#DemonetisationAnniversary: Pune witnesses dip in new launches and sales volume

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Demonetisation story Pune

Mired with cash crunch triggered by the currency ban move, all businesses witnessed slackened activity in the last one year. Real estate was further incited by the implementation of other radical reforms such as RERA and GST. On the one year anniversary of the momentous demonetisation move, 99acres.com takes an account of the real estate performance of top metro cities. 

The first quarter of 2017 opened with wrecked buying sentiment across industries, thanks to the massive crackdown on black money in the form of demonetisation of 500 and 1000 rupee currency notes. The real estate business, too, was one of the worst hit owing to its capacity to hold large amounts of unaccounted cash. As piles of money lost value overnight, so did the buying capacity of the masses, bringing realty sales to a grinding halt. The metro cities bore the maximum brunt with Delhi NCR and Mumbai ruling the roost. Pune, a thriving IT hub, was not far behind as enquiries, sales and new project launches plunged drastically post demonetisation.

Market disruptions in the form of cash crunch and panic pertaining to the ban of 86 percent of the currency in circulation diverted buyers’ focus and they deprioritised home buying. Buyers were seen shelving purchase decisions in the wake of multiple market uncertainties and also the then-upcoming Real Estate (Regulation and Development) Act (RERA). The dwindling buying sentiment was reiterated in the sales figures, which plummeted by nearby 13 percent in the subsequent six months.

The liquidity crunch hit the secondary market the most. This wounded buyer sentiment in inventory heavy locales of Hinjewadi, Pimple Saudagar and Wanowrie, where property prices witnessed a correction of three to five percent in Oct-Dec 2016, as against Jul-Sep 2016. The premium markets of Sopan Baug, Boat Club Road and Senapati Bapat Road, too, could not endure the market dynamics and ‘ask’ rates here, too, went down, albeit minimal.

Over the next one year, infrastructural overhauls such as approval and budget allocation for the metro rail, proposal of an airport at Purandar and progress towards the Pimpri-Chinchwad smart city project did little to uplift buyer sentiment. Impact of muted housing demand, eventually, trickled down to the primary market by Q2 2017, which also posted a notable dip in average weighted prices.

Demonetisation not only hampered buying appetite in the city, it also impacted the construction activity severely. Cash-strapped developers were forced to halt ongoing projects and delay the launch of those in pipeline. Reports indicated a whopping 26 percent downfall in new residential stock launched in Pune in H1 2017 as against H2 2016. While the city saw an addition of approximately 47,000 fresh units between July and December 2016, the numbers came down to nearly 34,800 in January to June 2017.

The worst-hit was the premium market with properties tagged between Rs 5,800 and Rs 7,300 per sq ft. Higher incidence of cash-paying buyers diluted the business viability of this segment in the short to mid-term, resulting in a 40 percent drop in the addition of these units between H1 2017 and H2 2016.  Though the focus of developers shifted towards the lower ticket sized homes, this category, too, reported a dip in new launches as developers lacked funds and awaited the implementation of RERA.

While reduced new project launches indicated the lull caused by demonetisation, it helped Pune battle its piling unsold stock which had reached a lag of 13.9 months by June 2017. With the rate of slowdown in launches outpacing the rate of sales, the unsold inventory in Pune dropped to 30 percent in H1 2017 as compared to 34 percent in H2 2015.

Like other cities, dwindled buying sentiment benefitted the rental segment, especially in areas close to the IT hubs. Overall, Pune’s realty landscape fell prey to the demonetisation bug and ambiguities brought in by the closely placed regulatory reforms like RERA and GST in the last one year. The market continues to struggle and wade through the tides generated by all three momentous moves. 

Market Analysis

Pune Story_demonetisation

 

Impact of Demonetisation

Primary Residential Market

Presence of end-users on the back of a thriving IT industry in Pune kept the primary real estate market resilient to the adverse impact of demonetisation in the first quarter. However, as muted buyer sentiment prolonged in the subsequent quarters, average weighted prices witnessed a marginal slump.

Demand for under-construction apartments dipped from 32 percent in Oct-Dec 2016 to 24 percent in Jul-Sep 2017, indicating the cautious stance of even home loan-dependent buyers. Ongoing residential projects witnessed a meek 0.59 percent correction in prices between December 2016 and June 2017, as developers attempted to offload their inventory.

