Luxury Real Estate Boom: Unyielding Demand Drives Growth

The luxury real estate market is witnessing sustained demand fueled by rising high-net-worth individuals, robust capital market returns, and a burgeoning startup scene, according to Elara Capital. The sector's market share in Tier 1 cities has risen significantly, with high absorption and supply rates, defying tax-related constraints.

The luxury real estate sector is experiencing an unprecedented boom, driven by a rising number of high-net-worth individuals, strong capital market returns, and an expanding startup ecosystem, as detailed in a report from Elara Capital. Since the beginning of the Covid-19 pandemic, luxury properties, those priced over Rs 30 million, have expanded their share in Tier 1 cities by 10 percentage points from FY20 to FY24.

This surge has led to higher average pricing with an 8 percent compound annual growth rate (CAGR) in absorbed volumes, while construction costs have remained stable, bolstering industry profitability, the report reveals.

Significant indicators such as an increasing high-net-worth individual population, healthy capital market returns, and a thriving startup scene highlight a robust demand for luxury property upgrades, the report states. Knight Frank data indicates India's ultra-high-net-worth individual population is projected to grow by 50 percent between 2023 and 2028, surpassing growth rates in Asia and the US.

Key growth drivers include double-digit returns from capital markets, significant earnings from alternative investments like cryptocurrencies, and flourishing investments in startups and entertainment sectors. Notably, real estate remains a primary investment avenue for HNIs and UHNWIs, comprising over 20 percent of their wealth portfolios.

The report further notes that the luxury segment's share in overall absorption and new supply has risen by 10 percentage points and 14 percentage points, respectively, in Tier 1 cities during FY20 to FY24. The core luxury segment, with properties priced between Rs 50-100 million, saw exceptional demand, reflected by an absorption CAGR of 54 percent and a supply CAGR of 87 percent.

Despite the tax exemption cap of Rs 100 million instituted on April 1, 2023, demand remains robust for properties exceeding Rs 100 million. Absorption volumes for such properties have grown at a 51 percent CAGR from FY20 to FY24 and saw a 64 percent year-on-year increase in FY24, according to the report.

(With inputs from agencies.)