Pune, one of India’s rapidly growing cities, has witnessed a notable rise in residential rates over the past 12 months, according to the latest Gera Pune Residential Realty Report covering the period from January 2023 to June 2023. The report indicates that prices have increased by 11% across all residential projects during this period.
While there has been a reduction in new launches and sales, the replacement ratio remains healthy at 0.98, indicating that sales slightly exceed the addition of new inventory. The total inventory under development in the Pune region has decreased by 5%, from 315,088 to 297,801 homes, which represents 23.36% of the available inventory for sale.
In previous years, the Pune residential real estate market faced a supply shortage, prompting developers to launch new units to meet the rising demand. However, the report shows a 16% decrease in new supply, with 46,007 units launched in the six months ending in June 2023, compared to 54,845 units in the same period last year. This indicates a shift toward normalization, returning to a steady state observed in the past. On an annual basis, new launches have reduced by approximately 19%, with 93,734 homes launched in the last 12 months compared to 115,996 units in the previous 12-month period.
The report highlights a significant drop of 23% in new launches in the Premium segment (prices between ₹5,833 per sq. ft. and ₹6,998 per sq. ft.), followed by a drop in the Premium Plus segment (prices between ₹6,999 per sq. ft. and ₹8,748 per sq. ft.). However, the Luxury segment (prices above ₹8,748 per sq. ft.) experienced the lowest decrease of 8% in new launches. Although the drop to 93,734 units is lower than the previous year, it is higher compared to earlier years. The increased launches in 2021-2022, following the pandemic’s impact on the real estate market in 2020-2021, contributed to this trend.
Analyzing the fresh supply across different zones, the Premium segment in the city center (Zone 5) witnessed a 13% reduction in fresh supply, while PCMC (Zone 6) experienced a 10% reduction. Overall, there has been a decrease in fresh supply across all zones.
Despite these changes, key operational metrics such as the replacement ratio and inventory overhang do not indicate any immediate concerns.
The total inventory available for sale has decreased by 7% to 69,553 units as of June 2023 compared to June 2022. This figure is significantly lower than the peak unsold level of 107,402 units recorded in June 2016, when the unsold inventory accounted for 33% of the total homes under development. The introduction of the Real Estate Regulatory Authority (RERA) shortly after that period, along with a downward trend in home prices over the next four years, contributed to the current inventory levels. The current inventory available for sale represents a reasonable proportion of 23.36% of the total homes under development.
At a six-monthly level, the total inventory available for sale has decreased by 0.6%, amounting to 7.66 crore square feet, while the value of that inventory has increased to ₹48,393 crore.
Sales volume has decreased by 8% over the last 12 months and 12% on a six-monthly basis. Sales for the past 12 months have reached 97,214 units (July 2022 – June 2023), down from 105,625 units between July 2021 and June 2022. The decline in sales is primarily attributed to the sub-1,000 sq. ft. segment. However, growth can be observed in the 1,001 sq. ft. to 1,800 sq. ft. segment. Notably, the Budget and Value segments, which faced challenges in the recent past, have seen a 2% and 5% growth, respectively. On the other hand, the Premium, Premium Plus, and Luxury segments have experienced reductions of 37%, 14%, and 13% respectively. Sales growth in the Luxury segment, which was previously thriving, has slowed down in this cycle.
The market has been trending towards larger projects, with the number of large projects (those with more than 500 units) increasing from 115 in June 2018 to 174 in June 2023. The percentage share of these large projects in the total projects under development has also risen, reaching 7.8% in June 2023 compared to 3.3% in June 2018.
Distributing the total inventory across project sizes, small projects (less than 100 units) now account for only 11% of the total inventory, down from 30% six years ago. In contrast, large projects (more than 500 units) constitute 13% of the total inventory in Pune.
Affordability levels remain strong, with housing costs standing at 3.84 times annual income. Despite a recent increase in home loan interest rates since June 2022 (from 7.7% in December 2021 to 9.85% in June 2023) and rising prices (from ₹4,926 per sq. ft. to ₹5,782 per sq. ft.), affordability has shown a slight dip compared to the levels of June 2022, which stood at 3.61 times annual income. However, increased incomes have positively impacted affordability.
Nevertheless, the rise in home prices and interest rates may pose challenges to developers, as they result in decreased purchasing power for buyers. Developers have been forced to raise prices due to rising input costs. While affordability remains healthy, it could potentially create headwinds for the industry.
On the bright side, improved affordability has allowed customers to opt for reputed branded developers, contributing to a more consolidated market. In the past, when affordability was low, customers had to settle for lesser-known developers, leading to a fragmented market. Now, customers can afford to pay a premium for reputation and a proven track record.
The inventory overhang, based on the offtake rate for 12 months, has slightly increased to 8.59 months. However, the Premium and Luxury segments have shown improvements in inventory overhang. The Luxury segment, in particular, has witnessed a significant reduction, dropping from around 20 months six years ago to approximately 9 months now. In contrast, the Value segment has experienced a notable increase in inventory overhang, rising to 10.62 months in June 2023 from 8.26 months in June 2022. Overall, the inventory overhang across all segments remains robust at 8.59 months, compared to the situation six years ago. This points to an optimistic and promising market situation.
