Dear Friends and Associates,
We are back with the December newsletter we cite the approvals process as one of the reasons for slow supply in terms of new projects and how if corrected, it can be a boon for home buyers in terms of affordability. As always, do let us know what you think.
Business Unit Head - Gera Developments Pvt. Ltd.
Approval Process Streamlining - A Boon for Home BuyersBy Rohit Gera
One of the learnings from the slowdown of 2007 and the bust of 2008 is that people buy homes they can afford as long as the sentiment is positive. As interest rates rose in 2007, demand tanked. As demand tanked, the talk of a bubble increased as did the predictions of an imminent price collapse for the real estate market. This price collapse did happen - the catalyst was the global economic meltdown.
Fortunately, India emerged ahead of the other economies and the Indian real estate industry was part and parcel of the recovery.
Post the recovery, realty (along with the stock market) has seen prices return to pre bust peaks. Infact, many markets have seen prices surpass the pre bust peaks leading to the question of the bubble yet again.
At a micro level, the Pune market has also seen an increase in the prices, however, the demand supply scenario in Pune is impacted by an external factor that is not necessarily currently impacting other markets- the approval process.
Over the last few years, the approval process had become extremely time consuming and therefore, less projects were being launched. A look at the revenue of the PMC in the last few weeks however, tells a different story. The number of projects approved have increased substantially- depicted in terms of a substantial revenue gain. The reason is the fact that the PMC Commissioner has recently issued a circular that delegates the authority for sanctioning of plans and along with the Additional City Engineer, brought in a number of other much needed process simplification steps.
This bodes well for the customers and, from the perspective of a professional developer, for us as developers too and also the PMC.
The reduction in the sanctions had led to a situation of increased holding costs and also under supply leading to an increase in prices that would soon see a reduced affordability amongst buyers and subsequently lead to a slowdown in demand- the result of the simplification in the process will lead to an increased supply in the market. This increased supply would be able to keep prices in check and price increases would then be linked to input cost increases, micro market dynamics and general sentiment. The artificial throttling of supply due to the change in the process of approvals would no longer be a cause of price hikes.
The increased approvals lead to direct revenues that the PMC earns through premiums that developers pay for approvals plus octroi that is earned on account of increased construction activity.
Pune has been ahead of the other cities in terms of initiatives for simplification of the approval process - the fast track approval system and the online submission process are procedures other cities have adopted and continue to emulate. The initiative of speeding up the approval process which can be a way of keeping prices affordable for customers can also prove to be yet another achievement that other cities will continue to follow.
JMD - Gera Developments Pvt. Ltd.
As with other investments, real estate too carries a certain amount of risk. Readers are advised to undertake their own due diligence and take judgement calls based on their own research and not on the article.