Real Estate: Mid-Segment Housing Sales Surpass Affordable Category But Challenges Remain For Sector

Indian real estate market has seen a remarkable shift in the sale of mid-segment and premium homes surpassing affordable homes, with mid-segment homes increasing from 35% in the first half of 2022 to 38% this year. Affordable homes have decreased from 40% to 32%, while premium homes have increased from 25% to 30% as the study report by Knight Frank. The data in the report demonstrates a significant surge in demand for mid-segment and premium homes, reaching the highest levels seen since 2018. In the first half of 2023, 59,563 units of mid-segment homes and 47,130 units of premium homes were sold, showcasing substantial growth compared to the previous year.

According to ANAROCK Research data, despite spiralling home loan rates in the recent past and global economic headwinds including layoffs by several large and small corporates, the bull run in the Indian housing market continued in the second quarter of the year. Quarterly housing sales are at an all-time high with approx. 1,15,100 units sold in Q2 2023 across the top 7 cities. This is a 36% yearly rise as against approx. 84,940 units sold back in Q2 2022. The report also said that mid-segment homes priced between Rs 40 Lakh - 80 Lakh continue to dominate new supply with a 31% share, followed by premium (Rs 80 lakh – Rs 1.5 Cr) & luxury segments (>Rs 1.5 Cr) with 27% & 23% share, respectively.

Anuj Puri, Chairman – ANAROCK Group, said, “The housing market is yet to feel the impact of the home loan rate hike early this year and of the global economic headwinds. It continues to be on a roll with the momentum remaining strong even in the second quarter of 2023. Housing sales in the top 7 cities broke the previous high record of Q1 2023 and stood at more than 1.15 lakh units in Q2 2023. Pune and MMR were the only two cities to see a quarterly rise in housing sales – of 4% and 10% respectively while other cities saw some dip. But on a yearly basis, most top 7 cities saw a significant jump in housing sales.”

End Of Road For Affordable Home?

Does the rise in demand for mid-segment and luxury housing signify the end of the road for the affordable sector? Naveen Kumar, Director, of Navraj Infratech, thinks otherwise. "While the Indian real estate market has witnessed a remarkable surge in the sales of mid-segment and premium homes, it does not imply the end of the road for the once-thriving affordable sector. The real estate sector remains optimistic about the potential for the affordable sector and is committed to revitalising it through strategic measures and innovative solutions," said Kumar.

What Does The Rise In Demand For Mid And Luxury Sector Show?

Real estate players are of the viewpoint that the rise in demand for the mid and luxury segment shows increased purchasing power while the prices remain stable. "This trend signifies a growing market of buyers seeking more opulent and well-equipped homes. At Signature Global, we remain committed to meeting these changing demands by providing exceptional residences that cater to the evolving needs and aspirations of our discerning customers," said Ravi Aggarwal, the Managing Director of Signature Global.

The real estate players claimed that the surge in demand for costlier homes comes as residential property prices across India have increased by 2-10%, highlighting buyers' willingness to invest in premium homes and the market's potential.

“The Indian real estate market has experienced a remarkable shift in homeowners' preferences, with a growing demand for opulent and feature-rich homes. This shift reflects the confidence of buyers in the long-term value and returns of upscale properties, showcasing the market's potential and attractiveness," said Jatin Lohia, director, Lion Infra Developers.

Rajjath Goel, Managing Director, MRG Group, said the trends indicate that the economic strength and buying capacity of investors is improving. 

"The rising demand for mid-segment housing showcases a shift towards a lifestyle that seamlessly combines affordability and world-class amenities. Today, home seekers seek not just a roof over their heads, but an immersive experience that elevates their everyday lives," said Santosh Agarwal, CFO and Executive Director, Alphacorp.

Sunny Bijlani, Joint Managing Director, Supreme Universal, underscored the role of the pandemic in changing the choices of homeowners and hinted at 'the start of a decadal cycle' for luxury real estate. "Post the pandemic the way people use and experience their homes has evolved. The need for private spaces within families has increased and hence the size of homes. Customers today are very sure of what they are looking at. Over the last few years, real estate prices have not increased in line with incomes. Hence today affordability is higher than it ever was. And though we talk about supply all the time in my opinion good quality products from branded organised developers will always enjoy the bulk of the market share. The sheer size of the luxury market is only going to grow exponentially. We are at the start of a decadal cycle," said Bijlani.

