Why is India’s luxury residential market seeing a significant increase in demand?

Living a luxurious lifestyle has become the new trend in India, representing the continuation and evolution of the country’s longstanding affinity for opulence. This is not a new phenomenon, but it has significantly changed its course over time.

The maharajas and nawabs of those eras set the bar for lavish living with their magnificent residences and elaborate artifacts, leaving behind a legacy of grandeur that still captivates the imagination.

In the present day, this tradition of luxury has spread and transformed, reflecting the aspirations and affluence of a broader segment of the population. The desire for luxurious living is no longer confined to royal families or the elite but has permeated various parts of the country.

As India’s economy grows and its middle and upper classes expand, more people are seeking to experience the finest things in life. This shift is visible in the rise of the luxury residential market, upscale retail spaces, and premium lifestyle services across the nation.

From state-of-the-art high-rise apartments in Mumbai and Delhi to lavish villas, luxury homes are in high demand. Tier-1 cities such as Mumbai and the National Capital Region (NCR) of Delhi have been at the forefront of luxury housing demand, even outpacing sales in the affordable housing segment.

According to CBRE, a leading real estate consultancy, sales of luxury housing units priced at ₹4 crore and above increased by 27% during the January–June period, reaching approximately 8,500 units across seven major cities.

The Delhi-NCR, Mumbai, and Hyderabad markets led this trend, accounting for around 84% of luxury housing sales in these top cities. Pune also experienced a notable rise in luxury housing demand, with sales growing nearly sixfold on an annual basis to about 1,100 units, as highlighted in the report.

Additionally, luxury homes in Mumbai priced above ₹10 crore saw sales totaling ₹12,300 crore in the first half of 2024, with the Worli area alone representing more than a third of these transactions.

In comparison, the first half of the previous year saw luxury home sales of approximately ₹11,400 crore for properties priced at ₹10 crore and above, according to a joint report by India Sotheby’s International Realty and data analytics firm CRE Matrix.

The demand for luxury homes has been driven by India's millennials, who make up 36% of the population. According to a JLL report, this demographic accounted for 54% of homebuyers last year and has an estimated combined spending power exceeding US$330 billion.

In addition, the rise of high-net-worth individuals in India also contributes to the demand for luxury homes. These individuals have a high net worth and are willing to pay a premium for luxury homes that offer exclusivity, privacy, and a range of high-end amenities.

Rebounded strongly 

The Indian residential segment has undergone major structural transformations over the last decade. This has led to a decade of high performance across the residential segment. The sector saw multiple challenges, including demonetisation and the implementation of the Goods and Services Tax (GST). 

Further, non-banking financial companies (NBFCs) crisis and the COVID-19 pandemic have also impacted the sector. However, today, the sector is touching new highs with the support of strong policy interventions such as RERA, which have made the sector more transparent and customer-centric; strong economic momentum; and an ardent desire to own and upgrade homes.

In CY2023, India’s residential real estate sector demonstrated resilience with sustained strong demand. Property sales surged significantly higher than the previous year and the trend is extended to the current year, with housing sales hitting an 11-year high with 1.73 lakh units sold in the first half of the current calendar year, according to Knight Frank. 

Mumbai led the growth with a 27.3% increase, totaling 47,259 units, followed by the Delhi-NCR region with 17%.

According to the latest United Nations World Urbanization Prospects report, Delhi ranks as the second most populous city globally, with a population of 33.8 million. Both Delhi and Mumbai feature among the world's top ten most populous cities, with Mumbai ranking ninth at 21.6 million inhabitants.

The UN report also projects that by 2028, Delhi will become the world's most populous city. Currently, Tokyo holds this title, with a population of 37 million.

Rapid urbanisation, rising income levels are driving the luxury boom

Driven by rapid urbanisation and rising income levels, metropolitan landscapes are undergoing significant transformations. This has led to a surge in demand for high-quality housing and a superior lifestyle.

As more people move to cities and experience a higher standard of living, there is a growing preference for premium residential properties that offer prime locations, superior amenities, holistic living, a community of like-minded people, and modern comfort.

These include well-designed living spaces, recreational facilities, green areas, and advanced security measures.

As per the recent report, published by Knight Frank and the Confederation of Indian Industry, India’s urbanisation rate over the next decade is expected to reach 42.50% from 36.50%, which implies a significant rise in demand for households and the expansion of cities across the country.

Capitalising on the demand

As demand for luxury housing continues to rise, developers have launched multiple projects in this segment, with many selling out within minutes of their release. 

For instance, DLF's luxury project, DLF Privana South in Sectors 76–77, Gurugram, saw an overwhelming response from customers, resulting in a complete sell-out even before its official launch. This success garnered new sales bookings worth ₹7,200 crore.

Similarly, Signature Global sold premium apartments worth over ₹2,700 crore. The company said it has received an overwhelming response with expressions of interest in more than twice the number of apartments to be sold.

Simultaneously, the broader residential housing market is also experiencing a surge in demand, leading to rising prices. Despite higher prices, sales continue to grow, prompting developers to launch more projects. According to the recent estimates, residential property prices in Bengaluru have surged by 57% over the last five years.

In the same period, the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have seen a 49% increase in property prices from the first half (H1) of 2019 to H1 2024.

Significant potential ahead

The Indian real estate market is currently valued at approximately ₹39 lakh crore, contributing 7.3% to the total economic output.

By 2047, it is projected to expand to ₹484 lakh crore, accounting for 15.5% of the total economic output. This growth is driven by factors such as rising demand for homes due to rapid urbanisation and increasing incomes. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.