Premiumisation Drives Demand Surge in Indian Real Estate Amid Decline in New Launches: Nuvama Report

India's real estate sector is witnessing a significant transformation, with the growing demand for premium and luxury properties standing in stark contrast to the decline in new property launches. According to a recent report by Nuvama, this shift is creating a unique market dynamic, where demand continues to surge, particularly in high-end segments, even as the availability of new properties drops.

Declining Property Launches Amid Rising Demand

In November 2024, the Indian real estate market showed a noticeable divergence between demand and supply trends. Despite a decline in new property launches, there was a sharp increase in demand, especially for premium housing. The Nuvama report highlighted that:

• New property launches by volume: Declined by 53% YoY in the top seven cities.
• Demand for properties: Fell by 7% YoY in the same cities.

This mismatch has sparked concerns and prompted real estate experts to focus on understanding the reasons behind this growing preference for high-end properties. The demand surge is particularly prominent in the premium and luxury housing segments, which have been driving growth in real estate prices. 

Why Decline in New Property Launches?

While demand for premium properties has surged, the supply of new homes has not kept pace. According to the Nuvama report, the total supply of new properties across the top seven cities in India declined by 53% YoY in November 2024. This sharp drop in new launches is a clear indicator of a market imbalance, where demand is thriving, but the supply of homes is not being replenished at the same rate.

Key factors contributing to the slowdown in property launches include:

High Land Acquisition Costs: Rising land prices are making it increasingly expensive for developers to acquire land, particularly in prime locations where demand for premium properties is highest.

Regulatory Delays: Long approval processes and complex regulatory frameworks are causing delays in the construction and delivery of new properties.

Cautious Approach by Developers: Developers are being more selective in their project launches, particularly in uncertain market conditions. As demand for luxury homes is more predictable, developers are focusing on high-value projects rather than mass-market developments.

This reduction in new launches is especially noticeable in the affordable and mid-range housing segments, where developers are finding it increasingly difficult to meet the demands of a broader base of homebuyers. With the emphasis on premium housing, the supply of homes for middle-income buyers has slowed considerably.

Average property prices:

• NCR: Surge of 44% YoY.
• Kolkata: Surge of 37% YoY.
• MMR and Bengaluru: Prices increased by 14-17% YoY.
• Other cities: Price rise of 6-9% YoY.

Premiumisation: The Key Driver of Market Trends

The trend of premiumisation in India's property market refers to the growing demand for upscale, luxurious residential properties. This shift is driving up property prices, as more buyers are inclined to invest in high-end homes that offer superior amenities, better locations, and enhanced lifestyle features. As more people aspire for a better quality of life, especially post-pandemic, the demand for premium homes continues to rise.

The report emphasized that while luxury housing is thriving, the supply of such properties remains constrained. Developers face the challenge of meeting this rising demand with limited new projects coming into the market. This supply gap is contributing to a surge in property prices in the premium segments.

Sales Growth and Price Surges in Major Cities

While the overall market witnessed a decline in the number of new property launches, property sales by value experienced significant growth. In November 2024:

• Housing sales by value: Grew by 16% YoY and 2% MoM.
• NCR: Recorded an impressive 151% YoY rise in property sales.
• Other cities: Saw moderate sales growth of 12-15% YoY in cities like Kolkata, MMR, and Bengaluru.

However, the report also noted that the city of Hyderabad saw a decline in property sales, which suggests that demand in some regions may be slowing down.

For the calendar year 2024, the overall sales value increased across most cities, with:

• NCR: Leading with a 68% YoY increase in sales value.
• Kolkata, MMR, and Bengaluru: Witnessed sales value growth of 12-15% YoY.

Inventory and Market Conditions

Despite the surge in demand, unsold inventory levels by value rose by 5% YoY, indicating that while sales are growing, the inventory in the market is not being absorbed as quickly as expected. This increase in unsold inventory points to the challenge of matching supply with demand, particularly in a market where luxury properties are becoming more desirable.

Interestingly, the report also noted that the months of inventory available in the market dropped slightly to 16 in November from 17 in October, reflecting faster sales in the market.

Real Estate Valuations: Attractive Yet Competitive

Despite the increasing property prices and a reduction in new launches, the report suggests that real estate valuations in India remain attractive. For investors, this presents an opportunity to take advantage of relatively lower prices compared to other global markets. Nuvama believes that the Indian real estate market holds strong potential for medium-term growth, driven by the rising demand for premium properties and improving cash flows in the sector.

The growing preference for premium housing indicates a shift in consumer behavior. As more buyers prioritize quality of life, location, and amenities over affordability, developers are adapting to meet these demands by focusing on high-end properties. This premiumisation trend is expected to continue, supported by the economic growth in urban areas and a growing middle class.

A Promising Outlook for Premium Housing

The future of India's real estate market seems promising, particularly in the premium and luxury segments. As demand continues to surge, developers are likely to focus more on meeting the needs of high-net-worth individuals and those seeking a better quality of living. At the same time, government policies, infrastructure development, and economic factors will play a crucial role in shaping the direction of the market.

While India's real estate sector faces challenges, such as a decline in new property launches and increasing unsold inventory, the demand for premium properties continues to grow. This trend of premiumisation is expected to drive the market forward, creating opportunities for developers and investors alike. The Indian real estate market's resilience and adaptability will be key to its continued growth, as it responds to evolving consumer preferences and market conditions.