The silver lining however is that the inventory available for sale as a percentage of the total inventory has infact reduced from 34.29 % in December ’15 to 28.43% in December ’17.
Gera Developments, the real estate developer presented the Gera Pune Residential Realty Report for December 2017. The report reveals that the unsold inventory of Pune as a city has come down from 34.29% (Dec ‘15 ) to 28.43% (Dec ’17).
However, the reason attributable to this is that there has been a substantial reduction in new inventory being brought into the market. Pune witnessed a considerable reduction in of 37% in the total number of flats launched. On a year on year basis, Pune saw 59,595 homes being launched in the last 12 months (Jan ’17 to Dec ’17) down from 93,978 homes launched in in the previous 12-month period (Jan ’16 to Dec ’16). On a Half yearly basis, the reduction in new supply launched is even more telling with a significant reduction of 47% in H2 2017 (24,792 units launched) compared to H2 2016 (47,119 units launched). The shrinkage in supply that was already occurring due to market factors as was visible in 2016 has been amplified by regulatory factors occurring in the broad property market in 2017.
Rohit Gera, Managing Director, Gera Developments while sharing his perspective on the report said, “2017 will go down in the history of Indian real estate, as the year that changed the sector forever. The year started in the aftermath of demonetization with wild speculation and predictions that prices would correct 30% to 40% across the country. This as expected put a stop on new sales. As anticipated, such talk about price correction is music to anyone who is actively searching for home. The other big impact has been the introduction of the real estate regulatory act (RERA). In one action, the government has made delivery to the customer a priority and simultaneously ensured that developers who earlier could launch a project with virtually no capital now require financial strength and capability before entering the business. With the full-fledged implementation of RERA, where developers are not permitted to sell apartments before getting the approvals for the project and obtaining the registration under RERA, as well as the need to keep 70% of all sale proceeds in a designated account had led to an increase in the capital requirements from developers for every project.”
The report also indicated a sizeable decrease in the Launch of new units; the segments of Premium and Premium Plus have seen a growth in new supply launched. Over the last 6 months (July ’17 to Dec ’17) – Premium Plus segment has seen an addition of 2003 units – an increase of 9% compared to 1838 units in the previous period (Jan ’17 to June ’17). The Premium segment has also seen an addition of 5332 units – a growth of 1% over 5265 added in the previous period. The reductions in new supply launched have come mainly the from the budget and value segments. The Value segment which saw 8370 units being added between Jan ‘17 to June’17 has seen an addition of 4009 units between July to Dec’17 – a drop of 52%. This is followed by the Budget segment, which has seen a drop of 31%.
From a geographic perspective, Pune witnessed a reduction in new launches across zones. The city centre of Pune has the lowest base in terms of total apartments available for sale was the outlier with only an 11% drop in the number of new homes launched for sale. All the other zones saw a reduction of nearly 30% to 50% in new homes launched.
Real estate in Pune is going through a tough phase and it is clearly indicating in the pricing. The average residential property prices continued to decrease on an overall basis for the fourth consecutive half year. The average price today stands at Rs. 4740 per sq ft from the peak of Rs. 5096 per sq. ft. in Dec ’15. The drop in the past 6 months has been a further 0.97%. Commenting on the declining real estate prices Gera further added, “Due to lack of new inventory and a long continuing lull in the market, the pricing will continue to remain under pressure. However, banks reducing their interest rates is a huge boost to buyers and I do expect a change in the overall sentiment in 2018.”
The report shows indication of a decrease in overall sales in the market. The total sales for 2017 at 76,149 units are around 19% lower than 2016 sales of 93,995 units. The data of the last 6 months shows a further downward trend. The data for the last three years seems to suggest that while a majority of the sales still come from the Budget and Value segment (68% in 2017), the trend is down as compared to 2015 where 72% of the sales came from this segment. This indicates that as prices have come down – people have tended to move to better locations where prices are higher. This fact is reflected in the share of Premium and Premium Plus segments whose share in the overall offtake has increased from 24% in 2015 to 28% in 2017.
In the wake of the regulatory changes implemented by the government, there is a clear shrinkage in the supply. With offtake remaining higher than the new units launched - a reduction in the inventory for sale has taken place. The pace of price reduction has reduced indicating a possibility of the market having already bottomed out, or being near the bottom. Looking at all the data, it is very possible that the worst of the crisis for the industry as a whole is behind us.
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