As buyers adopted a wait-and-watch approach, especially, in the premium segment, developers shifted focus towards low priced homes. As a result, the ensuing quarters witnessed a downward alteration in the price tags of new projects, too. The correction in prices of new projects and new phases of ongoing projects was a result of lower priced inventory being bought into the market. For instance, the average rate at which projects were being launched in H2 2016 was approximately Rs 4,400 per sq ft, whereas, new projects launched in H1 2017 were tagged at nearly Rs 4,200 per sq ft. Prices of new phases in ongoing projects, too, recorded a dip of 5.5 percent between H1 2017 and H2 2016.

While demonetisation was the key trigger towards a depreciation in sales, new launches and prices in the primary market in Q4 2016 and Q1 2017, RERA and GST played major dampeners post Q2 2017. The advertisement of unregistered properties suffered on account of RERA, which also instilled uncertainty amongst both buyers and sellers. A tax incidence of 12 percent on under-construction homes, too, worked against the demand-supply equilibrium in the category.  

 

NJ Quote

 

Secondary Residential Market

The secondary real estate market was the direct target of the demonetisation move which curbed cash transactions across sectors. Immediately after the currency ban, deals close to conclusion were annulled as buyers pulled out of the market. A few of them attempted renegotiating; however, cash crunch resulted in poor conversions. Sales came to a grinding halt even amid hefty discounts from owners.

Inventory heavy locales recorded maximum dip in average weighted prices as the markets suffered on account of multiple factors including delayed projects and slow-paced infrastructure development. As a result, the average weighted ‘asks’ in locations such as Pashan, Bhugaon, Hinjewadi and Mundhwa, depreciated by six to 10 percent, YoY.

The premium markets of Kalyani Nagar, Bhosle Nagar, Sopan Baug and Camp, too, succumbed to the market pressure over the long-term and posted a price correction up to 10 percent between Jul-Sep 2017 and Jul-Sep 2016.

Prices trends in the popular micro-markets of Pune

Locality

Current ‘ask’ rates*

Capital Growth**

Growth Drivers

Hadapsar

5700

-2%

  • Piling residential stock

Kharadi

6470

0%

  • Proximity to office spaces

Bavdhan

7530

0%

  • Comparative affordability to neighbouring localities
  • Seamless inter and intra-state connectivity

Hinjewadi

5620

-3%

  • Poor state of road infrastructure
  • Delayed and vacant residential stock

Wakad

6100

-1%

  • Muted buying sentiment

* Current ‘asks’ are median rates for listings in the respective localities posted on 99acres.com in Jul-Sep 2017 – both resale and new projects

**Capital growth is calculated basis the changes in average weighted ‘asks’, YoY – Jul-Sep 2016 vs. Jul-Sep 2017

Rental Market

Driven by the migrant population, the rental market of Pune did not receive a significant boost from the enhanced demand from the tenant community. An excess rental inventory in most of the popular locations close to IT hubs also kept prices under check, resulting in a marginal two percent rise in rental ‘ask’ rates, YoY. Interestingly, the premium markets of Prabhat Road, Senapati Bapat Road, Law College Road and Koregaon Park saw rental rates surging by four to six percent, YoY, on account of limited inventory and robust demand.

Demonetisation rental graph Pune

 

National Outlook_Demonetisation

Pune’s residential market is still seen struggling with the after-effects of demonetisation, which were amplified by MahaRERA and then GST. While sales and buyer sentiment remain subdued, new launches, too, are limited to the lower price band. The efficient implementation of MahaRera is expected to drive the city’s realty landscape back to normalcy in the mid-term. Projects registered under RERA, especially in the affordable segment, are anticipated to garner healthier traction in the forthcoming quarters.

Expert Opinion

By Ashish R Puravankara, MD, Puravankara Ltd

By Niranjan Hiranandani, Founder & CMD, Hiranandani Communities

By Aaron Solomon, Partner, Solomon & Co

By Saurabh Jindal, JMD, SVP Group

By Sanjay Jain, Group Managing Director, Siddha Group

By Arjunpreet Singh Sahni, Executive Director, Solitaire Group

By Pankaj Kumar Jain, MD, KW Group

By Mukund Patel, MD, Rutu Group

By Shishir Baijal, Chairman & MD, Knight Frank India

By Manju Yagnik, Vice-Chairperson, Nahar Group

By Aashiesh Agarwaal, Founder & Managing Partner, Pinakin Advisors LLP

By Anuj Puri, Chairman, ANAROCK Property Consultants


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