A Review of PCMC Property Market in 2016

Anil Pharande

As the new year dawns, India's real estate market has begun navigating the potentially choppy seas of 2017 with a lot of uncertainty. When it comes to the past year, it is safe to say that nothing went as anticipated for the property market. The hoped- for recovery in the residential sector did not happen, and the Government's unexpected demonetisation move in early November put paid to any chances for a last-minute turnaround.

Robust economy: Through the entire gamut of churn and setbacks in 2016, only one city's real estate market managed to hold its own and even achieve some modest growth. West Pune, with its dominant market PCMC (Pimpri-Chinchwad Municipal Corporation), has always been a unique as it rides on an unbeatable trinity of residential demand drivers - manufacturing, Information Technology and the services sector. 

This equation has perennially acted like a healthily diversified investment portfolio, with the inherent strength of one or two of these sectors compensating for the occasional de-growth in the others. As always, this factor came to the rescue of the PCMC residential market.

Employment still drives housing demand: While the manufacturing sector in PCMC has always been robust thanks to the MIDC belt, continued growth in IT and the various services streams additionally ensured that the employment graph remained strong. With job creation continuing to drive the demand for homes, Pimpri-Chinchwad Municipal Corporation crossed the finish line of 2016 ahead of the other major cities - with room to spare. Though the demand for prime and luxury housing has remained somewhat subdued, budget and mid-income housing saved the day. If anything, 2016 amply illustrated that the middle class in Pune and PCMC has become extremely choosy about its home purchases.

Unsold inventory: Many of Pune's peripheral areas - the hot investment favourites of 2014-15 - saw a depressing build-up of unsold supply even in completed projects. The lack of support infrastructure and known deficiencies such as inadequate or non-existent water supply put paid to many a developer's hopes of selling his stock solely on the basis of enticingly low rates and freebies.

Of course, every large city in the country has its share of unsold inventory today, either because of muted market sentiment, the fact that a lot of supply is still in the early stages of construction, supply in the wrong locations, or unrealistic pricing of certain projects by developers. In the case of West Pune, most of the non-selling oversupply has been in locations lacking infrastructure. In PCMC, the supply overhang is largely from smaller developers without a good track record and credibility on the market.

Evolving buyer preferences: Diwali, the traditional period for increased home purchases in Pune, saw very few takers for inferior projects in inferior locations. Even the prospect of acquiring larger homes than their current ones did not draw mid-income buyers to lagging locations. On the other hand, there was a distinct uptick for smaller but 'high-performance' homes in properly connected areas. The accent was on a high degree of facilitation within such projects.
 
Price corrections: With 2016 bringing a slow but steady erosion of property pricing in most of its markets, some of the previously unaffordable locations in West Pune / PCMC have once again become attainable to homebuyers. If Budget 2017-18 brings the hoped-for benefits for first-time property buyers and the RBI rolls out lower interest rates, there is every reason to expect a major revival in home buying sentiment - and it is the superior locations which will see the highest demand.

Outlook for 2017

The trend of the real estate market in Pune and PCMC performing against the larger odds will definitely continue. Not only do the twin cities have all the right economic and demand drivers firmly in place, but their inclusion in the 100 Smart Cities program will only increase the interest from multinational companies to set up and expand operations here. This will, in turn, increase inward migration and fuel greater demand from investors, even as local end-user demand continues unabated.

While the bulk of demand today comes from end-users, investors are still very much a force on Pune's property market. The city offers several budget bandwidths and property typologies into which one can invest. Well-timed and properly researched real estate purchases can reap very satisfactory returns.

However, it should be borne in mind that not every kind of investment pays off equally in Pune - one needs to know precisely how each sub-market works, what it responds to and where the demand is headed. A poorly-judged property investment can be a disappointing proposition. Particularly, investors need to be wary of the cheap, potentially illegal 'gray market' residential constructions happening on the outskirts.

