residential realty report - gera developments...new launches at a city level, new launches have...

PUNERESIDENTIALREALTY REPORT

THE GERA

THE YARDSTICK FOR PUNE REALTY JANUARY 2019

CONTENTS

INTRODUCTION 02

INVENTORY OVERVIEW 04

NEW LAUNCHES 06

DEMAND SUPPLY GAPS IN PRODUCT TYPES 13

PRICES 16

HOME SIZES 18

INVENTORY VALUE AND SQUARE FEET 20

10 SUB MARKETS WITH MAXIMUM PRICE CORRECTION (Over 24 months) 21

INVENTORY OVERHANG 24

BREAKUP OF THE MARKET BY JURISDICTION (PMRDA, PMC, PCMC) 25

CONCLUSION 28

REAL ESTATE SECTOR – EXPECTATION FROM 2019 29

APPENDIX 31

INTRODUCTION

The Gera Pune Residential Realty Report | January 2019 | www.gera.in

02

After a prolonged down cycle, it seems there are finally green shoots visible

in Pune’s real estate market. Even though this is good news at a city level, the

recent NBFC default scare on the back of the ILFS debacle is yet to unravel

at an industry level (see article titled Real Estate Sector - Expectation from

2019, Page 29) and hence the best way to describe our current outlook is

one of wait and watch with cautious optimism.

There has been a marked increase in the number of new apartments

launched on a year on year basis. Jun ’17 - Dec ’17 saw an increase in

inventory of 24,792 apartments while in June ’18 - Dec ’18 saw 40,885 new

apartments being added to the market. Sales have also risen by 15% on a

year on year basis. Jun ’17 - Dec ’17 saw 36,086 apartments sold in the

primary market while Jun ’18 - Dec ’18 saw 41,562 apartments sold. The

demand improvement however did not translate to a price rise and in fact,

rates psf continued on the downward trend as the focus towards affordable

housing gathers pace. There has been a further reduction of 2.21% in

average rates psf in the last 6 months and average rates across the city is

now at ` 4,582 psf. This is the 6th consecutive half yearly price reduction –

3 years of downward trend in average rates psf.

The push towards affordable housing gathered momentum and Pune saw

an increase in new launches driven by this segment (Refer to Fig. 3). New

launches in the budget segment were up by 16% in 2018 compared to 2017

and were up by 21% in the value segment. Together, both these segments

(budget and value) constituted 69% of the total new launches.

The increase in fresh supply in the affordable segment is a big positive, as

more home buyers enter the organized segment they will sow seeds for

upgrades in the future and thereby creating demand over the long run.

03

Intellectual Property Rights Owned by Gera Developments Pvt. Ltd. | January 2019 | www.gera.in

TABLE 1 – NUMBER OF REPUTED DEVELOPERS

EARLY MID END READY TOTAL

Top 100 - 18 4 3 25

Bottom 100 7 2 - - 9

In a consumer trend study we published recently, we found that home buyers

were looking at reputation of developers and were in fact willing to forgo size

for reputation. We took this feedback to test whether it had translated to

actual sales at the project level. We studied the flight to reputed developers

across all stages of projects (Refer to Table 1). We looked at the Top 100

projects which had the highest sellout ratio and the bottom 100 projects with

the lowest sellout ratio and identified projects from reputed developers. The

100 projects with the highest sell out ratios has 25% (one in four) reputed

developers whereas the 100 worst performing projects has 9% (one in

eleven) reputed developers. Out of these projects in the low sellout ratio

category, 7 out of the 9 projects are very recently launched and removing

these projects leaves a negligible presence of reputed developers in the low

sellout category. 4 of the projects in the bottom 100 have been launched in

the last 3 months, 4 of the projects have been launched between

3-5 months. In summary, 8 out the 9 projects in the Bottom 100 have been

launched very recently. Finally, delivery and reputation are being valued by

the home buyer.


