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Budget or luxury property: Which is a better investment?

Luxury housing caters to the wealthy who have a predilection for first-class amenities and facilities, which they are not averse to paying a premium for.

Budget or luxury property: Which is a better investment?
Anil Pharande

This is a big question in every property investor's mind - do you stand to profit more from luxury properties or budget homes? Generally, lower-end real estate needs lower capital, which makes it especially appealing to small-time investors. Luxurious real estate, however, is an asset class reserved for people with a lot of capital to spend on a prime residential property.

So, what are budget properties?

Budget housing primarily targets the middle and lower-middle income bracket of buyers. This would include regular starter homes in emerging or non-prime areas. Such homes are cheaper and not top of the line, but they are adequate to meet the requirements of the mid and lower income groups. In other words, investors with smaller budgets can invest in such properties - though even the more well- heeled property investors in India often investing in bulk in budget housing projects to capitalize on the high-demand middle and lower middle-class marketplace.

Now that we've defined budget housing in a nutshell, what is high-end real estate and how does it compare as an investment with budget housing?

What is luxury property?

Luxury housing caters to the wealthy who have a predilection for first-class amenities and facilities, which they are not averse to paying a premium for. Basically, such properties must be exclusive, desirable and unique in many ways. Premium central location used to be a primary factor while selecting a luxury property - but with the new trend of extremely prime and ultra-modern projects coming up even in newer areas, this is no longer strictly true.

What exactly does exclusivity mean? After all, by virtue of every home having only a single owner, can it not be argued that all homes are technically 'exclusive'? Not really. As far as high-end real estate is concerned, exclusivity means closeness to other high-end residences, and suitable access to a variety of tasteful conveniences like five-star hotels, shopping malls, sports complexes, and parks.
 
In areas like Pune's PCMC where planned urbanization has preserved a lot of the available green cover, natural beauty is also an essential determinant in defining exclusiveness. While some buyers may favor mountainside views, others are more into countryside or lakeside and park views. In recent years, integrated luxury townships have been offering such features - and a lot more.
 
Generally, well-to-do luxury home buyers want the same things that all buyers for lower-end properties do, just on a considerably bigger scale. While budget home buyers are satisfied with rudimentary security, regular maintenance of the project and basic fixtures and fittings, luxury homeowners expect advanced facilities and project management that provide a seamlessly comfortable, convenient and visually enriching experience. They also expect round-the-clock electronic and human surveillance of the premises, smart security and convenience features in the properties, and top-grade international branded fittings.

Obviously, luxury properties cost a lot more than budget homes. The question is, do luxury properties make more sense investment-wise than budget homes? There are various schools of thought on this, with a lot of emphasis being laid on the fact that the highest demand in India is for budget housing.

However, market readings also indicate that the number of wealthy home buyers in India is on the rise - and these buyers all seek top-class, refined housing with all the latest amenities and facilities. Moreover, they are invariably not dependent on home loans and have enough wealth to make outright purchases. Simultaneously, a huge complement of India's highly cost-sensitive budget housing segment of buyers is sitting on the fence, waiting for declining home loan interest rates and a correction in property prices.

Also, over the last couple of years, a volatile economy has significantly impacted pricing of luxury homes, making them more affordable.

Closing verdict

It is fairly safe to say that both budget housing and luxury properties are finding buyers in India. It is certainly advisable to run an all-inclusive market analysis locally before embarking on a real estate investment, since the exact dynamics driving ROI on different property typologies differ on a market to market basis.
For instance, investment in a luxury integrated township make a lot more sense that investment in a small budget housing project, because luxury townships offer residents neighbours of comparable status and purchasing power, highly adequate facilities such as green open spaces, in-project schools and shopping malls and superlative project maintenance and smart home features at a unit level.

The writer is chairman of Pharande Spaces
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