Content by 

Anil Pharande, 

Chairman, 

Pharande Spaces

Nitesh Estates enters Pune Realty space, acquires Shopping Mall for Rs 250 crores

Pune: With the acquisition of 1 million sq. ft Koregaon Park Plaza Centre for Rs 250 crore, Nitesh Estates, a Bangalore-based premium property developer, has announced its entry into Pune real estate market.

With this acquisition Nitesh Estates shopping mall portfolio is now 2.2 million sq. ft. They are currently developing 1.2 million sq. ft. shopping mall in the upmarket locale of Indiranagar in Bangalore.

An A grade shopping mall spread over 6 acres in prime upscale locale of Koregaon in Pune, Koregaon Park shopping mall can accommodate 130 retail stores, an extensive food court and can house around 1000 cars in the parking space. The mall already has a PVR cinema with 7 screens and Spar supermarket along with brands like Tommy Hilfiger, Collective, M.A.C, Calvin Klein, U.S. Polo Assn., Swarovski and Crossword.

 Ashwini Kumar, Executive Director & COO, Nitesh Estates said, “Over the years, Pune has emerged as an important real estate market. We are delighted to acquire this top quality asset and build our shopping portfolio. Koregaon Park shopping mall is undergoing a refurbishment and will soon sport a new food court in addition to fine dining restaurants. The changes will take place while the mall remains operational. Nitesh Estates plans to bring their legacy of design driven and cutting edge facades fashioned by one of the best architects for the mall makeover.”

About Nitesh Estates Limited

Founded by entrepreneur Nitesh Shetty in the year 2004, Nitesh Estates is a leading integrated property development company headquartered in Bengaluru. The company provides world-class products and services and has presence across four asset classes, Homes, Hotels, Office Buildings, and Retail Spaces.

Since inception, Nitesh Estates has created a niche for itself by pioneering some of the finest real estate projects in the cities of Bangalore, Chennai, Goa and Kochi. Nitesh Estates currently has 20 mn. sq. ft. under development. Superior quality, attention to detail and perfection are the standards that every Nitesh project exudes.

 Nitesh Estates own India’s first Ritz Carlton Hotel, a 277 rooms luxury five star hotel in downtown Bangalore, a company release said.

Connectivity and affordability drive property buyers to Undri

Real estate market in Pune is growing constantly, and one of the reasons of this growth is the fast-paced development of new localities that are increasingly becoming attractive to buyers.  One of these areas is Undri situated in the south-east corridor of Pune.

Undri has become a new point of attraction for builders to make affordable housing projects and is witnessing a lot of demand from homebuyers because of location advantages.

It is interesting to know that Pune property buyers are looking for flats that can meet the aspirations of all members of the family, provide easy access to workplaces and are also reasonably priced. Undri meets all these criteria and hence a perfect place for such property buyers. It has an advantage from well-developed regions like Wanowrie, Salunke Vihar and NIBM without being affected by cramped environment and traffic congestion that defines other areas. Also, Undri is close to Pune's most popular high street shopping area MG Road.

At the same time, Undri provides good access to the IT hubs of SP Infocity and Magarpatta in Phursungi. Home buyers working in these hubs look for houses hence the demand has gone up considerably. More so, Pune's inter-city transport and traditional business hubs of Shivajinagar and Swargate can be easily reached from Undri. Also, major healthcare centres such as Ruby Hall Clinic and Apollo Clinic in Inamdar Hospital and Wanowrie in Fatima Nagar provide access to instant and high-quality medical services.

Housing prices are witnessing upward trend and have skyrocketed all over Pune, hence affordability plays a big role. Undri, as of now, will be a best place for affordable housing for home buyers. One can purchase a decent-sized flat with all facilities and amenities within Rs. 50 lakh bracket here, says Kishor Pate, CMD - Amit Enterprises Housing Ltd. Branded developers are still offering such flats here, which have comfort and convenience built into them.

Now having emerged as the new extension of NIBM Road, Undri has its own environmental plus points. The area is full of greenery, a lot of which is reserved forest land. This makes living in Undri a superior option for home seekers who are concerned about the pollution. With its sizable greenery around, Undri offers a green, healthy environment and convenient connectivity to work places, healthcare, shopping and entertainment points.

