Considerable attention has been devoted to the rising demand for luxury and ultra-luxury homes in India, commanding prices upwards of Rs 1 crore. Equally discussed has been the marked decline in interest for affordable units, priced below Rs 50 lakh. However, there hasn’t been much discussion about the mid-segment that connects these two extremes.
Industry data shows that in the last three years, this segment, generally priced between Rs 50 lakh and Rs 1 crore, has continued to account for over 33 per cent of total housing demand in the country. In fact, it was the most sold segment till July last year.
A recent report by Knight Frank showed that the mid-segment had a strong 32 per cent market share in the total demand in the first six months of 2024.
On the other hand, its supply has been falling.
According to data from another consultancy, JLL India, the launches in this segment between January and July this year were 14 per cent lower than in the same period last year.
This may not seem much in isolation but raises doubts when supply has gone up 169 per cent for homes priced between Rs 3 crore and Rs 5 crore, and 116 per cent for those priced above Rs 5 crore. In this context, where does the future of mid-segment housing lie in India?
Experts attribute the decline in mid-segment supply to rising land prices, more buyer interest in luxury homes, and developers’ higher profit margins in pricier properties. They added this trend is likely to continue in the coming quarters.
Anuj Puri, chairman of Anarock Group, said that “steep land prices and inflationary construction costs in the last few years” have been some factors driving a shift in the trend.
Anshuman Magazine, chairman and chief executive officer (CEO) – India, South-East Asia, Middle East & Africa, CBRE, added that these pressures have made it “challenging” for developers to launch new projects within the mid-segment price bracket.
Developers now see higher returns in the costlier segment. A growing interest in costlier homes has only helped them push the margins higher.
“In the last one-two years, a growing demand has been witnessed in the premium segment,” said Vivek Rathi, head of research at Knight Frank. According to industry data, the share of costlier homes in total sales has risen to 41 per cent in the first six months of this year from 30 per cent last year. In 2022, it was 25 per cent.
“So, if a developer had five land parcels in different stages of development, they put in all of their capacity into developing premium homes there,” Rathi added.
This phenomenon has been seen more in the National Capital Region (NCR), especially in Gurugram. And sure enough, the impact can be seen on the supply too. Data sourced from CBRE showed that between July and December last year, there were zero project launches in the mid-segment in Gurugram. From 4,392 of these units in 2021, supply fell to 952 units last year.
Rathi said this is because the demand for ultra-luxury homes has been very high in this region, even more than in other big markets like Mumbai and Bangalore. Several top developers have also reported the sale of their ultra-luxury projects within days of launch.
A top developer, who did not wish to be named, said they have shifted their focus to the premium segment recently because getting that much margin in mid-segment homes was “simply not feasible”.
In the coming quarters, the new supply of mid-segment homes is likely to remain strained as the focus on the luxury segment continues. But the impact on prices may not be that much.
“We may instead see more new launches in the luxury and premium segments,” said Puri.
“We have seen developers buy land at steep prices and it becomes financially unviable for them to build homes in the affordable and mid segments where not only their profit margins are low but also its demand remains tepid at the moment.”
However, he added that it is unlikely to have an impact on the prices in this segment as there are over 175,000 units available for sale in this segment currently.
Rathi said that it would also depend on the demand for costlier homes. “If there is any slowdown in the premium segment, then we may see higher activity in the mid-segment,” he said.
Source: JLL & Knight Frank
First Published: Jul 15 2024 | 10:19 PM IST
