Real estate developers’ luxury push continues even as launches below Rs 2.5 crore slow down

The first signs of a slowdown in residential real estate mirror recent concerns around waning urban demand across sectors, from automobiles to consumer goods. Major developers have announced plans to transition away from affordable housing as they no longer see a business opportunity in the segment. Even in the upper-end Rs 1.5-2.5 crore segment, launches fell by 15 per cent y-o-y in the first three quarters of 2024, as against doubling each year between 2020 and 2023.

Strong demand for luxury housing

Launches of residential units priced above Rs 2.5 crore across the top seven cities—including the Mumbai Metropolitan Region (MMR), Delhi-NCR, Bengaluru, and Chennai—surged at a compounded annual growth rate (CAGR) of 116 per cent between 2020 and 2023, marking an unprecedented boom in luxury housing. From just 4,000 such units in 2020, launches soared to over 41,000 in 2023. Even in the first three quarters of 2024, when overall residential launches declined by 2 per cent, luxury launches displayed notable resilience, growing by 56 per cent to over 52,000 units.

After the pandemic, housing became increasingly aspirational for urban Indians, with mid-segment buyers gravitating toward projects offering superior amenities and better connectivity. Demand for larger homes with flexible configurations, such as additional rooms, has also risen sharply. Reflecting this trend, the average flat size grew from 1,167 square feet in 2020 to 1,300 square feet in 2023—a rise of 11.4 per cent, according to data from Anarock.

In an earnings call last month, Aakash Ohri, Joint MD at DLF Ltd, noted that demand for luxury housing is no longer confined by a north-south geographic divide. “I have seen in super luxury, including our projects in Goa and of course, Camellias, it has been pan-India. The recent sales and the interest that I’m seeing is coming from top families of Tier 2 cities all over the country… I feel that the start point is where we are today. It is only going to go up,” Ohri said.

Others are more cautious–Jagadish Nangineni, MD of Bangalore-headquartered Sobha Ltd, believes that luxury sales may begin to stabilise. “I think there is a steadiness in the market and probably what we can anticipate is not (what) we have seen (with) the increase in the sales volumes in the last couple of years. Probably we are reaching a steady state instead of continuous increase in terms of demand,” Nangineni told analysts on November 15.

Developers pivot from affordable housing

Between 2020 and 2023, launches below Rs 40 lakh grew at the slowest CAGR of 29 per cent to a little over 83,000 units. The next ticket size – launches priced between Rs 40 lakh and Rs 1.5 crore – grew at 50 per cent to around 2,60,000 units. Growth in both these ticket sizes was lower than the overall CAGR of 52 per cent.

In the first three quarters of 2024, launches below Rs 40 lakh fell by 10 per cent and those between Rs 40 lakh and Rs 1.5 crore fell by 7 per cent. The latest data reflects what developers have been saying for some time – both demand and margins are higher in the premium segments. Soaring input costs and land prices have also made affordable projects in and around metropolitan cities harder to execute.

Abhishek Lodha, MD and CEO of Macrotech Developers Ltd, reiterated the company’s “planned transition” away from entry-level housing towards the “upper end of the mid-income and beyond” in a recent earnings call. “As a consequence of that… we will be moving from a tilt of about 85% to 90% of our sales coming from lower mid-income and entry-level housing to that moving to 50%, obviously, over a period of 3 years,” Lodha said.

Amit Kumar Sinha, MD and CEO of Mahindra Lifespace Developers Ltd, also confirmed that the company “will not pursue affordable anymore”. “So, that segment is out. And while super luxury and all are very exciting, our focus is going to mid-premium and premium. And the way we segment the market is affordable, mid-premium, premium and luxury… we will play in the middle 2 segments, we will not play in the 2 extreme segments,” Sinha told analysts last month.

Pavitra Shankar, MD of Brigade Enterprises Ltd said on November 14 – “If in future, there was affordable housing, we would look at that, too, if there was opportunity there. But currently, there is a lot of demand in terms of premiumization of consumer demand itself, whether real estate or any sector. So that’s why we are capitalizing on this trend.”

Among top 7 cities, Delhi-NCR recorded the steepest rise in the average price of units sold, which surged to Rs 1.45 crore between April to September 2024 from Rs 0.93 crore during the same period in 2023. On the other hand, sales fell slightly by 0.6 per cent to 32,125 units. In Bangalore, the average price of units sold jumped by 44 per cent to Rs 1.21 crore while sales fell 0.2 per cent to 31,380 units.

The MMR region was the only exception among major cities to record a positive growth in units sold – from 76,410 to 77,735 units, a growth of 1.7 per cent. The average price of units sold in and around Mumbai also did not change from Rs 1.47 crore.