04

INVENTORY OVERVIEW

The total inventory under development has seen a contraction and has

dropped down to 2,92,842 units in Dec ‘18. From a peak inventory

available for sale at 1,07,402 apartments in Jun ‘16 the inventory available

for sale currently stands at 79,760 apartments. This puts unsold inventory at

approximately H1 2015 levels. Inventory for sale has marginally moved up

to 27.24% from 26.29% but is still on the downward trajectory since the peak

at 34.29% in Dec ’15.

Dec ‘12 Jun ‘13 Dec ‘13 Jun ‘14 Dec ‘14 Jun ‘15 Dec ‘15 Jun ‘16 Dec ‘16 Jun ‘17 Dec ‘17 Jun ‘18 Dec ‘18

350000

201464

165650

210094 240432

245639 280913

304905

323372

Tota

l Res

iden

tial U

nits

325843

327670

305689

302591

292842

300000

250000

200000

150000

1813

22732335

2761 2683

3067

33123496 3630 3733

3557 34723525

100000

50000

0

75.0

5%

24.9

5% 2

5.5

1%

26.3

4% 27.0

1%

27.9

4%

32.3

2%

34.2

9%

33.2

1%

32.0

6%

30.5

2%

28.4

3%

26.2

9%

27.2

4%

74.4

9%

73.6

6%

72.9

9%

72.0

6%

67.6

8%

65.7

1%

66.2

9%

67.9

4%

69.4

8%

71.5

7%

73.7

1%

72.7

6%

FIG. 1 - INVENTORY OVERVIEW

Sold Stock No of ProjectsInventory for Sale Total Residential Units

The current inventory available for sale at is 79,760 apartments and is

virtually unchanged compared to Jun ’18 when it was 79,546 apartments.

The absolute unsold inventory is at a 4 year low.

On assessing the new launches of inventory by zone (for description of

submarkets in each zone see last page of the report), almost all zones with

the exception of Zone 5 has seen an increase in new supply. Zone 5 is like

the city centre with the highest prices and smallest market share. The

maximum increase is seen in Zone 2 where new supply is up by 79% in 2018

(14,687 apartments launched) compared to 2017 (8,206 apartments

launched) followed by Zone 1 where new supply is up by 32% over the same

period (9,979 units in 2018 compared to 7,581 units in 2017). Zone 1 and

Zone 2 together constitute the Eastern belt of Pune. Zone 3 and Zone 4 have

also seen significant increases of 21% each while Zone 6 has maintained its

earlier trend of increases in inventory.


05

NEW LAUNCHES

At a city level, new launches have increased. This indicates optimism

amongst the developer community. As highlighted earlier, there is an overall

increase of 22% in new launches (72,503 apartments launched in 2018

compared to 59,595 apartments launched in 2017). Since, all this fresh

supply is supposed to be registered under RERA, developers are likely to see

it through completion thus enabling cash flows for subsequent

developmental cycles. At an overall basis, Zone 6 (PCMC) has seen the

maximum new launches (at an absolute level) at 18,608 apartments

followed by Zone 2 (East Pune) at 14,687 apartments.

Looking at the data on a 6 monthly basis shows a higher growth rate of new

launches at 29% (from 31,618 apartments launched between Jan ’18 to

Jun ‘18 to 40,885 apartments launched between Jul ’18 to Dec ’18)

compared to the yearly growth rate of 22%. This suggests that momentum in

new launches has picked up significantly.

Looking at segment-wise data there has been a significant number of new

launches in the Premium Plus segment over the last 6 months. The number

of units launched in the Premium Plus segment is 6,543 translating to a

growth of 65%, in the previous 6 monthly cycle (Jan ’18 to Jun ’18) it was

3,961 units. In fact, the number of launches in the Premium Plus segment

has been increasing since the last 2 years or the last 4 six monthly cycles. Of

the net 9,267 units launched in the last 6 months, 28% has come from the

Premium Plus segment (2,582 units) which is greater than its market share

of 16% in the overall new launches indicating strongly that it is gaining

market share incrementally. However, the Budget segment continues to

occupy significant share in new launches at 48% (in H1 2018 its market

share in new launches was 49%)


06

FIG. 2 - NEW UNITS LAUNCHED(Number of units)

