Investors avoid buying luxury homes as returns fade
Oct 03, 2012
Source : The Economic Times


NEW DELHI: Rishabh Singhvi's biggest investment bet for many years is in the doldrums. The luxury apartments the 34-year-old Delhi businessman used to buy and sell in Gurgaon to make yearly profits of around 30 per cent barely two years ago, don't fetch him more than 6-7 per cent returns these days.
"It does not make sense to park your money in bricks and mortar any more. Returns have crashed over the last six months," says Singhvi, explaining his rationale to shift focus away from the real estate market.
Prices of luxury apartments across the country - in cities such as Delhi, Mumbai and Bangalore - are not rising as fast as they used to two years ago, forcing wealthy investors that made a bulk of the buyers to retreat, turning it into a buyer's market for the first time in two years.
As the market started to recover after the Lehman crisis in 2008 and the subsequent downturn, real estate developers saw an opportunity in launching high-end luxury apartments, which is a lucrative low volume, high value business, and prices of these apartments shot through the roof over the next two years.
From the beginning of 2012, though, property sales in the top-end of the market have started to taper off as the global market again started showing signs of a slowdown, with trouble brewing in both the US and Europe. Since the prices of these properties were at an all-time high, investors also started waiting for a price correction to come back into the market.
Two years ago, 20 out of every 100 apartments sold in the country were in the luxury category. Today that number has fallen to nine, says Samarjit Singh, managing director of property broking firm, IndiaHomes.
The definition of luxury homes varies from city to city. In Gurgaon, for instance, luxury homes would cost anything above Rs 2 crore whereas in Mumbai it would cost Rs 4-5 crore and beyond.
The yearly price appreciation in the high-end property segment has come down by 35-50 per cent since 2008-09 when investors used to book returns of 15-20 per cent on an average (some properties saw returns as high as 30 per cent a year). In the last two years, price rise in this segment has plateaued, with yearly returns of only 6-7 per cent across the country, he adds.
Of a total of 63,662 high-end apartments that are under construction today in Delhi and NCR, Mumbai and Bangalore, about 19,332 are currently unsold, according to the data provided by property research and analytics firm PropEquity. A chunk of the unsold apartments are in projects that were launched in the last 12 months.
The maximum number of under-construction unsold apartments in this segment are in the Mumbai Metropolitan Region (MMR) with 11,086 unsold units out of 28,905 apartments, followed by Bangalore (4,280 unsold unit out of 10,242). The national capital region (NCR) has 3,966 unsold apartments out of a total of 24,515 under-construction apartments.

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