Real estate major DLF was in the news recently after a video that went viral on social media claimed that its not-yet-launched luxury project in Gurugram was a hit with buyers. The company is expected to have sold 1,137 flats within a few days. The 3,900 square feet apartments were being offered at a base price of Rs 18,000 per square foot.
That’s not all. In Noida too, a broker Moneycontrol visited has been flooded with calls from customers for luxury projects that are being discussed in Whatsapp groups but not yet launched in the market. The market is abuzz with news that L&T may launch a luxury offering in Sector 128, so might M3M in Sector 94 and County Group in Sector 115 and Max Estates. Most of these are expected to be priced between Rs 10,000 per sq ft and Rs 20,000 per sq ft. The entry of branded developers is expected to change the landscape of the city, which has all along been an affordable market, say real estate experts.
This price tag comes with fully loaded apartments with separate clubs, spas, Italian flooring, concierge services, and most important a promise of much-needed after-sales maintenance. Customers comprise end-users who are high networth individuals, CXOs, CEOs and those wanting to upgrade their homes. Investors are also gradually trickling in.
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No more affordable market
“Noida like most peripheral cities was primarily an affordable market. With land prices going up, not to mention the upfront amount that developers now have to pay for acquiring land, the city is witnessing and is expected to see a flurry of new launches in the ultra-luxury segment, says Prashant Thakur, Senior Director and Head of Research, ANAROCK, adding if the percentage of affordable launches four years ago was 40 percent, it is only 20 percent now. The dynamics have changed, especially after the hybrid work model became a reality. Working from home has led to a demand for bigger residential units.
“Listed players are coming into the Noida market and it emerging from Gurgaon’s shadow,” said Pradeep, a broker, adding buyers in Noida were waiting for a ‘Gurgaon-like’ quality housing product and these may soon be launched in the market.
Luxury launches by branded developers have increased as there is a limited supply of land, for which the builder is expected to pay the price upfront. Earlier, developers could pay just 10 percent in Noida for procuring land and the rest in installments.
In November 2022, M3M Group bought 13-acre land in Noida for Rs 827.41 crore through auction. The total acquisition cost would reach Rs 1,200 crore, including lease rent and registration charges.
In December 2022, realty firm County Group purchased 28-acre land in Noida for about Rs 450 crore to develop a luxury housing project as part of its expansion plan. It bought the land parcel that earlier belonged to the realty firm Ambience group. Indiabulls Housing Finance sold this land to recover its loan from Ambience.
Read More: Realty firm County Group buys 28 acre land in Noida for about Rs 450 crore
The tax angle
There’s also the capital gains tax deadline of March 31. To limit the exemptions of the receipts from very high-value transactions, the finance minister in Budget 2023 had proposed that the exemptions available under Section 54 and 54 F will be limited to Rs 10 crore.
Currently, any capital gains arising from the sale of long-term assets, including residential houses, are exempt from tax if the proceeds were invested in another residential property and there is no cap on the amount on which the deduction could be obtained. But under the new provisions, a cap of Rs 10 crore has been put on capital gains, on which deduction will be available.
According to Mudassir Zaidi of Knight Frank, Executive Director - North, Knight Frank India, most of these units are likely to be launched upwards of Rs 3 crore. There are multiple reasons why they may get traction. Chief among them is that the luxury segment has caught the homebuyers’ attention after COVID-19. Initially, this manifested itself in the form of demand for plots which were a rage in Gurugram and after prices of plots increased by almost 100 percent in some cases, demand for quality group housing has made a comeback.
“The Noida market has improved in terms of perception and quality of construction. The location of most of these new luxury projects is along the Noida-Greater Noida Expressway, which is an established market,” says Pradeep, a Noida-based broker.
Also, if one were to do the math, a 1,200 sq ft unit launched at around Rs 10,000 per sq ft would not get traction from buyers but a 3,000 sq ft unit would, he says, adding, it all boils down to consumer demand.
Post pandemic, ICRA noted in its report, there has been a gradual shift in the overall segment-wise composition with a rise in the share of the luxury and mid segments to the overall sales across the top seven cities -- Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune. The share of the luxury and mid segments to the overall sales has increased from 14 per cent and 36 per cent, respectively in FY20 to 16 per cent and 42 per cent, respectively, in the April-December of FY23.
Read More: Budget 2023: Rs 10-crore cap on capital gains deduction to affect uber luxury property sales
The modus operandi
Brokers say that the modus operandi of selling luxury apartments that gained ground in the last few months involves Expression of Interest. A few brokers circulate news of the impending luxury launch to their customers through Whatsapp messages and phone calls and take an expression of interest from them.
This is an informal mechanism through which a homebuyer expresses his interest to buy a housing unit in a new project that may be launched in the market after it has received all statutory clearances. The only information provided to the buyer is the tentative launch price and the location. Buyers have to fill out a provisional application and give basic details such as their choice and a cheque indicating that they may be interested in the project.
Once the project is launched, the buyer is allotted a residential unit in the project. The advantage is that he gets to book the unit at a price which is often less than what the developer quotes at the time of the formal launch, say brokers in the know of how it works. “Allotment of a unit depends on the demand. If the builder gets a massive response, he may allot just about one or two units to a broker and if it receives a tepid response he may allot more units. The buyer gets to benefit in terms of price. The ‘official’ launch usually takes place at a higher price,” they say.
These buyers do not get the option to choose the unit and are evincing interest at their own risk, they say, adding if the response is not good, a developer may even decide to reduce the price and inform the customer that a discount is being offered to him.
“This is a technique to gauge the market response to a project that is yet to be launched in the market,” they say.
Legal experts say while the price may seem attractive, buyers should desist from entering into such deals.
“Section 3 of the Real Estate (Regulation and Development) Act, 2016 clearly prohibits any marketing, booking, sale or offer for sale or inviting persons to purchase in any real estate project without it being first registered under the said Act with the Real Estate Regulatory Authority.
Therefore, any kind of indirect marketing by promoters through other channels/brokers and inviting buyers to express interest in the purchase of plot/flat in any real estate project prior to registration of such project and pay advance for it is not permissible and is against the objective of RERA,” said Sunil Tyagi of Zeus Law.