Weak outlook of key user industries to aggravate problems for Pune residential real estate; accelerated market consolidation likely.
Regulatory developments, changing financing environment and weak demand has been affecting real estate prices in Pune so much so that the city is grappling with an unsold inventory valued at almost Rs 1.05 lakh crore, says an ICRA analysis.
Further, deferment of purchases from buyers and preference for ready apartments is also a trend observed in Pune in line with other key markets in the country. This is also putting pressure on developers’ cash flow position, it said.
Historically, the Pune market has been resilient. It used to attract a lot of investors in the past due to comparative affordability and healthy price appreciation. However, dwindling demand from investors due to limited returns over the past few years and uncertainties in the economic environment have impacted the market, said the analysis.
As the city’s economy is also critically dependent on IT/ITeS and automobile, favourable demographic profile of young workforce and matching supply with reasonable pricing had ensured conducive environment for the Pune residential real estate.
"Significant pressure on key user industries and waning investor demand have impacted the residential real estate market in Pune and sales velocity is likely to remain slow in the near term. The market is undergoing structural change and unorganised local developers are struggling to adjust with the changing operating environment.
"Resultantly, we expect that the process of consolidation in the Pune market will be accelerated, wherein large players with demonstrated track record of timely delivery, higher brand equity and healthy balance sheets will strengthen their market position. The Pune market has already witnessed a few large deals in the recent past and the trend is likely to continue,” said Anand Kulkarni, assistant vice president and associate head, Corporate Ratings, ICRA.
ICRA has analysed 2,800 ongoing projects in Pune metropolitan region having total of 2.8 lakh units and over 178 million square feet (msf) of carpet area. West and East are the largest micro markets in Pune primarily driven by considerable employment opportunities.
Further, connectivity to the Mumbai-Pune Expressway and the airport is a key driver for the West and East markets respectively. The North and South-West micro markets are primarily driven by industrial establishments and affordability related demand respectively. South-East micro market supply is driven by presence of large townships and few IT/ITeS establishments.
Major real estate development in the Pune metropolitan region has been happening in the outskirts of the city due to affordability and land availability. Furthermore, in line with slowdown in the industry and increasing inflationary pressure, developers are reconfiguring the apartments with smaller sizes in order to keep the ticket sizes affordable. As a result, out of all the units under construction, around 77 percent inventory is under Rs 75 lakh.
"Pune market has seen considerable increase in number of new launches in FY2019 after weak launch pipeline in FY2018 due to demonetisation, RERA implementation and GST. The buoyancy, however, is not reflected in sales performance wherein the units sold remained stagnant for last several quarters.
"Resultantly, ICRA estimates the unsold inventory in the ongoing as well as completed projects in Pune market at around Rs 105,000 crore as on September 2019. The inventory is estimated to be at a high level of 15 quarters-to-sell. The number of unsold units in Pune market is high at 56% for total ongoing projects," said Kulkarni.
Comparatively, the commercial real estate in Pune has a stable outlook. The demand in the city for commercial office space has historically outpaced the supply.
Therefore, the vacancy levels have come down gradually. The demand is expected to continue in the near to medium term considering cost arbitrage offered by the city as well as adequate availability of skilled manpower and social infrastructure.As additional supply is also expected to enter the market, the vacancy levels are expected to be stable at around 4 percent to 6 percent over the next few years, the analysis said.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.