Changing Demographics Boosting Pune Real Estate Demand

Pune is no longer just a Pensioner's Paradise (though it still is the number one city of choice for retiring people in Maharashtra). 

At least three other factors now define Pune - the growth of the Information Technology, the massive spread of organized retail and the city's changing demographics. The last factor has had a significant impact on the demand for real estate in Pune, both in terms of sizes and types of homes, feels Kishor Pate, CMD - Amit Enterprises Housing Ltd.

Until the late 1980s, residential real estate demand in Pune was driven largely by people who were working in a rather laid-back services industry. The modus operandi for home purchase in those years predominantly revolved around saving up a sizeable financial corpus and purchasing whatever home was affordable in that budget, preferably with little or no leverage.

Pay scales were moderate to low, and a comparison with the far more favourable pay scales prevalent in Mumbai was inevitable. As a result, there was a more or less constant flight of talent and capital from Pune to Mumbai. At the same time, lack of international employment opportunities prevented Pune's qualified youth from exploring their fortunes abroad.

As a result, the city's residential real estate market catered to a very basic level of requirements. There was little incentive for developers to be adventurous in unit sizes, specifications and locations. Property rates - and therefore property investment potential - remained low as the city awaited new market triggers.

Then, in 1990, Pune began to emerge as a destination for Information Technology companies. At first, this was limited to BPOs who sought to capitalize on Pune's considerable English-speaking manpower and its low property rates. Nevertheless, the economic impact was visible almost immediately. Young people who, in the previously existing scenario, would not have reached any kind of impressive earning capacity before their mid-thirties began earning hitherto unheard-of salaries at the ages of 20-24.

This, coupled with the traditional desire for home ownership and ready availability of home loans, had a 360-degree effect on the requirement for homes in Pune. It also had an impact in terms of locations. IT/ITES companies prefer to set up shop in the less expensive outskirts of a city, and people who work in these industries prefer to live close to their workplaces. With the emergence of Hinjewadi, areas around it suddenly sprang into sharp focus and demand for more central areas began slowing down.

The effect of the It revolution on Pune's real estate market has indeed been tremendous. Today, Pune's developers are catering to an entirely different set of demographics than they did 15-20 years ago. The onus is now large flats with ultra-modern amenities, and on locations which offer fast access to the city's IT hubs. Simultaneously, the MIDC in Pimpri-Chinchwad is boosting demand for homes in its vicinity, driven by well-paid employees from those industries.

Today, the annual demand for homes in Pune is close to 46000 units, where it was less than 20000 units per annum just 15-20 years ago. While Mumbai is staggering under the weight of unsold units all across the city, supply and absorption of homes in Pune continues to make both property development and property investment eminently viable. 

Even in such a vibrant market environment, Pune's property rates remain relatively rational....home ownership in this city is a dream which can be translated into reality.

'Walk Score' Gaining Importance In Pune Real Estate

'Walk Score' factor accounts for a much higher preference rating among Pune's home buyers than the 'walk-to-work' option, which is unrealistic in most cases, says Arvind Jain, Managing Director of Pride Group.

Arvind Jain

Abroad, a new trend of evaluating neighbourhoods by their 'walk score' is being seen among home buyers. The idea behind this is simple, and in fact the very basis of that favourite real estate mantra 'location, location, location.' And it has great pertinence for the Pune real estate market, as well.

The investment value of a location is traditionally judged by how many office complexes are coming up in the area. This makes sense - investors can expect demand from people who work in these offices, since living close to work is always a great convenience. It reduces the daily travel time, which means one can spend more time at home with one's family than on the road.

However, property buyers look for more than proximity to work when they choose a home. In a city like Pune, where traffic congestion is a huge problem, people also aspire to have various conveniences within walkable distance from their homes.

A housing project's 'walk score' is determined by how many shops, clinics/hospitals, parks, playgrounds, restaurants and coffee shops are within walkable distance. In fact, this factor accounts for a much higher preference rating among Pune's home buyers than the 'walk-to-work' option, which is unrealistic in most cases anyway.

