Here's why Pune's real estate has seen a run-up in prices

Pune, the eighth largest city in the country, has recently seen a huge run up in prices, rising almost 35 percent since 2011 with the average price in the city rising from Rs 3800 to Rs 5100 per square feet. Prices have now stabilized at these levels. While Pune is performing better than other cities like Mumbai and the National Capital Region, it would be incorrect to say it is totally isolated from the overall realty slowdown.

Sales have started slowing down, registering a 19 percent dip at the start of 2013 according to Liases Foras. But sales in a much larger property market, Bangalore, registered a sharper decline of 23 percent.

What's worked well for Pune this Diwali is that it is still far more affordable than other cities. This is one of the big reasons this property market is not in the grips of a massive slowdown, the kind we are seeing in Mumbai and the National Capital Region.

Rohit Gera, MD, Gera Developments tells CNBC-TV18, “The overall inventory overhang isn’t in anyway or form alarming as far as the Pune market is concerned, this inspite of a large quantum of supply that has been brought out by developers over the last 6-9 months. So, despite that home buyers continue to need to buy homes.”

The Pune market continues to be much more affordable than many parts of the country.

Pune's economic drivers; a growing IT hub and a big manufacturing base for the auto industry, augers well for the city's real estate market. The growth corridors are flanked on the eastern and western side of the metropolitan city.

Also read: Lower Parel real state: A bubble waiting to burst 

Pravin Mahurkar, Pune head -residential, Jones Lang LaSalle India, “Traditionally Pune's geography is divided, it is kind of like eastern corridor and western corridor. Western corridor growth factors were more towards the Hinjewadi IT park, the industrial belt of Chakan, Talegaon, the entire zone. The areas in and around Hinjewadi which are like Wakad, the upcoming areas like Tathavade, Baner, Balewadi in last two years we have seen lot of growth and activities on the Paud Road area which is the new area which is developing like Bhugaon and Bhukum. All these on the western side of Pune plus other areas of western corridor are Pimple, Pimple Saudagar, the entire western zone has a good growth potential considering the job opportunities which are getting evolved day by day in these areas”

“If one has to look at sub markets that personally we think are very good areas to be in, I think on the eastern side is Kharadi. We have a number of projects there but we continue to believe that this will turn into amongst the best suburbs in and around the city. On the eastern side we think Baner is a really good location. There has already been a bit of a run-up in prices in Baner. We also have a new project which we have just launched in Bavdhan, clearly that is an area which we do believe will see some traction in terms of price movement and the reason for that is over the last couple of years Bavdhan has not seen any kind of breakout pricing. So, if one has to look at price trends of other sub markets in that western corridor you will find that Bavdhan is kind of been a little bit behind. According to us we feel that is ready to do a catch-up of sorts”, adds Gera.

CII and Jones Lang LaSalle in a recent joint study concluded Viman Nagar to Nagar Road in eastern Pune is in the top six investment destinations in the country. This micro-market is being seen as serving as an alternate location to the prime IT destinations like Magarpatta and Hadapsar. Few Grade A properties such as Eon Free Zone, Panchshil Tech Park, Commerzone and the under construction Marvel Edge have already made a mark.

Commercial office space development has witnessed interest from developers like K Raheja Corp, DLF, Panchshil, Kumar Builders, Marvel Realtors etc. Holding nearly 18.5 percent or 6.5 million square feet of the city's Grade A office space, key tenants include EDS, IBM, Tech Mahindra, Barclays and HCL.

Mahurkar says, “On the eastern side of Pune which is fueled by the IT park within the city like Eon Free Zone or the various earlier IT parks, the CBD of Pune which is the Bund Garden, Koregaon Park, Kalyani Nagar and the industrial belt of Ranjangaon the growth corridors of those sides are Kharadi, Wagholi. So, all these areas are offering products within the range of Rs 5000-6000 and even at Rs 4500 in certain areas. So, it is a good option in terms of entering for end use as well as from the investment point of view.”

CREDAI had recently said that developers across the country had been holding back and launch activity was down 90 percent this festive season on account of poor consumer sentiment.

“A lot of launches are, even lot of soft launches, pre launches are happening for last couple of months and we are seeing good response across various projects in various segments, for example Panchshil has done a soft launch for their project in Kharadi at Panchshil Towers, they received a good response and premium. Clover Realty have launched their project in Kalyani Nagar, that has received a good response. Across segments Gokhale Constructions a well known city centric name has launched nine projects on nine days, that has received a good response. Lot of soft launches from different developers are coming”, says Mahurkar.

Gera Developments that has been in the business for 42 years in Pune says the city's told unsold stock of 51725 units is approximately 6.5 months of inventory and add this is a comfortable situation from an overhang perspective.

An analysis reveals the maximum number of unsold apartments are in the size segment of 751 square feet to 1000 square feet an apartment.

Normally you would imagine this to be first segment to be lapped up, but the high unsold inventory is on account of a large supply. Jones Lang LaSalle says you can get 1BHKs and 2 BHKs at Rs 2500-3000 per square feet or for Rs 15-25 lakh an apartment.

Mahurkar elaborates, “The areas where these kind of projects are coming up are towards where the lot of industrial growth corridors are there. So, areas like Ranjangaon close to that area, you have areas like Sherwal which is on Satara Road, which is Pune-Bangalore Highway, we have seen projects towards Talegaon side, we have seen projects of these scale on the new growth corridor of Bhugaon. All these areas lot of projects in affordable housing are coming up in the city.”

Unlike other metros, Pune's luxury market continues to do well with sales of Rs 1 crore plus homes registering a healthy run rate.

Donald Trump deciding to make his Indian foray with Panchshil in Pune is also a testimony of city's luxury market. International property consultant CBRE says the maximum traction for homes in Pune is for those costing Rs 75 lakh to Rs 1.25 crore

Gera says, “In the luxury segment there were about 6500 apartments in June 2012 and that has become nearly 12800 apartments in June 2013. So, it is a near doubling of the supply in that above Rs 1 crore segment. While the sell-out ratio was 78 percent in June 2012, it is at 72 percent in June 2013. Despite virtual doubling of the supply in the above Rs 1 crore segment we have seen that the off-take has nearly kept pace which is a good sign.”