Realty Bytes: Oversupply Of Homes In Pune?
What happens when a relatively small Indian metropolitan city attempts to cater to the rising demands from a sudden influx of professionals who require adequate residential facilities?
Supply exceeds demand
Yes, this is what happens, if we follow the usual logic of demand and supply curve. Real estate developers and builders, when faced with steep demand, race against deadlines to meet the requirements for new apartments in India by constructing as many homes as possible to cash in on the opportunity. However, often, it also results in non-compliance of prescribed construction standards, use of inferior materials and flouting of building regulations.
Balanced Boom
In this story of growth and human need for shelter, Pune fits well. It's no doubt that Pune has witnessed a sustained growth in real estate activity on the back of rapid growth in IT companies setting up bases in the city. One of the most important IT hubs of India, after Bangalore and Chennai, Pune has offered employment to many young engineers as well as management jobs to experienced candidates. This, along with growth of the manufacturing and industrial sectors, has led to a boom in the real estate development in and around the city in recent years, as the growing population needs ready to move in flats in Pune.
The city has also emerged as a top investment destination. After all, Pune is less crowded than Mumbai, has perfect weather throughout the year and lively food culture, and is practically growing with amazing offices to work at. This increase in the incoming population has also prompted best builders in Pune to plan big commercial projects, as well as residential projects. The government too backed this move by announcing several upcoming properties in Pune.
Flipside
Despite the boom, Pune stood fourth in the list of cities with maximum number of unsold units in 2014, after Noida, Mumbai and Bangalore, at over 60,000 units, according to PropTiger Data Labs report for 2014. Even as the demand for affordable units in Pune has been growing steadily with 48% of the demand concentrated in the affordable segment, Pune also saw decline of 46% in the supply of new units.
This is the contradiction of property growth in the city: while the units launched in recent years remain unsold, launch of new units has declined. Hence, as far as old units are concerned, there seems to be more supply than demand, even as real estate slowdown has kept developers from launching new units.
In Pune, largely an end user driven market and price sensitive, supply has been coming in at higher cost, with the expectation that people will push their purchasing power to buy luxury homes. However, this unrealistic expectation has led to a slowdown in demand apart from inflation negating the purchasing power of home buyers, leaving large unsold inventory.
As most of the people looking for homes in Pune are IT professionals and investors, the exchange rate of the US dollar deeply affects their willingness to invest big and the last few years have not really been good for the Indian rupee. This might also explain drop in purchase and investments in flats or resale flats in Pune. As an aftereffect, developers have been putting future residential projects on hold to ensure that the current inventory gets absorbed.
Better prospects ahead
Recent reports suggest that the real estate market in the city will see appreciation in property prices and sustained growth. Analysts also predict that the new demand will mostly come from the first-time home buyers or from people who have made a profit by investing in real estate.
A rising rupee is expected to lead to better salaries, more jobs and the best of them all, it might persuade the finance ministry to lower the interest rates further. As the inflation is slowly tamed, good times will soon be here for the people looking to invest in Pune.