Is the luxury sector feeling the pinch?

Lakshay Narang (name changed), a high networth individual (HNI), had a Diwali holiday planned in Seychelles with four family members for five nights and six days. The stay at a five-star resort with a private beach, a luxury villa and a pool would cost up to ₹4.5 lakh per person. As the economic slowdown set in, Narang made multiple changes to his plan trying to cut corners, but eventually decided to cancel the trip.

Sapneal Rao, founder of Mumbai-based SSR Holidays, says Narang is only one of his many HNI clients who have decided to cut back on luxury travel expenses. While many argue that HNIs are recession-proof, Rao thinks otherwise. “The slowdown is real, and it has severely impacted our business,” he says. Some of his other HNI clients, for instance, are either moving from a five-star to a four-star hotel or picking cheaper destinations. “They have cut down on expenses by at least 20-30 percent,” he says.

The luxury sector in India has been growing over the past several years at about 10-11 percent, says Abheek Singhi, managing director and senior partner, Boston Consulting Group. But policy changes have been slowing it down over the past two or three years. It started with demonetisation in 2016, as Sarosh Mody, director at Luxury Watch Works, an after-sales service centre for luxury watch brands, puts it. “After demonetisation, the sale of luxury goods shot up for two days because people went berserk to spend all the cash. And then, there was a lull of about seven months.”

How has the current slowdown affected the market? Mody distinguishes luxury buyers into two categories: Ones who are buying for self-gratification, and those that are actual users. He says, “The ones who are buying for gratification are challenged currently, because of the uncertainty about their jobs.” And the wealthy actual users are avoiding spending big money on luxury because market sentiments are pretty low.

Another major trend that experts like Mody have spotted is the rising frequency of discounts, instead of the earlier once in a year. Besides, earlier, when luxury brands had their annual sale, people would queue up on the day of the preview, and everything would get booked or sold before even the sale could start. “But the last time I checked with a brand, they said there was no turnout on the preview day and their first-day sales were worth just ₹1 lakh,” says Mody. Once global luxury brands enter the Indian market, they don’t leave, but don’t expand significantly either, he says.

The slowdown has added to the woes of the luxury real estate market. In the real estate sentiment index developed jointly by Knight Frank (India), the Federation of Indian Chambers of Commerce and Industry and National Real Estate Development Council, the April-June quarter has reflected a dip in the current and future sentiment. The report points out that, according to the RBI, household savings, a major contributor to the economy, have slumped to a decade low, whereas the financial liabilities as a part of the disposable incomes have seen a 200 percent increase from 2009 to 2019. “The government’s focus on affordable housing along with demonetisation had taken the sheen off luxury housing over the past two years. As a result, builders restricted new supply in luxury category across the top seven cities,” says Anuj Puri, chairman of property consultants Anarock. According to the company, nearly 86,400 units of luxury real estate priced above ₹1.5 crore were unsold between January and September.