124000

114000

104000

94000

84000

74000

64000

54000

44000

34000

24000

119175

93978

59595

72503

Jan ‘18 - Dec ’18Jan ‘17 - Dec ’17Jan ‘16 - Dec ’16Jan ‘15 - Dec ’15


FIG. 3 - NEW UNITS LAUNCHED(Number of units)

140000

120000

100000

80000

60000

40000

20000

0Jan ‘18 - Dec ’18Jan ‘17 - Dec ’17Jan ‘16 - Dec ’16Jan ‘15 - Dec ’15

119175

59032

26970

20898

7175 6284

5100 2763 259833288767

16970

10597 3841

22072

12379 1498810504

45889

30180 34916

93978

59595

72503

Budget Value Premium OverallPremium Plus Luxury

07


08

FIG. 4 - % SHARE OF NEW UNITS LAUNCHED BY SEGMENT

49.53%

22.63%

17.54%18.06% 17.78%

12.09%

14.49%

6.45%6.69%6.02%

4.28% 2.94% 4.36% 4.59%

23.49%20.77% 20.67%

48.83%50.64%

48.16%

60%

50%

40%

30%

20%

10%

0%

Jan ‘18 - Dec ’18Jan ‘17 - Dec ’17Jan ‘16 - Dec ’16Jan ‘15 - Dec ’15

Budget Value Premium Premium Plus Luxury

TABLE 2 - NEW STOCK ADDED IN ZONES (Numbers in units)

Zone

Jan ’16 to Jan ’17 to Jan ’18 to % change over Dec ’16 Dec ’17 Dec ’18 Dec ‘17

1 12,693 7,581 9,979 32%

2 15,482 8,206 14,687 79%

3 16,294 10,965 13,303 21%

4 16,615 11,802 14,301 21%

5 2,689 2,380 1,625 -32%

6 30,205 18,661 18,608 0%

Overall 93,978 59,595 72,503 22%


Bhosari & Environs - Bhosari Pradhikaran / Chikhali / Chikhali Pradhikaran / Moshi / Moshi Pradhikaran

Kanhe & Environs - Kanhe / Somatne Phata / Talegaon / Wadgaon Maval / Kamshet

Dehu & Environs - Dehu / Gahunje / Kiwale / Ravet / Talawade / Tathawade / Punawale / Marunji / Sangawade / Mamurdi / Urse

Alandi & Environs - Alandi / Alandi Road / Bhosari / Bopkhel / Charholi / Dighi / Dudulgaon / Wadmukhwad

Bhugaon & Environs - Bhugaon / Bhugawade / Bhukum / Chande / Chandkhed / Ghotawade / Kasar Amboli / Kasarsai / Lavle / Maan / Nande / Paud / Pirangut / Rihe Road/Urawade

Kondhwa & Environs - Kondhwa / Pisoli / Yewalewadi

FIG. 5 - NEW UNITS LAUNCHED JUL ‘18 - DEC ’18(Top 20 micromarkets with the Fresh Supply Launched)

3016

3500

3000

2500

Bhos

ari &

Env

irons

Man

jari

Dha

yari

Wag

holi

Kanh

e &

Env

irons

Deh

u &

Env

irons

Ala

ndi &

Env

irons

Nar

he

Hin

jew

adi

Bhug

aon

& E

nviro

ns

Am

bega

on

Kond

hwa

& E

nviro

ns

Wak

ad

Dha

nori/

Lohe

gaon

Und

ri/M

oham

mad

wad

i

Kesh

av N

agar

/Mun

dhw

a

Bale

wad

i/M

ahal

unge

Khar

adi

Had

apsa

r

Furs

ungi

/Uru

li D

evac

hi

2000

1500

1000

500

0

2503

2357

2293

2226

2203

2155

2117

1840

1632

1461

1430

1380

1357

1296

1233

1135

1038

1021

954

09

The relationship of the sellout ratio to price movements is a fairly robust

indicator that shows where we are in the real cycle. Prices tend to follow

sellout ratios but with a substantial lag. A sellout ratio peaks out and starts

falling due to the predictable inventory dynamics at play. The Demand

Supply cycle can be depicted as follows. In the normal course, one would

expect prices to rise at the current stage, however, while prices for existing

projects are not falling, the average prices are dropping on account of new

inventory being introduced into the market at the affordable segment at

lower prices.

