The Pune residential real
estate market is showing signs of recovery after a prolonged period of stress.
picks up by ~3% in the last 6 months after declining for 2 years, inventory
available for sale at a 4.5 year low, affordability index is at an all-time
high at 3.91x Annual Income – Indicating this is a good time to buy a home
July 8, 2019…Pune…Gera Developments, pioneers of the real estate
business and the award-winning creators of premium residential and commercial
projects in Pune, Goa and Bengaluru, today presented the Gera Pune Residential
Realty Report for Jan – Jul 2019.
Key Highlights of the
Inventory available for sale is at a 4.5 year low: On account of a reduction
in new project launches since June’ 17, the total inventory has been
contracting for the last 2 years. There is finally an increase in the total
inventory by ~3% to 3,01,731 units in Jun ’19 from 2,92,842 in Dec ’18,
suggesting that the market has expanded in the last six months in terms of
construction activity. The inventory available for sale currently stands at
80,062 apartments and is virtually unchanged since the last one year. Inventory
for sale has reduced to 26.53% since the peak at 34.29% in Dec ’15.
New launches at a 24 month high: At a city level, there is an overall increase of 56%
in new launches (87,795 apartments launched in the 12 months ended Jun ’19
compared to 56,410 launched in the 12 months ended Jun ‘18). New launches have
hit a 36 month high (it was at 81,922 units in the 12 months ended Jun ’17) – a sign of optimism amongst the developer
Market in consolidation mode – 10 new projects account for 15% of all new supply launched: The top 10 projects in
Pune with the maximum new supply launched, account for ~15% of all the new
supply launched between Jan ’19 to Jun ’19. This figure stood at only 7% in Dec
’15, while over the past 12 months it has been consistent at 15%. As we have
seen in the past, the consolidation taking place in the market is evident if
the recent trend in % of new units being accounted for by the top 10 projects
launching new units is seen.
Prices stop falling, market price at a 5 ½ year low: Market prices have
broadly remained flat over the last 6 months after witnessing an erosion of
~11% from peak levels seen in Dec ‘15. In Dec ’18 average market price was ₹ 4,582 Psf which has gone to ₹ 4,555 Psf (a reduction of 0.58%). The average
Pune market price is at a 5 ½ year low. Looking
at the price trend over the last 8 years, the market that has seen the highest
CAGR is Erandwane & neighborhood at 8.32% followed closely by the City
Affordability index at an all-time low over the past 8 years: We evaluated the salary needed to buy a home in Jun
‘11 at prevailing interest rates and adjusted that for inflation and the
current interest rates to arrive at the affordability index over time. A look
at the trends in affordability over time revealed that it is at an all-time
high as on Jun ’19 at 3.91x Annual Income making this the best time to buy a
home. In Dec ’13 the homes that were 5.3x Annual Income are now available at
3.91x Annual Income. Over time interest rates and prices (from Jun’15 onwards)
have trended down, while incomes have risen thereby increasing the
Sales at a 2 year high. Increase of 19% over the last 12 months: Sales offtake has grown from 76,431 in the Jul ’17 – Jun ’18 period to 90,835 units during Jul ’18 – Jun ’19. An assessment of sales offtake based on size of apartment shows that, the share of the <600 sq. ft. segment in the offtake has been consistently increasing over the last 3 years from 25% to 28% and the segment that has been ceding offtake is 600 – 800 sq. ft. where share has dropped from 25% to 21% in the last 3 years. This segment (<600 Sq. ft.) along with the 600 – 800 sq. ft. segment is primarily targeted by the Pradhan Mantri Awaas Yojana.
Market size increases marginally to Rs. 39,335 crore: Inventoryavailable for sale has increased by ~1% over Jun ’18
to 7.59 Cr sq. ft. while value of that inventory has increased to Rs. 39,335
Cr. The weighted average price has increased by 1.2% over Dec ’18.
While releasing the report, Mr.
