Pune: Gera Developments released a Realty Report for July 2018 which reveals the steep drop in the number of new apartments being launched has led to a reduction in the total inventory under development as well as a reduction in the absolute number of apartments available for sale.
From a peak inventory available for sale at 107,402 apartments in June ‘16 the inventory available for sale currently stands at 79,546 apartments. This puts unsold inventory at approximately Q1 2015 levels. The current inventory available for sale at 26.29% (79,564 apartments) is just below the Dec ‘13 unsold inventory which stood at 26.34% (55,377 apartments).
On assessing the new launches of inventory by zone, Zone 1 has seen a reduction of 40% in the total apartments being launched for the period of ’17 – ‘18 this comes on the back of a 43% reduction for the same period between ’15 – ’16 and ’16 – ’17. This steep 2-year drop is from 18,563 apartments launched in Zone 1 between July ’15 – June ’16 to 6,351 apartments in July ’17 – June ’18
New Launches Decreased Substantially
The result of the slowdown in the realty sector is clearly visible in the number of new apartments being launched. On an annual basis, the drop from the year July ’14-June ’15 to the year July ’17 – June ’18 new apartment launches have dropped by nearly 50% from 110,824 apartments to 56,410 apartments. The alarming factor though is, on assessing this on a year on year basis, there is a drop of 7.93% (8,788 apartments) between ’14-’15 to ’15 – ‘16, then a drop of 19.71% (20,114 apartments) between ’15-’16 and ’16 – ‘17, and a huge drop of 31.14% (25,512 apartments) between ’16 – ’17 and ’17 – ’18. Looking at the data on a 6 monthly basis shows a slight increase in the apartments launched in the period of Jan ’18 to June ’18 at 31,618 from 24,792 apartments between July ’17 to December ’17; this may be a sign of green shoots, however, doing a period for period comparison also shows this as the lowest number of apartments brought to market for the Jan to June period over the past 4 years.
Rohit Gera, Managing Director, Gera Developments said, “Pune’s residential real estate market continues to be in a state of stress. Developers have cut back substantially on project launches. With the implementation of RERA, capital has been forced to flow towards project execution, which has contributed to the slow-down in launches of projects. Sales too have continued to see a drop on a year on year basis. The impact of slower sales is also visible on the rates – the slow reduction in average rates continues. The reduction of project launches, however, has led to some good news in terms of percentage of inventory available for sale, At 26.29% of the total inventory available, this percentage of unsold inventory is near a 4.5 year low. This could turn into great news as and when the sentiment turns.”
Gera further added that “Once demand sees an increase and developers see returns return to the industry, we can expect an increase in the new project launches, however, with RERA, access to capital is now reduced and if the government wishes for developers to be partners in the housing for all mission, it is imperative that the current policy of banks not funding developers for acquisition of land be revised.”
Prices Continue to Decrease
The average residential property prices continued to decrease on an overall basis for the fifth consecutive half-year tracking period. From a peak of Rs 5096 per sf in Dec ‘15 to Rs 4685 per sf. in Jun ’18, the drop in the past 6 months has been a further 1.17%. For those projects that were ongoing in Dec ’17 and also in Jun ‘18, the average price in Dec ‘17 for these projects was Rs. 4763 per sf and the same projects in June ‘18 were priced at Rs. 4754 per sf – a negligible decrease in prices of ongoing projects. The citywide average, therefore, came down on account of lower-priced new inventory being brought into the market.
A further analysis of the average price of new projects launched & new phases launched of ongoing projects show that the average rate at which new projects were launched in H1 2018 was Rs 3993 per sf. New phases of existing projects were launched at Rs 4857 per sf in H1 2018 – above the Pune average. There is a gap of almost 14.77% between average Pune price of Rs 4685 per sf & New Project price of Rs 3993 per sf. This indicates that while the overall average prices are declining – the decline 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.
The Share of premium plus category in the 12 monthly new launches has improved from 6.01% in the previous 12 months to 10.57% in the current period – indicating that the fall in prices has brought back demand at the top end and developers are filling that gap by launching units in that segment. Similar trend can be seen in the Luxury segment. The market share of the value segment in the new units launched has virtually remained unchanged at 40% – 50%. The top 10 projects in Pune with the maximum new supply launched account for ~15% of the total new supply. This has doubled from 7% in Dec ’15 indicating a consolidation in the market.
Sizes of Homes also Decrease
Home sizes have been decreasing consistently over time and are now on an average at 747 sq. ft. Though the overall offtake has fallen, the share of the <600 sq. ft. segment has been consistently increasing over the last 3 years from 22% to 27%. The <600 sq. ft and the 600-800 sq. ft. segments are primarily targeted by the Pradhan Mantri Awas Yojana. Overtime, the share of offtake in the <800 sq. ft. basket has remained consistent at 49% – 50%. Virtually all size segments above 1000 sq. ft. have seen a sizable drop in the sales numbers.