CONSOLIDATION

EXPANSION

Greenshootsvisible- 27.24%Unsold inventory 38% Price

rise Jan ’11 to Dec ’13

95% Increase intotal inventoryDec ’12 to – Jun ’16

Dec ’15 overhang >14 months

Dec ’15 34.29% Inventory unsold

Dec ’15 to Dec ’18Prices fall from peakof 5096 to 4582

2015 – 1,19,175 units2016 – 93,978 units2017 – 59,595 units2018 – 72,503 units

Greenshoots visible11.69 monthsinventory Dec ‘18 Rising

PricesFollow

Increasein NewSupply

OverSupply

SelloutRatio

Worsens

LowerPricesFollow

Reduction in New Supply

UnderSupply

HigherSellout Ratio


10


FIG. 7 - REPLACEMENT RATIO V/S PRICE

FIG. 6 - RELATIONSHIP BETWEENPRICE & AVAILABILITY RATIO

5500 40%

35%

30%

25%

20%

15%

10%

5300

5100

4900

4700

4500

Dec ‘13 Jun ‘15 Dec ‘15 Jun ‘16 Dec ‘16 Jun ‘17 Dec ‘17 Jun ‘18 Dec ‘18Dec ‘14Jun ‘14

4806

26.34%27.01%

27.94%

32.32%

34.29% 33.21%32.06%

30.52%28.43%

26.29%

27.24%

4909

5061 5075 5096

4984

4900

47864740

46854582

Avg Price psf Availability Ratio

5100

5200 1.500

1.400

1.300

1.200

1.100

1.000

0.900

0.800

0.700

0.600

5000

4900

4800

4700

4600

4500

Dec ‘13 Jun ‘15 Dec ‘15 Jun ‘16 Dec ‘16 Jun ‘17 Dec ‘17 Jun ‘18 Dec ‘18Dec ‘14Jun ‘14

1.0

31

4806

4909

50615075

5096

4984

4900

47864740

4685

4582

1.1

01

1.0

54

1.4

55

1.2

30

0.9

82

1.0

18

0.6

87

0.7

84

0.9

84

0.8

69

Avg Price psf Replacement Ratio

11

Another way to look at the cycle is through the lens of “replacement ratio”.

The replacement ratio is the new supply added divided by the number of

apartments sold. A replacement ratio of 1 indicates that demand and supply

are in equilibrium i.e. inventory being sold is being replaced by new

inventory. When the ratio is more than 1 – supply is being added faster than

sales and when replacement ratio is less than 1 – sales are faster than

inventory addition. The current replacement ratio is 0.984 whereas the

replacement ratio hit its peak at 1.455 in Jun ’15. This indicates that supply

and demand are close to being in balance.


12


The long lead nature of the industry often leads to situations where supply

tends to overshoot or undershoot the demand during a change in the

business landscape and it takes some time for the landscape to return to

“steady state” conditions.

Projects with product types that are in oversupply tend to bring down prices

and projects with product types where there is undersupply tend to shore up

prices but with a lag.

We looked at these pockets to identify product types with oversupply or

undersupply using data from the recently concluded CREDAI-PUNE

exhibition and compared it to the supply data.

There is significant oversupply in the 1 BHK segment compared to the

undersupply in the 2BHK segments. 3BHK seems to be more or less in

balance. 28% of home buyers who visited the exhibition are interested in a

1BHK but 38% of the total supply is in 1BHK (an oversupply gap of 10%)

whereas 54% of home-buyers are interested in a 2BHK whereas 48% of the

supply is in 2BHK (a relatively small undersupply gap of 5%). However, the

overall supply and demand in the 1/1.5/2BHK segments close to being in

equilibrium. 88% of the demand is in this segment and 88% of the supply is

also in this segment (also reflected in the replacement ratio of 0.94).

