‘Wealth Creation Story': Why Mumbaikars Are Buying Many Rs 100-Cr Homes

So far, 2023 has been a successful year for luxury real estate in India, with multiple deals worth more than Rs 100 crores, particularly in Mumbai. Rajendra Barwale, director of Barwale Seeds Private Limited, bought a Rs 122 crore apartment at the Lodha Group’s Malabar Palaces project in Malabar Hill last month. In March, industrialist JP Taparia, founder of contraceptive maker Famy Care, and family members bought a triplex in the same ultra-luxury redevelopment project worth Rs 369 crore. BK Goenka, chairman of Welspun Group, paid Rs 240 crore for a triplex in Three Sixty West, a luxury building in Worli. The most expensive real estate purchase so far was by billionaire and D’mart founder Radhakrishna Damani and family who bought 28 residential units worth Rs 1,230 crore in the same Worli project in February.

Recent data on luxury housing in Mumbai from India Sotheby's International Realty and CRE Matrix showed that sales of units priced over Rs 10 crore rose by 47% in the first half (H1) of 2023, while sales of homes in the Rs 40-70 crore segment grew by 64%.

“In the years 2016-2019, out 2020 because that was a Covid year, Mumbai city used to sell approximately Rs 75,000 to 80,000 crore worth of housing every year. Just in the first six months of 2023, the same Mumbai city has sold the same amount, which is Rs 75,000 crore,” Abhishek Kiran Gupta, co-founder and CEO of CRE Matrix told The Core. “Of this, Rs 11,400 crores was luxury which includes units above Rs 10 crore, and Rs 3,100 crores was in the Rs 40 crore plus segment,” he said.

According to Knight Frank’s 2023 Wealth Report, Mumbai was also among the top five, and the only Indian city, in the Asia-Pacific, to show growth in luxury real estate prices globally in 2022. The city’s premier property market had a 6.4% price increase, pushing it to the 37th position on the Prime International Residential Index (PIRI) 100 in 2022, up from the 92nd position in 2021. It is further expected to increase by 3% this year.

An Increase In Wealth

In India, the rich are getting richer and they aren’t afraid of flaunting it. “When you're spending Rs 40-50 crore, you want to live on the top of the world… you want that monsoon cloud in your living room. You want to live next to the ocean, you want to have every possible amenity in your project if not inside your house,” said Gupta. “If you see the kind of wealth creation that is happening…this upper segment is expanding. So this is also the wealth creation story of the entire economy,” Prashant Thakur, regional director and head of research at Anarock Property Consultants said.

Not only are these extremely expensive flats being sold in more numbers, but they are also getting bigger. The India Sotheby’s and CRE Matrix reports highlight that residential units of over 4,000 square feet contributed 22% to overall primary sales in Mumbai’s Luxury Housing in the first half of 2023, as compared to 14% in the first half of 2018.

“All of this was initially fueled by low interest rates,” said Vivek Rathi, national director of research of Knight Frank India. However, the luxury housing market has continued its momentum despite interest rates continuing to go up, Rathi pointed out.

In the first two years of the pandemic, there was a desire and the ability to buy a house, and as prices went up and home loan interest rates went up, the ability has seen some pressure in the last one and a half year. This is perhaps why the affordable segment in residential housing has languished while mid and premium segments flourished.

“A large segment of consumers here are equity or cash buyers and therefore, whether interest rates move up or house prices go up moderately, it does not impact them so much,” Rathi said. “If there is a desire to purchase, they will go ahead and make that purchase.”

The Sunset Clause

The government announced in the Union Budget 2023-24 that starting April 1 it would limit the deduction from capital gains on investment in residential property to Rs 10 crore under Section 54F of the capital gains clause, which led to a flurry of activity in February and March of this year. This could, in part, explain the sudden hike in sales activity in the segment recorded in H1 2023. “The biggest trigger in the first quarter was the taxation sunset clause,” Gupta said, adding that the enforcement of the new cap on capital gains didn’t make much of a dent in sales in April, May and June.

“I think it gave that momentum to it,” Thakur said. “But this is also proof that there is a genuine demand for it, even after the cap of Rs 10 crore, if the market is continuing, that means these HNIs (high net-worth individuals) or high-end buyers are seeing value in the market right now.”

Why Mumbai?

There are several factors behind the increasing demand in the city. One is, of course, the large concentration of HNIs, from entrepreneurs to celebrities who live and work in Mumbai. As per Knight Frank’s 2022 Wealth Report, Mumbai had the highest concentration of ultra-high-net-worth individuals (UHNIs) in the country. The purchases, therefore, are actual use, as opposed to investments, Rathi pointed out. “All of the purchases that we are talking about in the last few years are driven by the desire to consume these properties for self-use,” he said. “If it was for investment, maybe chasing value could become a bigger consideration.”

Another factor is the city’s lack of space. “This is one city which has got water everywhere, so there's no land… so you have to pay more if you want to live in the city or otherwise stay on rent,” Gupta said. New properties are limited, which further adds to the exclusivity factor.

Overall demand for the Mumbai Metropolitan Region (MMR) is expected to grow marginally in this fiscal year by 1-2%, as per global analytics and credit rating company CRISIL. “Of this, the ultra-luxury end segment is likely to contribute 5-10% of the overall demand in this fiscal,” Aniket Dani, Director-Research, CRISIL Market Intelligence and Analytics, told The Core in an email.

Large Number Of Redevelopment Luxury Projects

Gupta highlighted that there was a 70-30 split in the luxury segment sales, with 70% being new projects and 30% being resale. While new developments with uber-luxurious amenities and penthouses are the draw, the landlocked city’s lack of space means that a large number of the projects currently in the market are redevelopments.

It's not just new, or redeveloped properties, but also their locations that are the draw. Most of these projects are located in upscale neighbourhoods concentrated in South and Central Mumbai, and some in the western suburbs like Bandra, which adds to the exclusivity factor.

Supply, too, is limited. “Supply is always limited and controlled in this segment…because there are very few people who can build those kinds of apartments. And not only build but have the brand to sell those kinds of apartments,” explained Gupta. A lot of projects were approved in 2020 and 2021 and when those come in, over the next 4-6 years, supply will scale ahead of demand, said Rathi. “But until then we think we see the market is maintaining decent equilibrium.”

However, the window for redevelopment is also closing. “After five years, the supply itself will be constrained because there'll be no further redevelopment happening. And since land is scarce, and this is a limited window for buyers and investors, they are buying right now,” Thakur said.