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Pune’s residential real estate market continues to face headwinds. All the leading indicators point to a challenging scenario. On an overall basis, things over the last 6 months have become more difficult on a variety of parameters. Inspite of this, the state government has increased the ready reckoner rates for calculation of stamp duty and added a further burden on the home buyers. We have already seen a drastic reduction in the development charges and premiums collected by the Pune Municipal Corporation on account of the sluggish market. Further burdening the industry will only slow things down further leading to lower revenues rather than enhanced revenues which is the objective of the government.
PRICES: The rate of price increase for 2014 has dropped substantially over 2013.
Half yearly rate increases aren now below inflation (Figure 1). The last 12 months have
seen the slowest increase in rates of only 5.3%. This as compared to 14.1% and 14.8% over the
two prior years.
Figure 1 - SIX MONTHLY PRICE MOVEMENT
SUPPLY: Over the past 6 months, the gross stock has reduced from 245,369 units to 240,433 – a reduc-tion of 2.1% (indicating that the projects were being launched slower than the rate of comple-
tion).During the same period, the unsold stock has increased from 66,350 units to 67,181 units – an
increase of 1.2%.For the first time in 3years, the total number of projects has reduced from 2761
in June 2014 to 2683 in December 2014 (Figure 2).
Figure 2 - Overall Supply Situation
The unsold inventory in early stage projects has risen from 41.4% in December ’12 to 65.1% in December ’14 (Table 1). While the increase in the unsold stock for the early stage projects is 22.35%, the increase in the overall unsold stock % is 6.07%.
Clearly consumers are being far more careful and purchasing projects which are past the early stage of progress.
PERFORMANCE OF TOP 10 DEVELOPERS
The numbers therefore clearly indicate that the market is rewarding the more reputed developers who have a track record. It seems the home buyers prefer investing in projects by these developers. While reasons for this are not covered by this survey, one can assume that
challenging times lead consumers to veer towards safety. This is also evident from the fact that the early stages projects – those with the longest time to delivery are seeing slower sales than before.
We decided to assess the market in terms of supply and unsold stock based on the quoted rates
The table below shows the rates considered in December 12,December 13 and December 14 for 5 categories of homes (Table 3)
The methodology used was to classify the rates for each category for this year and apply the discount based on the overall market rates for previous rates. In general, the unsold stock percentage increases as we moved towards the upper end of the pricing spectrum (Figure 3), which stands to reason (Premium plus and Luxury units have a longer inventory turnover period compared to lesser priced units).
However, the Premium plus and Luxury segment in Dec’14 had 10,810 units unsold while the number was
10,872 units in Jun’14, a net reduction in unsold inventory in 6 months. The Budget and Value segments had 44,855 units unsold in Dec’14 while their number was 43,552 in June’14 a net increase in Unsold inventory in 6 months. So the increasing % of unsold inventory is not yet a cause for concern.
Clearly, this observation is in line with data on the top 10 developers (Home buyers prefer investing in projects by reputed developers that charge a premium).
Value and volume analysisThe following chart tracks the Total Value (in Crores) and the total area (in square feet) of the Unsold Inventory over the last 2 years (Fig 4).As can be seen, the value of the unsold inventory has jumped sharply in the last one year and has increased marginally by 1.57% in the last six months.The total unsold area (in saleable area terms) has increased from 5,95,93,727 sf (5.96 cr sqft) 12 months ago to 7,11,21,943 sf (7.11 cr sqft) in December 14.However, there is a slight increase from 7,07,92,884 cr sf(7.08 cr sqft) in June 14 to December 14
Top Ten Highest Gainers (in the last 24 months Figure 6)
Bottom Ten Lowest Gainers (in the last 24 months, Figure 7)
We did an analysis of price changes for the luxury locations of Model Colony, Aundh, Koregaon Park & Boat Club Road. The following are the average prices in these markets over the last 24 months (Table 5) The price history clearly indicates that key luxury markets in West Pune have
not seen price movements mirroring those of the luxury markets of East Pune & have lagged
The reduction in the base interest rates of 25 basis points while positive will not do much to move the overall market. While the stock market has already responded to the new government and the changes that are taking place, the real estate market has been far more circumspect. Probably because the speculators and short term investors have moved out of the real estate sector over the past few years.
The genuine home buyers have seen difficult times with high interest rates as well as high inflation and low salary increases and this effect has led to home buyers taking a far more cautious approach this time around.
We hope that the union budget being presented in February will address some of the concerns that afflict the industry. The real estate sector,with its backward linkages to both the manufacturing as well as service sectors and also the skilled employment sector has the potential to boost the GDP however, home buyers need to see reason to convert their need to demand.
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