luxury

An estimated 40% of luxury apartments coming up in India’s financial center are unsold, say analysts and brokers. These apartments cost anywhere from $1 million to $12 million, and range from 5,000 square feet to 13,000 square feet in size. Sales have slowed down in the last two to three months, thanks mainly to the steep prices. In December, the number of apartments registered in Mumbai – an indicator of sales – fell 50% from the same month the previous year, according to research from investment firm Prabhudas Liladhar Pvt. Ltd. While this data includes non-luxury apartments as well, real estate brokers and consultants say luxury home sales have been similarly affected. “Sale volumes have dipped in pretty much every market in India,” says Gulam Zia, national director for research and advisory services at Knight Frank India Pvt. Ltd., a real estate consulting firm. Analysts say that if sales continue to remain slow, developers may have to cut prices or offer perks to lure buyers. In recent years, India has witnessed a boom in the construction of luxury apartments which resemble those in cities like New York and Singapore. These are meant to cater to India’s growing number of new wealthy as well as the traditionally rich who want to live in modern apartments. Around 3,700 luxury apartments are currently under construction in Mumbai and its suburbs with a price tag of $1 million or more, according to Delhi-based research firm P.E. Analytics Pvt. Ltd. Of these, around 1,440 are unsold. In Delhi and its suburbs, one quarter of the 2,300 luxury apartments under construction are unsold, according to the firm. Residential apartments in India, including those in the luxury market, are typically sold before they are fully constructed. Analysts say that developers in India sometimes delay the construction of their project to ensure that they don’t have a large number of unsold units in their ready buildings. Some of the luxury apartments in Mumbai and Delhi have become 20% to 30% costlier than they were a year ago, thanks to growing wealth in India as well as general euphoria about the real estate market. But now, “buyers are not happy with these high rates,” says Sanjeet D. Narain, managing director of Mumbai real estate consulting firm Narains Corp. At the same time, many buyers have a lot of money stuck in the Indian stock market which has fallen more than 10% so far this year. So, they want to “wait for some more time,” says Aditya Juneja, a real estate broker in Gurgaon, a suburb of Delhi. So far, developers have not budged from their asking prices. Many of them bought the land on which they are building properties at very low rates and are charging 10 times their cost of purchase for the apartment building. If only a small percentage of the apartments in a particular site are sold, they can recover their costs and thus afford to wait for the others to sell at high prices. In land-scarce Mumbai, for instance, a large number of homes for the super-rich are coming up in the Lower Parel neighborhood, which is attractive for its proximity to the highly-coveted south Mumbai area. Private developers bought land in Lower Parel from cotton and textile mills at 3,000 rupees ($66) per square foot to 6,000 rupees ($132) rupees per square foot in the early part of this decade, says Samir Jasuja, founder of P.E. Analytics. Now, apartments in this neighborhood are priced between 15,000 rupees ($330) and 30,000 rupees ($660) per square foot. So builders can recover their costs by selling just a handful of such apartments. “Developers can even afford to hang on,” says Mr. Jasuja. However, developers who have a large inventory of properties may feel the crunch of financing as banks become increasingly cautious about lending to real estate developers. Also, India’s interest rates have risen over the last year making it more costly to borrow money. “The pressure has started building,’ says Mr. Narain. Analysts expect developers to cut prices of luxury homes by 10% to 15% in the next few months. Alternatively, some developers might choose to offer freebies like free parking and a waiver of stamp duty to entice buyers, says Mr. Narain. Buyers should be negotiating discounts and deals even now, say analysts. They should also be prepared to see delays in the construction of these projects, says Mr. Jasuja. The slowdown in sales of luxury properties has not stopped developers from launching new projects. The Donald Trump-backed building is expected to be officially launched in the next two months by Mumbai-based developer Rohan Lifescapes Ltd. The building will be on Hughes Road in south Mumbai and will have apartments which are 5,000 square feet and overlook the Arabian Sea, says Haresh Mehta, chairman of Rohan Lifescapes. For a fee, Mr. Trump will contribute his name and design among other things. Mr. Mehta expects the apartments to command a premium of as much as 40% compared to other luxury apartments in Mumbai because of the prime location and the branding. He didn’t specify the price they plan to charge. “There will be people wanting to buy Trump,” he says.