How will the pandemic impact luxury realty market

28 August, 2020

I have been thinking of writing on the effects of COVID-19 on the luxury realty market for quite some time now. Lately, I am getting a lot of queries from clients, friends, and family, who want to invest in the luxury realty market but are wary of market conditions. I also get asked about the safest investment bet, why is it necessary, and how to invest in a luxury property.

But there is one question I am getting a lot and the context is usually this- “Hey, I am eyeing a luxurious property in Gurgaon but my friend believes prices for luxury realty properties will fall drastically in the upcoming months owing to the pandemic effect”.

So, here I am- answering with a bit of analysis to help you know if all this is really true? Will the post-COVID-19 world witness a significant drop in the prices of luxury properties?

Without much ado, I’ll just say- No! Luxury properties will always be available at their premium prices. No discounts, no steep falls. But why did these misconceptions gain traction?

Here’s my detailed answer for all.

You Need to Know What Really Makes Luxury Properties a Luxury

And no, it is not the price. There are a dozen misconceptions about luxury properties but the biggest one is ‘luxury properties are just pricey’. I wish I could keep a record of all the times my prospective clients have asked me this. It is not just about the staggering price range.

There is more to it. Luxury products- be it properties, services, or electronics- are considered a luxury because of the added security, extra features, increased convenience, and a sense of enhanced self-esteem that comes with buying them.

Being a limited edition makes them a prized possession even more. To understand this, consider an Apple loyalist. Someone, who loves Apple products because of their fierce security features, will keep on investing in the same brand. Irrespective of the cost! Maybe not during the pandemic but when things are normal, they will resume their earlier buying plans.

Apple is not going to bring its prices down. They are luxury for a reason.

This brings me to the next point.

Nope! Luxury Properties Prices Don’t Fall

The one thing I always point out about luxury properties is they are independent of market dynamics. You don’t need luxury, you want it. People, who buy luxury cars, bikes, and other products, do it out of the desire to enjoy the feel, perks, and the worth associated with luxury things. This is why there will always be a desire for luxury properties.

The enhanced self-esteem and the added convenience create loyal customers.

If you are a luxury real estate buyer, you are very less likely to be hit by the economic distress caused by the pandemic. Your buying prowess is unlikely to dip. Consider it this way- someone, who is looking out for a luxury property, already has more than sufficient means to be living comfortably. People invest their surplus income in buying premium stuff.

Luxury properties are maverick in terms of their efficient layout, construction material used, the expertise and reputation of the Project Management Company, and lastly- the location. These four factors have an impact on the worth of luxury property. Not the market dynamics!

In retrospect, if you had invested in luxury property you don’t even need to worry about the price barometer or the pandemic! They will be premium ALWAYS

There is another big post-pandemic effect I find many analysts ignoring. The human consciousness has evolved to learn from trying times, resulting in new coping strategies.

The pandemic has established homes as the safest haven, placing even more importance on having a luxurious abode you can retreat to for days at a stretch. From first-time buyers to the upgraders, luxury properties are going to be on the radar of all potential buyers.

In fact, the luxury realty market is witnessing a surge in buying interest from both the rich and the upper-middle class, as the prospect of holidaying overseas any time soon diminishes. You can gauge the situation from the boom in the realty market of San Diego County. The first month of the pandemic forced price increases to the level it outpaced the highly sought-after Californian market.

Though this is an experience from San Diego County, the story is the same for India. The purchasing power parity of well-off citizens has made them stroll into the luxury properties market more often.

We often have conversations on this within the luxury realty properties circuit. During one such conversation on the state of luxury realty market post-pandemic, Bharat Bhushan Bhatia (Sales & Marketing Head at Elevate) commented, “COVID has actually reiterated the value of own house for everyone. While earlier professionals and entrepreneurs weren’t at home as often, the pandemic has changed it. Instead of lavish vacations, they are at home and want more facilities.”

He went on to add further, “Now, they need a home office for work, a designated area for leisure, and an increased garden-balcony space to relax. In short, all experiences- office, vacations, theater, and restaurant- need to be recreated at home. This has actually boosted the luxury properties segment.”
I second this.

Recent Trends in the Luxury Realty Segment

Honestly, the assumption that luxury realty prices will fall, if there are no takers, is definitely based on shaky grounds. Yes, the demand fluctuates for various reasons including the pandemic. But the price will remain the same. People buy it if they can.

As Ankush Kaul, President- Sales & Marketing (Ambience Group) puts it, “There are reasons to believe the real estate market will remain more stable when markets open up, in particular, the luxury segment.”

He explains how with continuously evolving luxury parameters, luxury properties are going to have an edge. He attributes the rise in demand to the growing number of affluent joint families moving into swankiest new-age modern homes. Visiting and returning NRIs too need comfort at par with developed countries and they would need luxury homes to meet their standard of living.

Let’s take a look at the recent trends to see if the luxury realty segment is indeed stable.

In a Mid-Year 2020 report, released by the Canadian Luxury Real Estate brand, the analysis shows a significant spike in the demand for luxury properties in Canada. The market resiliency is highlighted by a 30% year-over-year increase in closed sales volume from January to June 2020.

If you are looking for a luxurious home, go for it. There is no pandemic enforced drop happening anytime soon. In fact, if prices ever fall for any luxury property, it wasn’t a real luxury in the first place!

I hope this clears all your doubts regarding the pandemic impact on the prices of luxury properties. If you have any more queries, feel free to drop them in the comments below.