DEMAND SUPPLYGAPS IN PRODUCT TYPES

13


14

Bedroom Type

Demand Supply

Source of Demand Data – primary data from the CREDAI PUNE PROPERTY FESTIVAL

FIG. 8 - DEMAND SUPPLY GAP(nos. represent % of inventory)

1BHK 1.5BHK 2BHK 2.5BHK 3BHK 3.5BHK 4BHK

6.1

3%

1.2

% 3.7

2%

0.9

8%

7.2

2%

8.5

1%

0.2

2%

0.5

8%

0.5

5%

1.0

4%

48.4

7%

54.1

6%

28.0

1%

38.2

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%


The top 10 projects in Pune with the maximum new supply launched

account for ~15% of all the new supply launched between Jul ’18 to

Dec ’18. The consolidation taking place in the market is evident if the recent

trend of the % 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 Dec '18, this number

has jumped to 15%.

15

FIG. 9 - % OF NEW UNITS ACCOUNTEDFOR BY TOP 10

Jun ‘15

16%

18%

14%

12%

10%

11%

7%

13%

10%

17%

15% 15%

9%

8%

6%

4%

2%

0%Dec ‘15 Jun ‘16 Dec ‘16 Jun ‘17 Dec ‘17 Jun ‘18 Dec ‘18


16

PRICES

The city wide average residential property prices continued to decrease on

an overall basis for the sixth consecutive half year tracking period. From a

peak of ` 5,096 psf in Dec ‘15 to ` 4,582 psf in Dec ’18, the drop in the

past 6 months has been a further 2.21%. In order to determine what is

contributing to the average price drop, we placed the projects into

3 categories:-

• Ongoing Projects that existed in Jun ’18 and are still present in Dec ‘18

• New Projects launched between Jul ‘18 and Dec ’18

• New Phases of existing projects launched between Jul ‘18 and Dec ’18

For those projects that were ongoing in Jun ’18 and also in Dec ‘18, the

average price in Jun ‘18 for these projects was ` 4,696 psf and the same

projects in Dec ‘18 were priced at ` 4,692 psf – a negligible decrease in

prices of ongoing projects.

The city wide average therefore came down on account of lower priced new

inventory being brought into the market. A further analysis of average price

of new projects launched & new phases launched of ongoing projects show

that the average rate at which new projects were launched in H2 2018 was

` 3,914 psf while new phases of existing projects were launched at

` 4,688 psf in H2 2018 – above the Pune average. There is a gap of almost

14.58% between average Pune price of ` 4,582 psf & New Project price of

` 3,914 psf.

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.


FIG. 10 - SIX MONTHLY PRICE MOVEMENTS

5500

7.66%

5061

5075 50964984

49004786

4740 46854582

49105000

4500

4000

3500

3000

Jan

’11

- Ju

n ’1

1

Jul ’

11 -

Dec

’11

Jan

’12

- Ju

n ’1

2

Jul ’

12 -

Dec

’12

Jan

’13

- Ju

n ’1

3

Jul '

13 -

Dec

’13

Jan

’14

- Ju

n ’1

4

Jul ’

14 -

Dec

’14

Jan

’15

- Ju

n ’1

5

Jul ’

15 -

Dec

’15

Jan

’16

- Ju

n ’1

6

Jul ’

16 -

Dec

’16

Jan

’17

- Ju

n ’1

7

Jul ’

17 -

Dec

’17

Jan

’18

- Ju

n ’1

8

Jul ’

18 -

Dec

’18

10%

8%

6%

4%

2%

0%

-2%

-4%

6.46%

5.50%

3475

3666

3970

4211

6.07%

4464

6.01%

4806

0.28%0.41%

-2.20%-1.69%

-2.33%

-0.97%

-2.21%

-1.17%

8.29%

2.16%

3.08%

Average Price6 month % change

17

FIG. 11 - AVERAGE SIZE OF UNITS LAUNCHED IN NEW PROJECTS(in sq.ft., weighted by number of units launched)

HOME SIZES

600

H2 2014 H2 2015 H2 2016 H2 2017 H2 2018

1000

900

800

981

837

756735

859

700

Home sizes have increased to 859 sq. ft. after a period of decline.


