Pune: still growing, but feeling the squeeze

ALKA KSHIRSAGAR | Updated on January 20, 2018 Published on May 15, 2016

The skyline at the rapidly developing Kalyani Nagar in Pune - Photo: JIGNESH MISTRY

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Prices will be stable for the next 24-36 months, but builders will work on lower margins

Pune: One of the top seven residential markets in the country, Pune has, for the last few quarters, bucked the general trend of de-growth in the segment witnessed in most major Indian cities.

While it is maintaining traction and still growing, there are some indications of stress: no new projects were launched in the first quarter of 2016.

On the price front, there is general consensus that these will be kept in check, but the sector is unlikely to see any more correction for the next 18-36 months; on the other hand, the manufacturing cost of houses is expected to rise. 

“I don’t think that prices in Pune will go down any further, at least in the medium term, mainly because land for current projects has been bought at a higher price,” says Ravi Varma, Chairman, National Association of Realtors. 

Squeeze on builders

The good news for prospective homebuyers is that if prices have to remain steady, builders will have to reconcile themselves to working with lower margins. “Earlier margins were as high as 100 per cent of the land price. I expect these will shrink to 10-15% of the land cost,” Varma reasons. 

Shantanu Mazumdar, Director, Pune, for global consultancy firm Knight Frank echoes a similar sentiment. “The pricing (for 2016) was pre-decided in H2 2015,” he asserts, pointing out that the correction has already been factored in.

“Prices have hardly grown and I don’t think they will go down any further in the short term,” says Mazumdar, adding that while builders are offering 5-10 per cent discounts on booking, these are more in the peripheral business districts rather than in central or suburban business districts. Corroborating these views is the Gera Pune Residential Realty Report released earlier this year. “Prices have stayed virtually stagnant over the second half of 2015 (as in H1 2015) with an overall increase of only Rs21 per sq ft, representing a 0.43 per cent increase for the past six months. The annual increase in 2015 was a miniscule 0.7 per cent. 

Land prices may soften

Varma, however, is quite optimistic that from a 3-5 year perspective, measures taken by both the Central and State governments will help soften land prices, and hence home prices, substantially. 

“The Real Estate Regulatory Bill will have a salutary effect in controlling prices,” he feels, and so will a move by the Maharashtra government to permit conversion of 25-65 acre land parcels into non-agricultural land. Also on the anvil is a plan to raise Floor space index from the present 1.8 to 2.5-3. All these initiatives, Varma reckons, will benefit the consumer.

Published on May 15, 2016
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