High-end residential project launches defy industry trend

The real estate market may be going through a rough patch, but developers still seem to be betting big on the high-end residential projects. In the first nine months of this calendar year, the number of launches in the high-end residential segment has grown by 142 per cent as compared to the corresponding period last year, says a note by real estate consultancy Cushman & Wakefield (C&W). The number of new launches in the high-end segment stood at 24,032 between January and September as against 9,940 last year.

The stupendous rise in new launches in this segment is happening at a time when the overall launch of new inventory across all housing segments remains muted. As per C&W, in January-to-September period, residential units launched in all segments put together - affordable, mid-market, high end and luxury - was a meagre five per cent. According to market experts, low demand is forcing developers to go slow on introducing new projects.

Real estate research firm Liases Foras estimates the cumulative nationwide unsold inventory at 670 million sq ft, or roughly 600,000 units, as on June 2013. The situation is the worst in Mumbai where builders are sitting on unsold inventory of over 50 months.

Lalit Kumar Jain, President, Confederation of Real Estate Developers' Associations of India (CREDAI), says that more developers are gravitating towards high-end projects because the profit margins in that segment continue to be attractive. "There has been a sharp cost escalation (of around 60 per cent) in the past two years for everyone. Not only has construction cost spiked, developers are paying hefty charges to civic authorities to get clearances. The situation has come to a point where low-end projects are no longer profitable," he adds.

In such a scenario, developers are left with two options: either to wait for sale prices to rise or get into high-end projects, especially when developers have land in decent locations. The profit margin for an affordable project is around five per cent as compared to 50-100 per cent for high-end projects.

The trend of high networth individuals (HNIs) shifting from independent houses to apartments is also fuelling the demand. "India's growing affluent population increasingly wants residential apartments that offer superior amenities and round-the-clock security," says CREDAI's Jain. According to the World Wealth Report 2013, released by Capgemini and RBC Wealth Management, India clocked a growth of 22.2 per cent in its HNI population last year.

Big developers actively launching high-end projects include Tata Housing, Indiabulls, DLF, Sobha Developers and Unitech. Interestingly, Delhi NCR, and Gurgaon in particular, recorded the highest contribution to high-end launch activity among the eight metro cities.

The definition of 'high-end segment' varies between cities but any apartment above 2,000 sq. ft. size would qualify. Selling prices also differ. For instance, a rate of over Rs 10,000 per sq ft in the other cities and Rs 20,000 per sq ft in Mumbai is classified as high-end. "Demand from end users, which comprise a majority of high-end segment buyers, continues to be strong. If the product justifies the price, the demand will be there," says Shveta Jain, Executive Director (Residential Services), C&W.