As countries vie to flatten the COVID-19 infection curve, another ‘flattening’ is on in full swing for the uber rich — it’s the flattening of demand for top-end properties.
With corporate honchos and CXOs fearing job losses or salary cuts and businessmen finding it difficult to generate cash flows, the demand for luxury market may feel the heat and prices are likely to take a hit by 15-20 percent, say real estate experts.
If coronavirus leads to job losses and pay cuts, it may impact demand for luxury properties and prices may fall by 15-20 percent as it may lead to pressure on demand, they say.
Most properties in the Rs 10 crore to Rs 20 crore are bought by corporate honchos and CXOs and if COVID-19 leads to salary cuts, zero bonuses and appraisals and even job cuts, there is likely to be pressure on demand for such houses, they say.
Businesses promoters, exporters, hoteliers, diamond merchants and jewelers are also likely to get impacted going forward as coronavirus may trigger liquidity challenges.
“These people may face huge cashflow issues and there may be increased pressure on demand side be it from businessmen or for that matter corporate honchos,” says Amit Goyal, chief executive India, Sotheby’s International Realty.
Having said that, consultancies dealing in high-end properties are now planning to focus on the end user segment with liquidity who may be scouting for attractive deals.
“There may be a shift in the target segment – these could now include professionals such as top doctors, lawyers, health professionals, pharmaceutical company owners – who may be looking for a high-end property,” he says.
“There will be more options that will be available going forward, prices would become attractive and mortgages too will be available at a lower rate,” he says.
Pre-COVID-19 deals hit a roadblock
The general trend in these COVID times has been that while buyers are scouting for distress deals, sellers are holding back their decision to sell properties. And those who had locked into a deal before March 2020 are now asking for the deal to be renegotiated.
The fate of deals entered into two months ago hangs in balance. “Most buyers are not sure if they want to conclude the transaction that they entered into two to three months ago by paying an advance of 10 percent,” says Goyal.
If a buyer had paid a 10 percent advance for a Rs 15 crore property, he’s not too sure if he should conclude the deal by paying the remaining amount because the market is not looking up anymore. He’s not sure if he should pay the remaining Rs 13.5 crore because the property could now be valued at Rs 12 crore.
Homebuyers are waiting for clarity to emerge.
“These buyers are now keen on renegotiating the price and seeking an extension of timelines. They are hopeful that by getting out of the deal they may get a property for a lesser amount, perhaps at a discount of 10-20 percent. They are waiting for clarity on where prices are headed,” he said.
Sellers staying put, buyers scouting for distress deals
As the lockdown enters 50 days, sellers who were wanting to sell their property are holding back their decisions and also the prices. Fence sitters, who have been waiting for a couple of years to strike the right deal are on the prowl again and are looking for distress deals.
“Most luxury real estate deals are linked to equity. We are receiving calls from HNIs and ultra rich enquiring for properties being offered at a 20 percent to 30 percent discount. These buyers have been in the market for the last three years and are on the lookout for bungalows going for Rs 100 to Rs 150 crore but sellers are not willing to budge,” says Ritesh Mehta, senior director and head of residential services (development initiatives) at JLL India.
He claims that it may be too early for luxury market to respond as holding capacity of these sellers is nine months to 24 months and such deals take about three to six months, if not more, to conclude.
It may take another nine months for sellers to ‘break down’ as these HNIs are currently sitting on sufficient money. These properties constitute their disposal income and they much rather liquidate their equities first rather than real estate, he says.
Distress sales are, however, available in the Rs 80 lakh to Rs 1.5 crore segment.
There are several distress sellers for units priced between Rs 80 lakh to Rs 1.5 crore. "These buyers are those who are already locked somewhere and want to liquidate their previous assets to raise money for the property they have bought. They may have booked an under construction unit assuming that they would be in a position to liquidate their previous asset at the right time but plans went awry after COVID-19. With timelines approaching to pay up, they are finding it difficult to honour their commitments and are in a hurry to sell off their old asset,” he explains.
NRIs too are scouting for opportunities in the range of Rs 1.5 crore to Rs 3 crore. “They have already gained with 10 percent of currency depreciation. This segment is evaluating opportunities for ready-to-move-in properties in Bengaluru, Hyderabad or Mumbai and may take a decision in two to three months,” he says.
In South Delhi too, both sellers and buyers are delaying their decision. “Buyers are well informed as this is perhaps their third or fourth home. Besides, they are wanting to buy to make a statement and know that they may get a better deal. Sellers too are holding on,” says Rohit Chopra of SanD Advisory Pvt Ltd, adding sellers will wait for the fear factor around Coronavirus to wear off and then sell.
Leasing in luxury segment looking up
Leasing in this segment has picked up. Both corporates as well as individuals are looking for rented properties in the luxury and mid segment. “There are better deals available, people are negotiating hard and leases have been closed during the lockdown,” he says.
A broker Moneycontrol spoke to said that an apartment that was going for Rs 4.25 lakh per month in Worli has been leased for Rs 3.3 lakh during the lockdown. “The owner wanted a regular stream of income and decided to close the deal fast as he was not sure of how much time COVID-19 would last,” he said.
Demand for larger area with wellness spaces
On account of COVID-19 and pressure on working from home, there is demand for customised work areas and wellness spaces.
“This will increase costs by 20 percent to 25 percent as larger spaces would be required but if prices were to reduce on account of reduced demand due to COVID-19, this additional cost would cancel itself out,” says Goyal.
The perception around what constitutes ‘premium’ has undergone a change in COVID times, says Prashant Thakur, director and head - Research, ANAROCK Property Consultants.
While branded builders deliver the desired premium via superior properties and locations, the concept of premium features itself is undergoing a rapid sea change. To the backdrop of the severest healthcare crisis in remembered history, wellness has become a core premium consideration, he says.
Wellness amenities such as yoga studios, meditation rooms, spas, gymnasiums, tennis courts and jogging tracks have become the new rage among urban homebuyers, he adds.
Among the most popular wellness amenities are gyms, yoga/meditation rooms, roof gardens and enhanced natural lighting and ventilation. In the luxury homes domain, buyers also seek projects with art studios, hobby rooms and Zen gardens where they can unplug and rejuvenate.