Years of the economy slowly grinding to a halt has finally seen the impact on the real estate sector
Gera Developments released the Gera Pune Realty Report for the period January – June 2014. The current report reflects that the impact of the overall economic slowdown has finally started showing on the Pune real estate numbers over the last 6 months and clearly indicates that the same has had a bearing on the demand in the market place. The assessment of the overall gross stock (defined as projects under construction and ready projects with more than 5% unsold stock and more than 10 units) reveals that the rate of market expansion has come down in the last 12 months i.e. June’ 13 to June’ 14. This period saw the gross stock rise from 200,944 units to 245,674 units, an increase of 22% as compared to the preceding 12 months from June ’12 to June ’13 which saw stock rising from 152,311 units to 200,944 units, an increase of 31.9%
The half yearly price increase has been at the lowest in the years at 2.2% for the period January’ 14 to June’ 14. There is however a counter effect of increased loading and extra charges that has, to an extent added to the price rise but does not show up in the normal analysis. The average price across the city is now just shy of Rs. 5000 psf and stands at Rs. 4910 psf. The average basket of homes has delivered a 41.29% increase in rates over the last 3 years where average prices in June 2011 were at Rs. 3475 psf. The 3 year compounded annual growth rate has been 12.25%. Investors who have purchased homes 3 years ago with mortgage rates at 10.5% and loan to value of 80% would have seen an equity returns of 18.75% per annum, making real estate still an attractive investment especially when factoring in tax benefits and deducting entry load costs.
Mr. Rohit Gera, MD said, “We have studied & evaluated the Pune realty market to realize that on the surface there seems to be a slowdown in the rate of increase of realty prices. However the quantum of slow down needs to be viewed with total cost of purchase rather than the traditional rate per sq. ft. model that has been used to value property. The loading of the common areas onto the carpet area is in the region of 33% to 35% for the common areas. This has had an impact of 8% - 10% on the carpet area or 5% - 7% on the saleable areas. The increase in the extra costs like club house charges, infrastructure etc. has risen more than the rates themselves thereby having a positive impact on the overall cost that the consumer pays for the home.”
For today’s buyer there may appear to be a slowdown in the increases in rates over the past years, however it is interesting to note that the rate of increase in luxury specifications and amenities has only increased. Locations where Italian marble or home automation would have been considered extravagant a year ago, now have a number of projects offering higher better specifications and amenities. All these amenities end up costing the developer but are provided in a hyper competitive market. The boost to infrastructure and civic amenities have provided customers with a better bargain since homes are actually getting cheaper in real terms with lower rates of appreciation, adjusted for infrastructure, better specifications and amenities. Though the additional loading and extra costs have impacted the overall prices, customers continue to look at the cost per sq. ft. and as such, feels satisfied that the rates have not risen. In reality, the overall cost of ownership has increased over the last few years.
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