Gera’s Residential Pune Realty Report for July – December, 2015 highlights the gliding crash in the Pune realty market

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With the prices virtually stagnant and the industry being plagued by an ever increasing inventory for sale the market is in a mode of a gradual downward drift

Highlights of the report:

  • The annual price rise for the year December‘ 14 – December‘ 15 was a miniscule 0.7%
  • The total number of projects launched during the same period has increased by a whopping 59% as compared to last year
  • Surprisingly, sales are largely stable with only 11% reduction as compared to last year clearly indicating that the reputed developers have seen a growth trajectory in sales
  • While the gross stock has risen 27.17% in the past 12 months, the inventory for sale (inventory with developers for sale) has shown a steep jump of 55.65% in the same period and is a big concern area currently
  • Only 29.13% of the stock added between July’ 15 to December’ 15 is within PMC limits thereby indicating the growth of the city outward

Pune, January 7, 2016: Gera Developments, 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 July – December, 2015. The report highlighted that over the past six months, the prices in Pune’s residential market stayed almost flat with an overall increase of only Rs. 21 per sq. ft. representing a 0.43% increase. The overall market average pricing is currently Rs. 5096 sq ft. The annual improvement in price for 2015 has been a miniscule 0.7%. Despite all the negative news that has been emerging over the last 24 months, 2015 saw a substantial upsurge in the total number of projects launched during the year at 1206 as opposed to 758 in 2014, which represents a huge increase of 59%.

According to the report, inventory available for sale (consisting of ready possession and under construction flats available for sale from developers) increased by 55% from 67181 units in December 2014 to 104565 units in December 2015. The inventory for sale stands at 34.29% in December 2015 as compared to 27.94 % in December 2014.  Although, the sales numbers over the past 3 periods of 6 months (H2, 2014, H1 2015 & H2 2015) have been extremely stable at about 44000 units for each half year. The annual off take in 2015 has been 88815 units down only 11% from 2014 where 98968 units were sold.

While commenting on the Gera Pune Residential Realty Report, Mr. Rohit Gera, Managing Director, Gera Developments said, “While the report suggests that there is stress in the realty market, timing the market to perfection is not possible. As stated in our previous report, the expectations of a sharp price correction do not seem to be materializing. Part of the reason why prices continue to be anchored down is the increase in the total supply of projects and the infusion of more number of homes in the market.  The prices are in check because of the significant increase in supply and not because of low demand. The other factor being the demand and purchasing of homes are not keeping in tune with the growth in supply. The rise of gross inventory of 26.81% is significant.  The silver lining however is that sales numbers over the past 1.5 years have been extremely steady this indicates that a large number of home buyers believe that this is the right time to buy and invest in homes.

Simultaneously, people’s affordability has risen over the past 24 months.  While home prices have increased only 6% over the last 24 months for the most part, salaries have on an average soared over 20% for the same period. This coupled with lower inflation as well as lower interest rates have left prospective home buyers with increased purchasing power. This certainly bodes well for the industry. The trigger awaited is the switch in sentiment since affordability has already seen an improvement.”

The report underlined that the average half yearly sales was approximately 44,000 units per 6 months over the past 2 ½ years. There was however a spike in H1 2014 to 54544 units. In terms of overall inventory for sale, in the budget segment being the highest at 43396 units, the sales in this segment too is the highest at 21685 units in the second half of 2015. Though the maximum inventory infusion as well as the maximum inventory for sale is available in the budget category, the total inventory overhang in this segment is under 12 months.  The premium plus category with prices between Rs. 6216 per sq ft and Rs. 7770 per sq ft have just over 20 months inventory.

The overall stress is visible in the percentage of inventory available for sale which has crept up over the past few years with the last 12 months showing the greatest jump of 6% increase taking overall inventory for sale up to 34.29%. On assessing the inventory for sale by price point over the past 2 ½ years, there is a major jump in inventory for sale across all price points, significantly though, the largest jump in both percentage terms as well as absolute terms is in the budget segment where the total inventory for sale has risen 239% from 18109 units to 43396 units.  This segment constitutes 41.5% of the total inventory for sale in unit terms.

On advising home buyers on the right time of purchase Mr. Gera further added that “Those looking to purchase a home would be well advised to go out and strike a deal for their dream home now.  Given that all indicators show reduced interest rates in the near future, a floating rate mortgage would be advisable at the present time. It is however highly advisable for home buyers to conduct adequate due diligence when purchasing their homes.  Getting a “great deal” is of no use if the money that a customer pays to a developer does not go towards construction at the site and instead goes to debt repayment or other outstanding liabilities. Therefore the single biggest thing to look for today is developer track record and the progress of the project the customer is looking to purchase.”

On FY16 outlook for the realty sector and price trend, Mr. Gera said, “On a different note there has been tremendous talk about the real estate regulatory act being passed by the central government, however this did not fructify in 2015.  All indications are that 2016 will be the year the act is passed.  There are a large number of conditions in the Act that transfer the risk off development as well as market conditions currently being born by the home buyer to the developer.  While home buyers are understandably delighted by the opportunity for the risk to be eliminated from their side, it is natural for developers to price this risk into their sale price there by leading to an upward pressure in prices.”

 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, they continue to happen.  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), we believe prices will not see any significant correction.

Given how much the government relies on stamp duty and VAT from the residential housing sector, it is time the government looked at boosting revenues from the housing sector by focusing on generating volumes at lower tax rates rather than excessively burdening home buyers with increased tax rates.  A stamp duty rebate for stamp duty paid between now and 1st April 2016 for example could kick start the home buying cycle and move people who are on the fence to the buying side.  Faster sales, increased momentum and a higher GDP growth rate after all is in the interest of the entire economy including the home buyers who will end up building their equity in their homes sooner rather than paying rent.