Inventory available for sale has dropped by 8% over Dec’17 to 7.52cr sq. ft. while the value of that inventory has dropped to Rs. 39,080 cr. Overall stock available for sale has reduced by 20.4% over H1 2017 and by 8.46% over H2 2017. The stock available for sale has decreased by 18.7% & 21.1% in the budget and Premium segment over Dec’17 while for Value segment it has remained flat. However, stock available has increased significantly in the Premium Plus & Luxury segment by 22.8% and 7.6%.
End & ready segments form 11.3% & 4.6% of inventory available in Jun’18 (combined – 16% in Jun’18). In Jun 17 combined they formed 12.9% of the inventory available. In Jun’17 the total inventory in these segments was 8849 while in Jun 18 it has increased to 9005 units. This debunks the theory that consumers are opting for ready homes because of the savings in GST cost. On the other hand, early stage inventory available for sale has decreased from 32300 units in Jun 17 to 15589 units in Jun 18. In Jun’17 it formed 32.3% of the total availability while in Jun 18 it forms 19.6% of the total availability.
6 monthly sales in the value segment have increased by 28% to 8445 units from 6573 units in H2 2017. Overall Budget + Value segment has increase sales by 10.3% over H2 2017. There is a significant movement in the Premium Plus + Luxury segment where sales have increased by 31.4% over H2 2017. Sales in the Premium Plus segment are at an all-time high of 5783 units.
However, the Premium plus segment accounts for 14% of the overall offtake, the bulk of the offtake being dominated by the Budget & Value segment which account for 65%. The inventory overhang continues to improve, and the current inventory overhang has dropped to 12.49 months. Ordinarily, this would be good news if it was on account of increasing sales. Unfortunately, it is on account of new inventory falling faster than the slowing sales. A change in overall sentiment however, could completely change the situation.
Never before have so many extreme scenarios been present in the market at the same time. On one hand, prices continue to drop downwards and yet the inventory overhang situation is seen improving. Many developers are unable to sell their inventory on account of delays and cash flow challenges while a large number who have launched the right sized product at the right price recently are able to find customers for their product. For the right project and the right developer, capital is not a constraint whereas for some there is no money available even at high interest rates. One thing is for certain that customers looking for homes at this stage must look at investing only in those projects that show adequate construction activity on the site as without this their money will go into paying old debts and they will be knocking on the doors of the RERA authority before long.
Key Highlights of the report
Developers have cut back substantially on new project launches
New project launches are down from 102,036 apartments being brought into the market from July ’15 – June ’16, to now 56,410 apartments for the period July ’17-June ’18. Clearly impacted by RERA as funds now have to be deployed towards existing projects and can no longer flow towards future projects
Sales too have continued to see a drop on a Y-O-Y basis
From a peak of 92,546 homes sold between July ’15 and June ’16, annual sales have dropped to 76,431 between July ’17 and June ’18.
The average residential property prices continued to decrease on an overall basis for the fifth consecutive half-year tracking period
From a peak of Rs 5,096 per sf in Dec ‘15 to Rs 4,685 per sf. in Jun ’18, the drop in the past 6 months has been a further 1.17%.
The average city-wide price has come down on account of lower-priced new inventory
There is a gap of almost 14.77% between average Pune price of Rs 4685 per sf & New Project price of Rs 3993 per sf. This is on account of lower-priced new inventory being brought into the market.
New inventory is being launched at lower prices whereas new phases of old projects and continuing rates of old projects continue to stay at similar levels. Therefore the average is coming down on account of lower-priced new inventory.
The silver lining? – Unsold inventory percentage is near a 4.5 yr low
The reduction in project launches has had a positive impact on the sellout ratio by effectively reducing the percentage of inventory available for sale. At 26.29% of the total inventory available, this unsold inventory is near a 4.5 year low. This can turn into great news as and when the sentiment turns.
Visible signs of consolidation taking place in the market
If the recent trend of the percentage of new units being accounted for by the top 10 projects launching new units is seen, in Dec’15 – only 7% of all the new units launched were accounted for by the Top 10, while in Jun’18, this number has jumped to 15%.
Sales in the value segment have picked up
6 monthly sales in the value segment have increased by 28% to 8445 units from 6573 units in H2 2017
Home sizes have been decreasing consistently
The average home sizes launched in Jan – Jul ’14 was 932 sqft. They are now on an average at 747 sqft.