Why are rich eluding away from luxury homes?
The luxury real estate which had sprung off late in order to cater to the niche investors of the highest socio-economic group of consumers had seen an increased uproar initially. Seemingly, today the upper class investors are shunning away from the luxury homes. The luxury homes which were priced from 5- 10 crore were sold at a fast pace in the beginning and now there are hardly any consumers for such projects.
Various real estate developers who provide luxury homes are witnessing a dip in their business and are reducing their staff due to the falling business. However, these real estate developers are now focusing on the value segment rather than the premium category sales. However, the demand for the properties in metro cities has also come down. The real estate agents are finding it quite difficult to convince the rich to buy luxury homes.
Reasons for the downfall of demand for luxury properties:
Of all the reasons, the major cause for the downfall of property demand is the high interest rates and high property prices. The sales of luxury homes in Mumbai was about 60% and in Bangalore it was just 30% whereas in Delhi and NCR there was no much gesture in the luxury real estate.
Various real estate firms in cities like Mumbai, Delhi and Bangalore have been offering the luxury projects at a very higher rate which eventually is making the rich reluctant about investing in them. The price range was not less than 1 crore due to the deteriorating market conditions. However, since there are no sales of the luxury homes, various real estate agents are selling the mid-income homes which are priced at Rs. 40 lakh-70 lakh.
The current property investors are following the mantra of spending less which has resulted in the drying up of the market.
How did the luxury real estate market help the developers?
The sale of luxury projects had fetched about 75% of business to the developers but now it has come down to only 25% which increasingly is impacting their profit. As mentioned earlier, the developers who are relying on the mid income homes are not much benefited but the they are trying their luck to keep their business going. The slowdown in sales is credited to the general investor valuation that, there is hardly any appreciation in either capital values or rentals which is predictable in the short to medium-term in the high-end residential segment.
This condition of real estate market has impacted the developers in a larger way wherein more than 80% of the property brokers have shut their shops due to the crisis.
The impact of the downfall of luxury sales in the market:
As mentioned above half the property dealers have shut down their shops and most of the brokers are now willing to work on a single percentage commission basis. This is because they are expecting the mid-income category homes to give them volume if not value. Also the builders are offering about 30% cut on the 2% brokerage commission.
Apparently, due to the entire process being slowed down, even the luxury project completion in Mumbai and other cities is incomplete. On the other hand, the inventory levels in Bangalore are high as they are on the verge of launching new projects in spite of lower sales.
