The latest Gera Pune Residential Realty Report for the period January 2023 to June 2023 suggests that, after witnessing furious growth in the past in terms of sales and new launches – markets have streamlined at sustainable levels. Prices have increased by 11% across all projects over the last 12 months.
New launches and sales have reduced however the replacement ratio remains healthy at 0.98 indicating that the sales are marginally more than new inventory added. The total inventory under development across the Pune region has reduced by 5% from 315,088 to 297,801 homes. This constitutes 23.36% of the total inventory available for sale.
In the past few years, the supply squeeze that was prevalent in the Pune residential real estate space had led to developers launching new units to meet demand. However, this time around new supply has reduced by 16% to 46,007 units in the 6 months ended Jun ’23 compared to the 54,845 units that were launched during the 6 months ended Jun ’22 indicating that new launches while still at a healthy level, are being normalized to the steady state seen in the past. If one looks at the annual numbers, new launches have reduced by ~19% i.e., 93,734 homes were launched in the last 12 months compared to the previous 12-month period where we saw 115,996 units.
The steepest drop of 23% is in the Premium segment (prices between ? 5,833 per sq. ft. and ? 6,998 per sq. ft.) This is followed by the Premium Plus segment (prices between ? 6,999 per sq. ft. and ? 8,748 per sq. ft.). The lowest drop of 8% in new launches is in the Luxury segment (prices above ? 8,748 per sq. ft.). This drop to 93,734 units though lower than the last year, is higher than earlier years. 2021 - 2022 saw increased launches coming out of 2020 - 2021 which was impacted by the pandemic.
If one were to examine fresh supply zonewise, the Premium, city centre (Zone 5) has seen a reduction in fresh supply by 13% to 4,422 units while PCMC (Zone 6) has seen a reduction of 10%. Overall - there has been a reduction in fresh supply across the board.
However, operational metrics like the replacement ratio which is at 0.98 and inventory overhang don’t point to any red flags in the near term.
The total inventory available for sale has reduced by 7% to 69,553 units as on Jun ’23 compared to Jun ’22. This number is a lot lower than the peak unsold level of 107,402 units seen in Jun ’16 at which time, the unsold inventory stood at 33% of the total homes under development. RERA was introduced shortly after this, and homes prices started their 4-year downward trend. The current inventory available for sale stands at a reasonable level of 23.36% of total homes under development.
The total inventory available for sale has dropped by 0.6% at a 6-monthly level and now stands at 7.66 Cr sq. ft. while the value of that inventory has increased to ? 48,393 Cr.
The sales volume has decreased by 8% over the last 12 months and 12% on a six-monthly level.
Sales for the last 12 months has reduced to 97,214 units (July ’22 – Jun ’23) from 105,625 units between July ’21 – Jun ’22. The main contributor to the reduction is the sales in the sub 1,000 sq. ft. segment. However, we see pockets of growth in the 1,001 sq. ft. – 1,800 sq. ft. segment. This time around the Budget and Value segments which were under stress in the recent past have seen a growth of 2% and 5% respectively compared to the Premium, Premium Plus and Luxury segments which have seen a reduction of 37%, 14% and 13% respectively. In particular, offtake in the Luxury segment which was growing by leaps and bounds has been arrested in this cycle.
The market continues to trend towards larger projects (those with more than 500 units). The number of large projects in Jun ’18 was 115 projects, it has grown to 174 in Jun ‘23. The % share of such large projects to the total projects being developed has also increased from 3.3% in Jun ’18 to 7.8% in Jun ‘23.
Looking at the total inventory distributed across small projects (less than 100 units)- only 11% of the total inventory is in this segment. This used to be 30% six years ago. In contrast, large projects (more than 500 units) now constitute 13% of the total inventory in Pune.
Affordability levels continue to be very strong at 3.84x annual income. After trending down consistently post the 2015 peak in prices, home loan interest rates have recently started rising (since Jun ’22). The combined increase in interest rates from 7.7% in Dec ’21 to 9.85% in Jun ’23 and prices from ? 4,926 per sq. ft. to ? 5,782 per sq. ft have impacted affordability which has shown a dip over the 3.61x levels in Jun ‘22. Over this time however, incomes have risen thereby increasing affordability significantly.
However, as mentioned earlier, this cycle may have bottomed out with home prices as well as interest rates rising significantly. 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.
The other impact of affordability is that customers now can move to bigger developers who have the capabilities to deliver on promises. When affordability was low, customers had no choice but to settle for lesser-known developers, leading to a fragmented market. Now, customers can afford to pay for homes by the reputed branded developers and in many cases, customers are paying a premium for reputation and track record.
The inventory overhang (based on the offtake rate for 12 months) increased slightly to 8.59 months. Despite the overall increase, inventory overhang in the Premium and Luxury segment continues to improve. It has halved in the Luxury segment ~20 months 6 years ago to ~9 months now. While it has increased significantly to 10.62 months as on Jun ’23 from 8.26 months in Jun ’22in the Value segment has. Broadly though, at only 8.59 months of inventory left the inventory overhang remains quite robust across all segments compared to what it was 6 years ago pointing to an optimistic and promising market situation.
