Middle-class are driving the transition from Medium-priced to High-end real estate

Real Estate sector is all set to welcome 2024. It is already going under a massive transformation, largely due to the rapid growth of the country’s middle class and fast growing economy. Middle- income group are driving the shift from medium-priced to high-end real estate. This shift is combined with rising disposable income and evolving lifestyles. New policies and regulations by the Government of India are driving and boosting the real estate industry.

According to the latest estimates, India’s middle class is expected to grow to 547 million people by 2030. If this figure is realized, India will become the home of the world’s biggest middle class, confirming India’s emergence as a major economic player and powerhouse segment.

India’s residential real estate market continues to outperform in 2023, with record housing sales in the country’s top seven cities, according to Anarock Research’s latest data. Despite headwinds such as rising property prices and early hikes in home loan interest rates, the number of residential units sold in 2023 stood at around 4.76 lakh units, a 31 per cent increase over 2022 figures.

Interestingly, Magicbricks noted that Gurugram deviates from the trend slightly, showing notable demand for home loans within the Rs 40 to 60 lakh bracket (25 percent) and loans for homes priced between Rs 1 to 1.5 crore (13 percent).

Anuj Puri, Chairman of Anarock Group, commented on the stellar performance of the sector, saying, "2023 has been phenomenal for the Indian housing sector, despite global headwinds, rising domestic property prices, and interest rate hikes over the first half this year. Housing sales in the top 7 cities breached the previous high of 2022, and new launches stayed in step with the current housing demand.”

He added, "It was widely expected that rising property prices and interest rates, along with global market upheavals and uncertainties, would impact residential sales."

The National Capital Region (NCR) deliberately restricted new supply in 2023, introducing approximately 36,735 units despite robust housing sales of 65,625 units. This cautious approach led to a significant 23 per cent annual reduction in unsold inventory stock.

There are several factors that contribute to this remarkable growth. One of the most important is urbanization and projects delivered by developers like M3M India, DLF, Emaar, Godrej, etc. More people are moving to cities in search of better jobs and a better quality of life including education facilities, medical facilities that are just a call away and other amenities which are available at a nearby doorstep.

In the past, the middle class group was more interested in being able to move around easily. Now, the middle class is looking for high-end living spaces with unique features. A notable surge can be seen in the middle class from medium to luxury real estate properties. Access to high-quality education and improved job opportunities have also played a significant role in its development. This, in combination with a steady increase in income and repo rate being unchanged by the RBI, highlighting the rise of the middle class and facilitating the power to take the home loan from Banks.

In comparison to other countries, India’s middle-class has grown at a much faster rate than the rest of the world. This has set India apart in terms of the scale and speed of its transformation. It presents unique opportunities and challenges to the real estate industry. This growing middle class, characterized by greater purchasing power and evolving aspirations, is transforming the real estate industry and driving demand across a variety of property segments.

The National Capital Region's (NCR) affordability index improved from 29% in 2022 to 27% in 2023, making it one of the most affordable markets. Bengaluru was the fourth most affordable, with a 26% affordability index.

According to a report by Knight Frank, the income ratio required by households to finance housing loan EMIs varies from city to city. A ratio of more than 50% is considered to be unaffordable, and is often the reason why banks refrain from underwriting new homes. However, with a stable GDP growth and inflation moderating in the next fiscal year (FY 2024-25), affordability is expected to improve further. If the Reserve Bank of India (RBI) lowers the repo rate later this year, which is widely expected, affordability of homes could see a significant improvement in 2024, providing a complete boost to the sector.

Developers are building projects keeping in mind the growing need of buyers for properties with better facilities and infrastructure. Today’s buyers aren’t just looking for places to live and work, they’re looking for a better lifestyle. They want amenities like fitness centers, green spaces, smart home technology, malls, shopping complexes, hospitals, schools, colleges in the complexes itself and eco-friendly infrastructure for old people.

On the other hand, proximity to work and essential amenities has become more important than ever. With busy lifestyles, time and convenience count for something. That’s why properties near work, schools, and healthcare centers are so popular, as well as close to public transportation. This shift is most visible in India’s major cities, such as Mumbai, Delhi and Bangalore, as well as Chennai, where real estate developers are adapting to the changing needs of home buyers.

The middle income group has started shifting towards high-end real estate projects. This signifies a broader shift in the tastes and desires of India’s middle class. They are now more conscious and demanding in their residential choices.

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