of the real estate market, with the affordable housing segment witnessing a decline in its market share. Affordable housing, which once dominated the market with a 37% share, has now dropped to around 18%, highlighting the evolving preferences of homebuyers in the current scenario.

Among the top seven Indian cities driving the demand for luxury homes, the National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR) stand out as key hubs. In the NCR, luxury homes accounted for 39% of all residential units sold in the first quarter of 2024, marking a significant shift from the dominance of the affordable segment in 2019. Similarly, the MMR has become a hotspot for luxury housing, attracting buyers seeking premium properties and world-class amenities.

Other cities such as Hyderabad, Bangalore, Pune, Chennai, and Kolkata each have their own market dynamics, with strong demand for mid-to-high-end properties. Bengaluru, Chennai, Pune, and Hyderabad witnessed maximum sales in the mid-range and premium housing segments in the first quarter of 2024, reflecting the diverse preferences of homebuyers across different regions.