Luxury, but at What Cost?

In recent times, the common theme making the headlines in the real estate space is ‘luxury’. While major markets, such as Delhi-NCR, Mumbai and Bangalore, have the lion’s share of the luxury housing projects launched in India, tier-II and tierIII cities, such as Goa and Kochi, and holiday destinations, such as Shimla, have a significant slice of the luxury housing pie. But why are real estate developers fancying their chances with luxury housing projects, especially at a time when sales are tepid due to high property prices and the overall weak economic scenario? And, more importantly, should you bite the bait? 

Luxury housing. There is no clear-cut definition of the term ‘luxury’. This is so because the prices across the length and breadth of the country vary. Sample this: Price points for luxury housing projects in prime locations of Mumbai range between Rs. 25,000 and Rs. 1.10 lakh per sq.ft. For similar projects in south and central Delhi it is between Rs. 15,000 and Rs. 65,000 per sq.ft. In prime locations of Gurgaon, the prices range from Rs. 7,500 per sq.ft to Rs. 30,000 per sq.ft, while in Bengaluru it is between Rs. 20,000 and Rs. 30,000 per sq.ft. Both the high rate per sq.ft and the size of the apartment (typically in excess of 2,500 sq.ft) inflate the prices of luxury housing units. Says Anuj Puri, chairman & country head, JLL India: “In industry terms, luxury homes cost `4 crore or more, while homes with a ticket size of Rs.1 crore to Rs. 1.50 crore fall in the premium or high-end segment.”

While location plays a major role for the high premium of luxury housing projects, there are other factors too. Says Girish Shah, executive vice-president, marketing and sales, Godrej Properties: “Developers are servicing luxury by rendering services from international designers and concierge services. Besides, they are also including lifestyle services such as spa, international gyms, tie-up with worldrenowned sports facilities, etc.”

Developer’s take. Though sales in the residential property market have largely been slow over the past one year, developers have been hooked on to luxury housing projects. Says Santhosh Kumar, chief executive officer, operations, JLL India: “Because of the tendency of ultra-luxury projects to garner extremely good pre-sales volumes, developers are generally able to secure significant fund flows to capitalise the completion of their projects. Luxury and ultra-luxury projects yield much higher returns for developers than the affordable and mid-income segments.” While it is true that input costs for luxury housing are much higher, the developer stands to benefit from the increased visibility of his brand among highly affluent, top-end clients. Says Ashish Puravankara, joint managing director, Puravankara Projects: “From the developer’s perspective, the singular advantage of luxury segment is that it is resilient in economic downturns.” 

Should you invest? If you have the funds and the risk appetite, it makes sense for you to invest. Says Kumar: “In cities such as Mumbai, Delhi-NCR and Bangalore, luxury and ultra-luxury residential projects have witnessed 10-fold appreciation over their launch prices in the last decade.” Adds Puravankara: “From the consumer’s vantage point, luxury housing yields good returns on investment.”

The challenges. Luxury housing poses its own set of challenges for both developers and homebuyers. Says A.S. Sivaramakrishnan, head, residential services, CBRE South Asia: “Execution would be one of the most difficult tasks faced by all segments of developers in India.” Adds R.K. Arora, chairman and managing director, Supertech: “In a market of cut-throat competition, making a name and making a landmark project in terms of innovation and exclusivity is the biggest challenge and even the minor details are a major concern.” It is also a challenge to get adequate land parcels in good locations. Says Puravankara: “High-end customers prefer properties in central business district (CBD) locations, where land is scarce. The farther the location from the city centres, the more ample and amenity-packed the property must be to qualify as a luxury unit.” For homebuyers who invest in a luxury property the biggest challenge would be to pull out of the investment. Says Puri: “From the churn point of view, selling mid-income housing is easier than selling highend luxury homes since a larger base of population falls in the midi come category.” The overall share of luxury homes in the Indian real estate domain would be 6-7 per cent of the total stockpile. Mid-income housing projects are typically being sold within 3-4 months of their launch. Adds Puri: “In comparison, high-end apartments and luxury homes take more than six months to sell.”

Things to look out for If you are planning to invest in luxury housing units you must do some due diligence.

Developer’s capability. In case of luxury homes, you must be prudent enough and be informed about the pros and cons before you invest, more so, because of the amount of money you would be investing. Among the other things, find out if the developer has successfully executed similar projects and given timely delivery. Says Sivaramakrishnan: “The average national delay time of completing projects is about 13 months.” Further, you must opt for a listed developer rather than risk your money with unlisted ones. 

Recurring costs. Since luxury homes come with a host of amenities, maintenance costs are bound to be higher compared to midhousing projects. Things could get really out of hand if you have to pay maintenance costs for all the services, including power back-up, because even the best of locations in CBDs usually experience power cuts for long durations and you may end up shelling out a bomb as the per unit cost of electricity through power back-up will be way higher than the power grid rates.

Floor-to-ceiling height. This is one of the most important parameters to check when it comes to a project’s true luxury value. Says Om Ahuja, chief executive officer, residential services, JLL India: “If the floor-to-ceiling height is less than 12 feet, the luxury feel is severely compromised.”

Number of people residing. There is no thumb-rule for this parameter. However, it is generally understood that a one-acre project should not house more than 60 families. Says Ahuja: “Anything more than this means that the project does not qualify as luxury.” This is because the available amenities are shared by too many people, destroying the project’s ambience, exclusivity, convenience and charm.

Car parking. Again, there is no specific yardstick for this. The commonly followed norm is that the number of bedrooms in a project should equal the number of car parking lots. A three-bedroom apartment should, therefore, have three car parking lots within the project. Says Ahuja: “Though many luxury projects in Mumbai and other big cities across India now offer mechanized parking, the fact is high net worth buyers and tenants prefer normal or stack parking.”

Elevators. The mere provision of branded elevators does not suffice in a luxury homes project. They must also have service elevators with separate entries to ensure domestic helps and external suppliers do not populate the elevators and lobbies being used by residents. Says Ahuja: “Investors must also ensure the elevators are spacious enough to accommodate a stretcher.” While there are benefits of investing in a luxury housing unit, before you do so it is important to do your due diligence and make sure that not only you should be able to afford it, but, more importantly, maintain it.

OLMdesl@outlookindia.com