The logic is simple, yet profound. A family's happiness quotient in a housing project does not hinge just on how soon the breadwinner (or, in the case of Pune's every-increasing dual income families, breadwinners) can get to and from work. In the course of any normal working day, there are still family members back at home who need to keep the household running.

Pune is also a city where a significant number of families still include elders, who have their own social and leisure needs. And even for the younger generation, commuting home from work just to face the traffic again to pick up groceries or enjoy a cup of coffee with friends is annoying and draining.

The convenience of having essential goods, services and places of recreation within walkable distance from home therefore ranks high on most Puneri families' wish-list. For families are fortunate enough to live in the central locations, in homes purchased at a time when they were still affordable, this is not a problem. But for the majority of today's generation of home buyers, Pune's newer locations are the only options.

One of the ways out of this fix is the increasing availability of township properties. Most of the large townships are coming up on the city's peripheral locations; this means that property prices in them are more affordable. At the same time, they have high 'walk scores' because they include retail, leisure, healthcare and even schools.

This explains why township properties in Pune are becoming so popular. However, not all townships are created equal. A good township is planned in a manner which allows all residents to access such outlets and facilities on foot with equal ease.  While evaluating a township as the venue for one's new home, it is therefore essential to study the master plan and establish its actual 'walk score'.

Growth of Integrated Townships In Pune

Townships are a concept whose time has definitely come. In Pune, buyers are now open to residential solutions that allow them to circumvent or reduce the impact of the city’s challenged infrastructure, says Sanjay Bajaj, Managing Director – Pune, Jones Lang LaSalle India.

 The Advantages

Integrated townships are, by nature, self-sufficient and self-supporting in most civic and social infrastructure aspects, and are patronized by an up-market segment of property buyers. For these reasons, they also tend to have evolved and well-equipped medical care facilities within their premises, as well as linkages to healthcare facilities outside the townships. The existence of these medical facilities is a significant value-add for today’s health-conscious property buyers.

Apart from self-sufficient infrastructure, many of the townships in Pune also offer a walk-to-work concept since they tend of have a mix of office, retail and residential components. They tend to feature generous landscaping, serene environment, schools within the campus, big club houses, health club facilities for both indoor and outdoor sports, multiplexes in the vicinity, health care, restaurants and large swimming pools. These are rather effective enticements for those who are evaluating the option of buying into a township against a smaller residential project.

Not All Easy Sailing

The development of integrated townships is a highly capital-intensive undertaking. They are launched in phases so that the development remains viable to the developers. Capital generated from sales of preceding phases funds the next phases. As a result, many newer townships tend to have a work-in-progress aura about them. On-going construction can be an inconvenience in some cases. Townships take a long time to reach completion; buyers and investors need to track progress closely. Only the overall absorption of finished units can give a reliable indicator of likely completion timelines for buildings still at the planning stage.   

Buyers should also be aware that there is a 10-15% premium mark-up on the cost of properties in integrated townships, and that annual outgoings for maintenance also tend to be steeper than for normal properties.

Major Townships In Pune

The major existing townships in Pune are:

• Paranjape’s 120-acre Blue Ridge in Hinjewadi
• City Group’s 400-acre Amanora Park Town
• The 400-acre Magarpatta City (almost completely sold out)
•  Kolte-Patil’s’ recently launched 450-acre Life Republic near Hinjewadi
• Kumar Builders’ recently launched 102-acre Kul Nation at Manjri
• Kumar Properties and Avinash Bhosale Industries Ltd (ABIL) 150-acre Megapolis at Hinjewadi  (almost completely sold out)

A Note On Plots In Integrated Townships

Townships are planned communities, so there are usually specific norms about the size, configuration and architectural style that need to be followed. Plot owners will usually not be able to detract very far from the existing norms while constructing homes there, since the purpose of an integrated township is to provide a uniform, well-balanced neighbourhood.

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.