Why Indians are spending more money on bigger and more luxurious real estate

Less than 10 years after buying a small two-bedroom apartment in Bengaluru on a shoestring budget, tech professionals Ratnesh and Neha Malviya were looking to upgrade their property.

Luxury home sales are rising on the back of India's strong economic growth, rising wages and buoyant stock market. (Image source: Getty Images and DLF)

The Malviya couple, in their early 40s, were looking for a four-bedroom house. Ratnesh, who is passionate about sculpture, planned to have two bedrooms, a study and a guest room.

The couple's monthly income has increased fivefold to about half a million rupees ($5,955) since buying the apartment. The property they are about to buy cost 40.3 million rupees.

“The mortgage would be a bit of a stretch, but it was better to buy something that met all our requirements, even if it was at the top of our budget,” Ratnesh says. “At least it was better than having to go back to the market in a few years.”

Ambitious millennials like the Malviya family are driving luxury home sales in India, according to Aakash Ohri, co-chief executive officer of DLF, India's largest real estate company.

“This is a new segment that is emerging and they want the best,” Ohri said. “Housing has become a priority, with those without homes now wanting homes and those with homes wanting better homes.”

Luxury home sales are driving India’s economic growth ahead of all other major economies. This has helped boost the stock market, adding to the wealth of business owners and senior executives, while also boosting wages, especially for white-collar workers.

Boston Consulting Group estimates India will create a record $588 billion in wealth by 2023. According to UBS, India will have 868,671 billionaires in 2023, up 14.4% from 2019, and is on track to reach 1.06 million by 2028.

Today's wealthy Indians prefer to buy high-rise apartments over 185 square metres, mostly in large suburban areas with modern amenities such as tennis courts, swimming pools and jogging tracks.

According to real estate services firm CBRE, 11,755 homes priced at 40 million rupees or more were sold last year in the cities of Mumbai, Delhi and Hyderabad, four times more than in 2019.

“Demand is high but supply of quality homes is limited,” said Karan Khanna, director at Mumbai-based investment consultancy Ambit. “The demand is being driven by a combination of factors such as preference for larger homes with a growing hybrid work culture, higher affordability with rising incomes and rapid urbanization.”

In the financial year ended March, DLF raised 147.78 billion rupees from presales of new residential apartments, exceeding its target of 130 billion rupees and doubling sales from two years ago.

Nearly half of last year’s presales came from a single project, the 1,113-unit Privana South development in Delhi’s Gurgaon suburb. Although most of the apartments were priced between Rs 60 million and Rs 80 million, all were sold within three days of being launched. DLF repeated the feat in May, selling 795 apartments at nearby Privana West at similar prices within three days.

“If you look at the facts, DLF has really developed the Gurgaon market, which is a luxury housing hotspot,” said Pankaj Kumar, vice president at Kotak Securities in Mumbai, praising the company’s strength in building and marketing luxury homes.

“They have the advantage of being the first mover and the brand value,” he said. “Also, they have cheap land in Gurgaon. That helps them achieve high margins.” Indeed, DLF’s net profit rose 34% to Rs 27.24 billion last year, while revenue rose 15.7% to Rs 69.58 billion.

DLF, which has been primarily focused on residential in the capital region, is moving south into the coastal urban markets of Mumbai and Goa this fiscal. The company aims to market a total of 1.2 million square metres of new apartments, up 14% from last year. Most of these apartments will be in the luxury or ultra-luxury segment, including some priced at Rs 500 crore and above.

HDFC Securities predicts the move could help DLF surpass its pre-annual sales target of Rs 170 billion to Rs 180 billion.

DLF is not the only company targeting Indians looking for a modern luxury apartment. Major competitors include Oberoi Realty, Godrej Properties and Lodha Group.

According to CBRE, 15,870 new luxury homes were put up for sale in India last year, about five times more than in 2019. That number rose to 13,020 in the first half of 2024. Luxury homes priced above 15 million rupees accounted for a third of new homes in the July-September quarter, according to Anarock, a local real estate consultancy. In 2018, luxury homes accounted for just 9% of new supply.

India’s interest rates have not risen since February 2023, helping to maintain strong home sales growth, in contrast to markets such as Singapore and the United States. India’s total outstanding home loans stood at 28.3 trillion rupees as of Aug. 23, up 13% from a year earlier. The growth fueled Bijaj Housing Finance’s successful 65.6 billion rupee initial public offering in September, the country’s largest market debut so far this year.

As Indians look to upgrade their homes, home loans have grown by 2 percentage points to 51% of India’s total personal loans from August 2022 to August 2024. Down payment requirements vary depending on the price of the home; for homes priced above Rs 7.5 million, buyers are required to make a down payment of 25% of the home price, whether taken from a bank or other mortgage lender.

Apart from financial factors, observers say India’s real estate boom can be partly attributed to the Real Estate (Regulation and Development) Act of 2016, or RERA. The law gave homebuyers a greater sense of security with measures such as a uniform licensing regime and a requirement that developers hold down payments in escrow.

“The sector is currently on a strong growth trajectory, driven by strong policy measures like RERA, which has increased transparency and customer focus, coupled with strong economic momentum and growing appetite for home ownership and home upgrades,” said HDFC analyst Parikshit Kandpal, who rated DLF as a “buy” in a recent note to clients.

DLF's luxury home sales were also boosted by the overseas Indian community, known as non-resident Indians (NRIs).

“It’s not just money being made and spent here, there’s also a huge amount of money coming from overseas through NRI investments,” said Mr Ohri, who estimates a quarter of the company’s home sales this year will come from NRIs from the US, Southeast Asia, the Middle East, Africa and Australia. “They want to come back and make a real move.”

Sheelaj Sharma, a medical practitioner in Abu Dhabi, bought his second apartment in Gurgaon last year after seeing the value of the apartment he bought there in 2011 increase fivefold.

“Even though I am an NRI, I felt it was important to have a home in India so that when I retire, I have a place to live,” said Sharma, who has also invested in property in Abu Dhabi and London, where he studied. “Who knows what life will be like?”

Source: https://baoquocte.vn/ly-do-nguoi-an-do-vung-tien-mua-bat-dong-san-lon-va-cao-cap-hon-290382.html