Rohit Gera, Managing Director, Gera Developments, shared that the sales data show the demand has gone down in the sub 1,000 sq. ft. segment by 22%. "A better way to understand sales volume is to look at size segments where dynamics are different for different segments. While volume in the over 1,001 sq. ft. segment has gone up by 14%, the same has reduced by 22% in the sub 1,000 sq. ft. segment. On an overall basis thus, sales have reduced by 8% to 97,214 units (Jun '22 to Jun '23) from 105,625 units (Jun '21 to Jun '22) in the Pune residential space however in individual segments growth has played out differently," he said.

Focus On Tier-2/3 Cities

Tier-2 and tier-3 cities have been witnessing massive infrastructural development over the past few years including better roads, highways, better trains and metro connectivity. This has yielded a positive response for the real estate sector. "The development of connectivity mediums, including metro rail, airports, expressways, etc., and commercial hubs have also been attracting a major segment of investors. This indicates the strengthening economy of the region’s buyers who look forward to owning premium projects," said Manoj Gaur, CMD, Gaurs Group.

Saransh Trehan, Managing Director, Trehan Group, said that public transportation remains a challenge in Tier 2 and 3 cities. "The current transport infrastructure is at a subpar level as compared to metro cities. I must emphasize as it needs to be improved upon as travelling from one place to another takes time and can be reduced in an efficient manner if developed at a rapid pace. Electricity and water supply services also need to be improved as well. However, buyers have been upbeat aboout new projects in these cities and there have been a good response as well," said Trehan.

Challenges Remain

The real estate sector has been grappling with a lot of challenges in the past few years. It started with demonetization, then the GST regime followed by the pandemic which broke the spine in 2020. In the post-pandemic world, people realized that home is the most important asset in their Armor and the biggest shield against any such natural calamity. According to experts, real estate rates have been stable post-2012 and have not seen much increase in price. So prices traded today are around 2015 rates. But at the same time, the income of buyers has increased thus increasing their purchasing power parity. But the sector still faces many challenges.

Swapnil Anil, Executive Director & Head of Advisory Services, Colliers India, said, "While in 2023 the market dynamics are changing significantly. This is because of the factors like slower economic growth, global geo-political issues, unemployment rates, increased lending rates comparing 2021-22, increase in prices of houses as there is a significant surge in prices of raw materials and construction costs. The cost of borrowings has also increased which has added burden to the developers and the overall cost of construction has surged by 21% since pre-covid 19. As a result, the real estate sector has witnessed an average increase in property prices in various key markets in India in the past one year. These all factors have led to sluggish growth of the real estate market. Although, the growth is sluggish at the moment, but it will become active with time."

"Real estate sector is far from a perfect ecosystem for sustained development. Even though real estate is the second biggest employment in India and contributes to 7 % of the GDP, it still doesn't have an industry status. Due to this the credit to developers is difficult to get and the institutional funding cost makes a lot of projects inviable. Top banks and financial institutions have reduced their exposure to the real estate sector making it difficult for mid-cadre developers to raise funds for their projects. Select NBFC and private funds give limited leverage to credible developers but at a very high-interest cost that varies between 15-20%. All this cost is eventually passed on to the consumers making real estate dearer for end users," said Swapnil Patil, CEO and Founder, ASAP RealTech.

He said that another challenge in real estate is the levy of taxes. Right from GST on raw materials, LUC (land under construction) tax, stamp duty, GST on sale units & registration fees eventually swell the landing cost of end users. "Such a high tax regime has dampened the spirits of real estate investors. Since the introduction of GST and higher stamp duty real estate investors have virtually vanished from the real estate arena. The entry cost for a real estate investor is 11% today in MMR and 12% in Thane. Such a high entry barrier has been pulling back investments in the real estate sector. The state government will need to give a serious look into this tax regime and reduce the entry barrier to give a real boost to the sector," added Patil. 

Then there are many stuck projects where the money of lakhs of buyers is trapped. The buyers are not only paying home loan EMIs for the house they are yet to get, many of them are also paying rent. The state government especially Uttar Pradesh, Haryana, Maharashtra and Bengaluru need to come out with a policy to resolve the plight of home buyers trapped in the vicious cycle of developer-bank-court tussle. Most of the land under development face litigation issues in the mid-cycle of development and the project is stalled. In the future, land insurance should be made mandatory for all protection being developed to ensure the complete safety of buyers and lending financial institutions.