Rohit Gera, Managing Director, Gera Developments said, “The Pune real
estate market seems to have finally turned the corner and has staged a comeback
putting in a good performance after a prolonged period of stress. Construction
activity which was contracting over the last few years has finally expanded
convincingly. New project launches have grown as have sales and unsold stock
seems to have stabilized at ~80,000 units which is a 4.5 year low. The combined
impact is that the pace of reduction of home prices has slowed down. The
overall Inventory overhang has also improved and is now at slightly less than
10 months which bodes well for the industry. The market size of Pune is a just
below Rs 40,000 crores. In order to definitively state the market has turned
requires prices to increase however, all the market indicators have turned
positive. The continuous fall in prices over the last few years coupled with
inflation have eroded developer margins substantially. The elimination of input
setoff for GST has further added to developer costs. All this indicates that
prices are waiting for the visibility of demand to see a dramatic increase.”
Mr. Gera further added that “The Union budget provides for an
increased deduction of Rs 1.5 lakhs (in addition to the existing Rs 2 lakhs)
for interest paid towards purchasing a new home. The benefit of the additional
deduction is substantial. The fact that the benefit is valid only till 31st
March 2020 will motivate people to accelerate their purchase decision, this
will lead to a clearing of the inventory in the sub Rs 45 lakh segment. Out of
80,062 homes for sale, about 20% i.e 16,322 homes are priced between Rs 25 – 35
lakhs and about 15% i.e 12,538 homes are priced between Rs 35 – 45 lakhs.
Current levels of inventory are approximately 1 year’s supply based on recent
trends; however, we expect this inventory to get sold out and more inventory
launched in this segment. The 31st March 2020 sunset for this benefit will slow
down indiscriminate supply infusion in this category. We expect to see a price
rise driven by this segment. The challenge of liquidity however continues and is
the dark cloud over the industry. Moving
the regulation of HFI’s under the RBI is
likely to further tighten the lending norms for the industry.”
Since the implementation of RERA, number of live projects in Pune has
reduced from the peak of 3,733 projects in Jun ’17 to 3471 in Jun ’19. As of Jun ’19, the total number of projects
on hold (where work has commenced and presently stopped) has reached 242 (the
figure of 3471 live projects excludes these 242 projects). These 242 projects
consist of 39,882 apartments and based on our prior data, 23,793 are sold. This
means approximately ~24000 families are stuck with incomplete projects at
The report looked at the stage of construction (EARLY, MID, END and
READY) and compared it to when the project was launched and found that about
484 projects were launched pre 2015 and are still live. This constitutes about
14% of the total inventory and is a reasonable estimate of delayed projects.
This is over and above the projects that are on hold.
segment-wise share of new launches there is evidence to suggest that customers
are moving up the value chain (assuming supply follows the demand
pattern). There has been a ~2.2x growth in the number of new launches in the Premium Plus
segment over the last 12 months – 5,964 units were
launched in the 12 months ended Jun ’18 which have now increased to 13,517
units for the 12 months ended Jun ‘19. Shares of Value, Premium and Premium
Plus segments have all increased at the expense of the Budget segment where the
share in new launches has dropped to 39.57% in the last 12 months compared to
49% for the 12 months ended Jun ‘18. This validates the earlier observation
made 6 months ago about the Oversupply in the budget segment. This is clearly
in the process of playing out.
The inventory overhang has continued to improve and the current
inventory overhang has dropped from 12.49 months in Jun ’18 to 9.75 months in
Jun ’19. The budget segment continues to have the lowest inventory overhang of
~8 months. The Union Budget is likely to boost this segment further.
CONCLUSION: It has been a prolonged downcycle for the real estate industry with
quite a few regulatory and market challenges to contend with over the past 4-5
years. However, we are finally seeing the real estate industry putting in a
positive performance. The price erosion occurring has finally been arrested.
Sales, New Launches and Offtake all are showing healthy growth rates. Unsold
stock is at an all- time low while new launches are at a high. This compounded
with the time bound interest deduction benefit ought to see sales improve in
the coming months. This has the potential of kick starting a long overdue
period of price rise.
Structural issues with liquidity and cash flow management remain
however amongst developers with weak balance sheets. The market seems to have
separated the wheat from the chaff with the implementation of RERA as reflected
in the number of ongoing projects coming down.
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