Focus towards affordable housing gathers pace

Rohit Gera

WITH a push towards affordable housing gathering momentum, Pune saw an increase in new launches driven by this segment, reveals the Gera Pune Residential Realty Report for January 2019, recently presented by Gera Developments, pioneers of the real estate business and the award-winning creators of premium residential and commercial projects in Pune, Goa, and Bengaluru.

The report reveals that the there has been a marked increase in the number of new apartments launched on a year on year basis. June ’17 – Dec ’17 saw an increase in inventory of 24,792 apartments while in June ’18 – Dec ’18 saw 40,885 new apartments being added to the market. Sales have also risen by 15% on a year on year basis. June ’17 – Dec ’17 saw 36,086 apartments sold in the primary market while June ’18 – Dec ’18 saw 41,562 apartments sold.

While it is typical for an improvement in demand to translate into a price rise, rates per square foot continued on the downward trend. The focus towards affordable housing which has now gathered pace is what is bringing down the average per-square-foor price. There has been a further reduction of 2.21 per cent in average rates per square foot in the last six months and average rates across, the city is now at Rs 4,582 Psf. This is the 6th consecutive half-yearly price reduction – three years of a downward trend in average rates per square-foot.

New launches in the budget segment were up by 16% in 2018 compared to 2017 and were up by 21% in the value segment. Together, both these segments (budget and value) constituted 69 per cent of the total new launches.

Rohit Gera, managing director, Gera Developments said, “After a prolonged down cycle, it seems there are finally green shoots visible in Pune’s real estate market. Even though this is good news at a city level, the recent NBFC default scare on the back of the ILFS debacle is yet to unravel at an industry level and hence the best way to describe our current outlook is one of wait and watch with cautious optimism. Nevertheless, the increase in fresh supply in the affordable segment is a big positive, as more home buyers enter the organized segment they will create a strong foundation for upgrades in the future and thereby creating demand over the long run.”\

He further added, “There are many positives to take from the performance of the last 6 months. The cycle seems to have picked up in terms of sales and new launches. However, the stress on prices still remains as developers seek to grow the affordable housing segment. At the consumer’s end too, the sector is witnessing movements in customer behaviour and response. Homebuyers are more inclined towards ready-to-move-in homes and projects from reputed developers as they come with their own advantages, security to investments being the most important. It is a boon for the established and trusted developers who are delivering quality projects within specified timelines, fulfilling the requirement of the end user.”

Looking at the data on a six monthly basis shows a higher growth rate of new launches at 29 per cent (from 31,618 apartments launched between Jan ’18 to Jun ‘18 to 40,885 apartments launched between Jul ’18 to Dec ’18) compared to the yearly growth rate of 22 per cent. This suggests that momentum in new launches has picked up significantly. Looking at segment-wise data there has been a significant number of new launches in the Premium Plus segment over the last 6 months. The number of units launched in the Premium Plus segment is 6,543 translating to a growth of 65 per cent, in the previous six monthly cycles (Jan ’18 to Jun ’18) it was 3,961 units. In fact, the number of launches in the Premium Plus segment has been increasing since the last two years or the last 4 six monthly cycles. Of the net 9,267 units launched in the last 6 months, 28 per cent has come from the Premium Plus segment (2,582 units) which is greater than its market share of 16 per cent in the overall new launches indicating strongly that it is gaining market share incrementally. However, the Budget segment continues to occupy significant share in new launches at 48% (in H1 2018 its market share in new launches was 49 per cent).

The relationship of the sellout ratio to price movements is a fairly robust indicator that shows where we are in the real cycle. Prices tend to follow sellout ratios but with a substantial lag. While in the current cycle, one would expect prices to rise given the sellout ratio movements, there is no price rise on account of new inventory being introduced into the market in the affordable segment at lower prices.

The average residential property prices continued to decrease on an overall basis for the sixth consecutive half-year tracking period. From a peak of Rs 5,096 Psf in Dec ‘15 to Rs 4,582 Psf in Dec ’18, the drop in the past 6 months has been a further 2.21 per cent. There has been a negligible decrease in prices of ongoing projects over the last 6 months.

\The citywide average, therefore, has come down on account of lower-priced new inventory being brought into the market. Further analysis of the average price of new projects launched per cent new phases launched of ongoing projects shows that the average rate at which new projects were launched in H2 2018 was Rs 3,914 PSF while new phases of existing projects were launched at Rs 4,688 Psf in H2 2018 – above the Pune average. There is a gap of almost 14.58 per cent between average Pune prices of Rs 4,582 Psf per cent New Project price of Rs 3,914 Psf. This indicates that while the overall average prices are declining – the decline is being contributed by lower-priced new inventory being brought into the market and not on account of either existing projects or of new phases of existing projects.

CONCLUSION

There has been talking about reduction of GST on under construction homes. Hopefully, this will happen. While lowering the GST rate is a good idea, it is essential that the input credit is not done away with. This will lead to an increase in the selling prices per sq foot and more importantly, many of the contractors and the entire supply chain that had been brought under the formal sector because of GST could move back out. This will push a large part of the construction sector into the informal cash-based economy again.

Finally, home buyers have become discerning and are now focused on the reputation of the developer. Historically there have been no barriers to entry into the sector and anyone could become a developer. While there has been no regulatory change for this a natural barrier created by customers who purchase only from doors where there is track record thereby giving them safety and peace of mind is very welcome. It will force developers to perform or perish.

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