Pune has witnessed a steep drop in the number of new apartments being launched, leading to a reduction in the total inventory under development, as well as a reduction in the absolute number of apartments available for sale, according to the Gera Pune Residential Realty Report for July 2018, which was released on July 4, 2018, by Gera Developments. From a peak inventory available for sale at 1,07,402 apartments in June 2016, the inventory available for sale currently stands at 79,546 apartments. This puts the unsold inventory at approximately Q1 2015 levels. The current inventory available for sale, at 26.29 per cent (79,564 apartments), is just below the Dec 2013 unsold inventory, which stood at 26.34 per cent (55,377 apartments).
The result of the slowdown in the realty sector is clearly visible in the number of new apartments being launched. On an annual basis, new apartment launches have dropped from the year July 2014-June 2015 to the year July 2017-June 2018 by nearly 50 per cent (from 1,10,824 apartments to 56,410 apartments). On a year on year basis, there is a drop of 7.93 per cent (8,788 apartments) between 2014-15 to 2015-16, then a drop of 19.71 per cent (20,114 apartments) between 2015-16 and 2016-17 and a huge drop of 31.14 per cent (25,512 apartments) between 2016-17 and 2017-18. Looking at the data on a six-monthly basis, shows a slight increase in the apartments launched in the period of January 2018 to June 2018 at 31,618 from 24,792 apartments between July 2017 and December 2017. This may be a sign of green shoots. However, this is also the lowest number of apartments brought to the market for the January-June period, over the past four years.
Key highlights of the report
Developers have cut back substantially on new project launches in Pune
New project launches are down from 1,02,036 apartments being brought into the market from July 2015-June 2016, to now 56,410 apartments for the period July 2017-June 2018. Clearly impacted by the Real Estate (Regulation and Development) Act (RERA), funds now have to be deployed towards existing projects and can no longer flow towards future projects.
Sales continued to drop on a Y-O-Y basis
From a peak of 92,546 homes sold between July 2015 and June 2016, annual sales have dropped to 76,431 between July 2017 and June 2018.
Average residential property prices decrease for the fifth consecutive half-year period
From a peak of Rs 5,096 per sq ft in December 2015 to Rs 4,685 per sq ft in June 2018, the drop in the past six months has been a further 1.17 per cent.
Average city-wide price has come down, on account of lower-priced new inventory
There is a gap of almost 14.77 per cent, between the average Pune price of Rs 4,685 per sq ft and prices of new projects at Rs 3,993 per sq ft, in H1 2018. New inventory is being launched at lower prices, whereas, old projects and new phases of old projects continue to have rates at similar levels.
The silver lining: Unsold inventory percentage is near a 4.5-year low
The reduction in project launches has had a positive impact on the sellout ratio, effectively reducing the percentage of inventory available for sale. At 26.29 per cent of the total inventory available, this unsold inventory is near a 4.5-year low. The end and ready segments form 11.3 per cent and 4.6 per cent of inventory available in June 2018, respectively (combined, 16 per cent in June 2018, as compared to 12.9 per cent in June 2017). In June 2017 the total inventory in these segments was 8,849 while in June 2018 it has increased to 9,005 units. This debunks the theory that consumers are opting for ready homes, because of the savings in GST cost. On the other hand, early stage inventory available for sale decreased from 32,300 units in June 2017 to 15,589 units in June 2018.
Visible signs of consolidation taking place in the market
If the recent trend of the percentage of new units being accounted for by the top 10 projects launching new units is seen, in December 2015, only seven per cent of all the new units launched were accounted for by the Top 10, while in June 2018, this number has jumped to 15 per cent.
Sales in the value segment have picked up
Six-monthly sales in the value segment, increased by 28 per cent to 8,445 units, from 6,573 units in H2 2017. Overall, the budget + value segments saw sales increase by 10.3 per cent over H2 2017. There is a significant movement in the premium plus + luxury segment, where sales have increased by 31.4 per cent over H2 2017. Sales in the premium plus segment are at an all-time high of 5,783 units. However, the premium plus segment accounts for 14 per cent of the overall offtake, the bulk of the offtake being dominated by the budget and value segment, which account for 65 per cent.
New launches increase in the luxury segment
The share of premium plus category in the 12-monthly new launches has improved from 6.01 per cent in the previous 12 months to 10.57 per cent in the current period, indicating that the fall in prices has brought back demand at the top end and developers are filling that gap, by launching units in that segment. A similar trend can be seen in the luxury segment. The market share of value segment in the new units launched has virtually remained, unchanged at 40-50 per cent.
Home sizes have been decreasing consistently
The average home sizes launched in January-July 2014 was 932 sq ft. They are now at an average of 747 sq ft. The less than 600 sq ft and the 600-800 sq ft segments are primarily targeted by the Pradhan Mantri Awas Yojana. Over time, the share of offtake in the less than 800 sq ft basket has remained consistent at 49-50 per cent. Virtually all size segments above 1,000 sq ft have seen a sizable drop in sales.
Speaking about the report, Rohit Gera, managing director, Gera Developments, said, “Pune’s residential real estate market continues to be in a state of stress. Developers have cut back substantially on project launches. With the implementation of the RERA, capital has been forced to flow towards project execution, which has contributed to the slowdown in launches. Sales too have continued to see a drop, on a year-on-year basis. The impact of slower sales is also visible on rates, as a slow reduction in average rates continues. The reduction of project launches, however, has led to some good news in terms of percentage of inventory available for sale. At 26.29 per cent of the total inventory available, this unsold inventory is near a 4.5-year low. This could turn into great news, as and when sentiments improve. Once demand sees an increase and developers see returns, we can expect an increase in new project launches. However, with RERA, access to capital is now reduced and if the government wants developers to be partners in the ‘Housing for All’ mission, it is imperative that the current policy of banks not funding developers for acquisition of land be revised.”
Many developers are unable to sell their inventory, on account of delays and cash flow challenges, while those who have launched the right sized product at the right price recently, are able to find customers for their products. For the right project and the right developer, capital is not a constraint, whereas, for some, there is no money available even at high interest rates. Customers looking for homes at this stage, must look at investing only in projects that show adequate construction activity on the site, as without this, their money will go into paying old debts and they may end up knocking on the doors of the RERA Authority.