Gera’s Pune Realty Report for January – June, 2015

Gera’s Pune Realty Report for January – June, 2015 highlights the contrast of the Pune Residential Real Estate Market

Right time to invest for the buyer due to slowdown in the price appreciation but challenging times ahead for the developers

Highlights of the report:

·        The price rise for the year June ‘14 – June ‘15 was 3.33% as compared to 10.03% in the previous year - June ‘ 13 – June ‘14

·        The half yearly growth rate has also slowed down from 3.04% during the period June ’14 – December ’14 down to a miniscule 0.27 % for the period January ’15 to June ’15

·        There is a significant increase of 14.36 % in the gross inventory in the past 12 months

·        The unsold stock (inventory with developers for sale) has shown a steep jump of 36.85% in the same period

 Gera Developments, one of the 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 Realty Report for the period January – June, 2015. The salient findings of the report were further ratified and discussed by key industry spokespersons – Mr. Shantilal Kataria, President, CREDAI Pune Metro, Ms. Sonal Modi, Regional Business Head of Maharashtra & Senior General Manager at HDFC Ltd., Mr. Sanjay Bajaj, Managing Director, JLL - Pune and Mr. Rohit Gera, Managing Director, Gera Developments at a panel discussion on the Pune Residential Real Estate Market.

The report highlighted that on an annual basis, the Pune residential market saw a significant slowdown in price appreciation from 10.03% in June ’13 – June ’14 to 3.33% in June ’14 – June ’15 bringing the half yearly growth rate down to a miniscule 0.27% for the period January ’15 to June ’15. Part of the reason why prices continue to be anchored down is the increase in the total supply of projects and number of homes in the market.  

The total inventory has increased from 245,639 homes over 2761 projects 12 months ago to 280,913 homes across 3067 projects. 

Mr. Rohit Gera, Managing Director, Gera Developments, Mr. Shantilal Kataria, President, CREDAI Pune Metro, Ms. Sonal Modi - Regional Business Head of Maharashtra & Senior General Manager at HDFC Ltd. and Mr. Sanjay Bajaj, Managing Director,  JLL Pune.

While the gross stock has significantly risen by 14.36% in the past 12 months with a net addition of 35,324 homes across 306 additional projects, the unsold stock (inventory with developers for sale) in the same period has shown a steep jump of 36.85% from 66,350 homes a year ago up to a record 90,799 homes at present. The unsold inventory is valued at Rs. 48,526 crore.

While commenting on the Gera Pune Realty Report Mr. Rohit Gera, Managing Director, Gera Developments said, “While our findings indicate that the market is facing stress on various counts, this is the right time for the buyer to invest as the prices are flat currently. While the market is being cautious and waiting for the prices to drop further which is the key consideration in any purchase, it is important to understand that additional controls for the sector will lead to increased costs for the developers and this will eventually be passed on to the customers. 

We believe now is the time to go out and buy that dream home. In many ways these are good times and there is a silver lining in the midst of the doom and gloom.  

For an industry that had no barriers to entry and where core competence required was “managing the process”, these challenging & competitive times lead to the emergence of a better product, more customer centricity and greater focus on delivery track records. Hopefully, we will also see the exit of the fly by night operators who entered the industry to make a quick buck.”

When assessing the slowdown in price appreciation, Mr. Gera further added that “Clearly developers are focusing their efforts on the more affordable segment of the market in the outskirts of the city region. This huge jump in unsold inventory is where the problem will take place. 

There will be some projects and locations that will not find favour amongst home buyers and these projects will find it extremely difficult to achieve financial closure.  As a result, there is a potential for some projects being grounded till the market sees a turn around.  Home buyers are therefore advised to exercise extreme caution and are recommended to conduct developer as well as project financial due diligence before committing to purchasing homes.”

On evaluating the unsold stock by price point over the past 2 years, all price ranges have seen an increase in the unsold stock. The budget category (where prices presently are below Rs. 4,247 psf) has seen an increase of 125% from 18019 unsold units to 40814 unsold units.  The next highest increase is the Value category (current prices between Rs 4,248 & Rs 5,309 psf) with an increase of 75 % from 14184 units to 24768 units.  The luxury segment has the next highest increase in unsold inventory at 65 % from 2629 units unsold rising to 4325 units.  

The Premium and Premium plus category have relatively low increases at 30 % & 22 % respectively.  The data indicates that the fact that developers are focusing on the luxury segment is a myth as also the fact that there is unending unmet demand at the budget segment. 

Out of the maximum new stock added in the past six months between  January ’15 to June ’15, only 24.55 % of the stock that has been added is within the PMC limits and that most of the incremental stock is added outside the Pune Municipal Corporation limits. This indicates the growth of the city is outward.  

As this trend continues, this will lead to declining revenues by way of development charges and premiums for the PMC. 

In conclusion, the increased inventory provides an opportunity for the state government to garner nearly Rs.3000 crores by way of stamp duty, LBT & VAT.  Further, accelerating these home sales means additional supply leading to a boost in the GDP of the state and consequentially enhanced revenues for the state and increased housing for the citizens. 

It is high time that the government looked at boosting revenues from the housing sector by focusing on generating volumes at lower tax rates rather than increased tax rates.

While the big picture shows a challenging scenario, the fact is that the market has expanded in terms of supply and at the same time, while sales numbers have dropped for the period Jan to June ‘15 compared to the same period last year, they have been stable compared to the July to December  ‘14 period. 

This impact of increased purchase options for a reduced set of customers has led developers to see a double impact in terms of individual project sales, however, given the fact that sales continue, barring a few stray cases, unless something drastic is done to bring down input costs (cost of land, cost of approvals, time of approvals, material costs), the prices will not see any significant correction. 

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