Premiumisation paused: Will policy nudge developers towards middle income housing?

By E Jayashree Kurup

All reports have been posting report historic highs in sales along with a slight degrowth in sales and launches. The real estate markets are ripe for a policy nudge downwards, where endless demand awaits. Budget 2025 could hold the key. 

I wrote yesterday about the premiumisation of the Indian residential real estate market from 2021 to 2024 and how some celebrities have capitalised on it and not only invested well but exited the investment on time. This premiumisation is reflective of the Indian economic scenario where the rich, professionals or businessmen, have amassed more wealth and don’t mind ostentatious spending. The lower and middle classes, on the other hand, have had to tighten their budgets and curtail spending to cope with static or lowered income and rising interest rates. The rising rental values delivered a double whammy, with houses-are-too-expensive-so-let’s-rent, logic too is not working. 

So, traditional or new premium locations have been lapped up for primary, second or even third houses, while the end-users have been squeezed into smaller units in further-away locations. The hordes of returning employees returning to office post-Covid, in a rising economy that enforced back-to-office diktats, revealed the acute shortage of rental housing close to business hubs. Landlords in cities such as Bengaluru capitalised on this opportunity, even doubling rents to a desperate workforce. Returning workers often shared apartments till finally they rejected the convenience of staying close to home and chose far off localities at manageable rents. This forced landlords to rethink and drop prices to more reasonable levels. As Sudhir Pai, CEO of Magicbricks, astutely observed in an interview with Urban Insights Podcast, prices never really go back to the old levels once they rise. They remain stagnant, creating new normals.

I have given this example to explain that while the majority is largely ignored by the developer community in favour of the high paying wealthy buyers, the bulk of the demand still persists in the middle and lower middle class segments. In the Knight Frank India Real Estate H2 2024 report, I noticed a key statistic that I would like to call out - Launches and Sales trend graph. From a low launch, high sales market from 2015 to 2020, the market turned to high launch and lower sales in H1 2022. Since then, launches have consistently exceeded sales. Being a long-gestation business, a project takes about 4-5 years to actually be delivered. 

Via Knight Frank India Real Estate H2 2024

Pai of Magicbricks noted that probably because many fly-by-night operators have already exited markets and the Real Estate Regulation and Development Act (RERA) has laid down ground rules, today consumers are confidently buying even freshly launched properties. After the fiasco of 2012-2017, till RERA became a reality, over 7 lakh buyers in the Noida and Greater Noida markets alone were left paying EMIs but with no likelihood of a home. These are still in various stages of resolution. However, the new generation of buyers are the ones who have sufficient financial strength to weather small shocks, and are not necessarily buying with borrowed money, that leads to huge repayment burdens. Also, unlike in the earlier cycle, they are not pre-paying for houses. They pay in instalments according to the progress of construction, as laid down in RERA. 

The Knight Frank report noted that despite a continued robust growth in Mumbai, it has moderated from 11% in 2024 at 96,187 units, a 13-year high in annual and semi-annual terms, to only 6% in H2 sales. Similarly, in the National Capital Region (NCR), annual and semi-annual sales dipped marginally by 4% each YoY. While the premium market of Rs 2 crore to Rs 20 crore has posted unabated sales, low inventory levels in mid and affordable categories in the right locations weighed down the market.” Pai of Magicbricks too predicted a moderation in demand.  

Taking this one step further Jatin Shah of Colliers told Urban Insights podcast that many launches were held up in the last quarter of 2024 and many developers are expected to start launching in the middle income categories of Rs 80 lakh to Rs 1.5 crore in cities like Mumbai, Chennai, Bengaluru and Hyderabad. Shah's prediction is to expect sizes to shrink to accommodate new budgets but to find more traction in middle income launches. 

Via Magic Bricks Luxury Report

Presenting the Pune Property Market report, Rohit Gera of Gera Developers too noted a drop in launches in the last quarter. From a scenario where developers rushed to serve the premium and ultra-premium sector which was selling like hot cakes, there is expected to be significant moderation and a move to serve the middle income sector, which was outpriced when the price benchmarks moved from Rs 1.5 crore per unit to over Rs 2 crore per unit. Being sensitive to EMI affordability and therefore interest rates, this segment may consider fresh launches but not rush mindlessly to lap up anything that is offered. 

Akshay Kumar Cashes Out

Any real estate investment yields results when there is an end-user at the end of the line waiting to buy out the investor and start living there. For the 60% investors who have bought several apartments during the bull run, exiting may not be that easy. Smart investors like the Bachchans, who bought several mid-level houses of Rs 2-odd crore each instead of putting all their money into the ultra-premium market, are likely to weather the storm, when it comes, much better. Bollywood actor Akshay Kumar too was able to sell his 1073 sq ft apartment with two car parks in Borivali East for Rs 4.25 crore. The Bachchans have also liquidated their ultra-premium purchase in Oshiwara with a return of 168%. Thus they have hedged their bets. 

But for those who have been outpriced in the market in the past three years, those who invested that amount in mutual funds through systematic investment plans (SIPs), all is not lost. The middle income housing will stage a comeback, sooner than later. The industry has built so much delivery capability that it cannot afford to remain idle. If one market shrinks, it will have to shift to the segment which is under-serviced and therefore capable of providing quick sales. 

Just like the Deepak Parekh committee recommendations and their implementation by Maharashtra proved the turning point for the beleaguered real estate industry in 2021, will Modi 3.0 pull a rabbit out of the bag in Finance Minister Nirmala Sitaraman’s budget? Will policy nudge development into the lower categories? The middle classes can only hope it will do so. 

E Jayashree Kurup is a writer and researcher in real estate and city governance. She runs the Urban Insights Podcast