Investors drive Pune Real Estate market in 2012

Despite the government-imposed VAT issue and RBI unrelenting on interest rate, Pune real estate market has witnessed upheaval of prices between 7-9% in most areas in 2012, which is more than many other cities across the country, according to Kishor Pate, CMD – Amit Enterprises Housing Ltd.

In 2012, Pune’s property market performed well despite all odds, but what really pulled the sector through was the growing number of investors who represented 40% of residential sale, he says. 

One of the dampeners was the issue of VAT (Value Added Tax), which the Maharashtra Government made mandatory for all properties bought between June 2006 and March 2010, says Kishor Pate, who also represents CREDAI Maharashtra. 

He further adds, “Over 1.5 lakh flat owners in Pune were affected, and there was a visible cooling of relations between them and the builders. Another issue was the fact that the RBI did not reduce home loan rates – a move which was expected and much required.”

On the up side, the state government removed the NOC system. This system required residential buyers to obtain a no-objection certificate from the project’s developer before registering a sale deed was possible. This was a very unpopular but long-standing system which involved the payment of Rs. 25000 or upward, depending on where the project was located. This cost was usually shared by the buyer and the seller, and the removal of this system has direct cost-saving implications which the market welcomed whole-heartedly.

Another positive factor was the Government’s formal notification to the fact that 28 more villages would be included under the Pune Municipal limits. While such locations are under Gram Panchayat jurisdiction, they tend to be at a disadvantage in terms of reliable water supply, electricity and public transport. The lack of full-fledged support from the Municipal Corporation for these facilities compromised the healthy growth of the real estate market in these areas. The property market in these areas is now going to improve, and there was a definite increase in interest in these areas when the government notification was issued.

As already mentioned, there were ups and downs in 2012 – but throughout, Pune’s property market proved to be very resilient. Even as sales in neighbouring Mumbai plummeted, those in Pune continued to be healthy. During the festive season, no other city in Maharashtra showed as many new residential sales that Pune did.

Demand from NRIs

The demand from the NRI community was considerable in 2012. This could be gauged by the number of inquiries that came from Indians living abroad which were followed up by local relatives or representatives. During the festive period, many NRIs visited Pune personally to close the deals.

These were all positive factors, but what really pulled Pune’s property sector through was the growing number of investors on the market. In 2012, our analysis of the market showed that only about 40% of all apartments in Pune are currently being bought and used by actual end users – flat owners who are personally using their properties for occupation.

35-40% of the remaining flats are held by investors for renting out to the growing transient working population in and around the city’s IT hubs. The remaining 15-20% of the flats are standing empty. These are either bought by NRIs who intend to move back to Pune in the near future, or are being held by speculators looking for a profitable resale.

As a result of the high investor interest, areas that provide ready access to the city’s main IT hubs – such as Baner, Wakad, Undri, Wagholi and Kharadi – showed the highest demand and therefore property rate appreciation. The projects launched in these areas spanned the entire spectrum of residnetial configurations, from budget homes to luxury apartments. While the premium category was largely patronized by NRIs and end users from the higher management business segment, investors from within and outside Pune made a beeline for the budget and middle income housing segment.

Based on the activity levels of 2012, there is every reason to believe that 2013 will be a positive year for Pune real estate. When comparing the Pune market with Mumbai, the advantages of relocating to or investing in property in this city continue to be very evident.

We expect the demand for premium homes to slow down to some extend until the middle of 2013. However, as long as developers continue to accept and factor in the pricing limitations of this unique market, affordable and middle class homes will keep generating healthy demand throughout the year.