The real estate market in India – and Pune specifically – will be uncertain in 2023 as layoffs in the global tech and IT sector may affect sales, new project launches and pricing, said Rohit Gera, managing director of Pune-based Gera Developments.
“Regardless of affordability, job insecurity may cause people to put off their decision to make a large purchase like a home,” Gera said at the launch of the company’s Residential Realty Report January 2023 edition. “Layoffs in the tech sector and a corresponding erosion of sentiment would have an impact on the sales of homes.”
Gera said rising interest rates have not had much of an impact on the overall market, and while some sales may have been affected, the salary increase over this period has more than compensated for the rise in interest rates.
“The future, however, has greater uncertainty due to macroeconomic and global factors,” he said. “We see increased global headwinds and layoffs affecting employment in the IT sector. We believe a larger issue, in addition to affordability (which is not a cause for concern now), is job security.”
The Reserve Bank of India increased its benchmark interest rate by 225 bps in the first nine months of FY23 to curb inflation, making home loans costlier. Tech companies globally have announced layoffs of 28,096 workers in the first five days of January, exceeding the December figure by 64.5 percent.
Prices rising
The report on the residential market of the Pune region highlighted that new launches are not growing at the pace seen in the past. Fresh supply in the six months ended December 2022 fell 22 percent from a year earlier and 13 percent from levels in the six months ended June 2022.
According to the report, average prices of homes across Pune city increased 10.85 percent to an all-time high of Rs 5,461 per square foot in December 2022 from Rs 4,926 per sq ft in December 2021. In new projects, prices have gone up by more than 23 percent in the past 12 months.
The report said that for the first time, affordability has dropped to 3.71 after improving for more than eight years.
“Over time, interest rates have decreased, while incomes have risen, thereby increasing affordability significantly. However, this cycle may have bottomed out with home prices as well as interest rates rising significantly,” the report said.
“Input costs for developers have forced developers to raise prices. Increasing interest rates and inflation get the home buyer less per rupee, and hence the affordability equation, though still healthy, can still create headwinds for developers.”
According to the report, while yearly growth in offtake and new launches remains at healthy levels, they declined 4 percent and 22 percent, respectively, on a six-monthly basis.
The replacement ratio is 0.95, indicating that demand is greater than supply, while the inventory overhang is less than nine months, suggesting that market fundamentals remain strong in the near to medium term, according to the report.
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