18


Assessment of sales offtake based on size of apartment shows that the

overall offtake has increased by 7.56%, the share of the <600 sq. ft.

segment in the offtake has been consistently increasing over the last 3 years

from 22% to 29% and the segment that has been ceding offtake is 600 - 800

sq. ft. where share has dropped from 26% in 2016 to 21% in 2018. This

segment (<600 Sq. ft.) along with the 600 - 800 sq. ft. segment is primarily

targeted by the Pradhan Mantri Awaas Yojana.

Overtime, the share of offtake in the <800 sq. ft. basket has remained

consistent at 49% - 50%.

The top end of the value chain 1601 sq. ft. and above have all seen a

reduction in offtake. However, the segment between 801 – 1200 sq. ft. &

1401 – 1600 sq. ft. has seen sales growth.

19

TABLE 3 - SALES OFFTAKE – 12 MONTHLY

Size

Jan ‘16 to Market Jan ‘17 to Market Jan ‘18 to Market Dec ‘16 share Dec ‘17 share Dec ‘18 share

Overall 93,995 100% 76,149 100% 81,907 100%

< 600 20,693 22% 19,670 26% 24,145 29%

600-800 24,609 26% 17,934 24% 17,527 21%

801-1000 22,607 24% 18,218 24% 19,981 24%

1001-1200 13,868 15% 11,570 15% 12,070 15%

1201-1400 5,229 6% 3,490 5% 2,968 4%

1401-1600 3,424 4% 2,331 3% 2,570 3%

1601-1800 1,434 2% 1,079 1% 1,029 1%

1801-2000 480 1% 529 1% 361 0%

2000+ 1,651 2% 1,328 2% 1,256 2%

INVENTORY VALUEAND SQUARE FEET

Un

sold

Are

a in

Cr

Sq.

ft.

Valu

e (i

n C

r)

1260000

50000

40000

30000

20000

Dec ’13 Dec ’14 Dec ’15 Dec ’16 Dec ’17 Dec ’18

10

8

6

4

2

0

5.49

27400

39085

48526

55329

49214

37898

7.08

9.1010.25

9.46

7.40

Value (in Cr) Unsold area (in Cr Sq. ft.)

FIG. 12 - VALUE OF INVENTORY FOR SALE(in ` Cr) & AREA (in Cr sq. ft.)

Inventory available for sale has dropped by 22% over Dec ’17 to 7.40 cr sq. ft.

while value of that inventory has dropped to ` 37,898 Cr. This will have an

impact on the revenues of the State and Centre through stamp duty and GST

Collections. The lower priced inventory translates to lower cumulative value.

The value graph therefore is steeper than the area graph.


20


10 SUB MARKETSWITH MAXIMUM

PRICE CORRECTION(Over 24 months)

Market Yard & Environs - Market Yard / Lullanagar / Salisbury Park / Mukund Nagar / Gultekdi

Aranyeshwar & Environs - Aranyeshwar / BalajiNagar / Bibvewadi / Dhankawadi / Padmavati / Sahakar Nagar / Parvati / Satara Road / Swargate

Bhugaon & Environs - Bhugaon / Bhugawade / Bhukum / Chande / Chandkhed / Ghotawade / Kasar Amboli / Kasarsai / Lavale / Maan / Nande / Paud / Pirangut / Rihe Road / Urawade

FIG.13 - BOTTOM 10 MICROMARKETSWITH THE LOWEST PRICE

GAINS IN THE LAST 2 YEARS

-5.00%

-6.4

9%

All

Mark

ets

Man

jari

Katr

aj/

Kh

ed S

hiv

ap

ur

Warj

e

Dh

aya

ri

Mark

et Y

ard

Am

beg

aon

Ara

nye

shw

ar

Narh

e

Au

nd

h

Bhu

gaon

-16.2

0%

-11.0

7%

-10.6

7%

-8.7

4%

-8.7

0% -6.7

7%

-6.5

5%

-5.7

3%

-5.6

9%

-5.2

0%

-15.00%

-25.00%

21

SEGMENT Jun ‘13 Dec ‘13 Jun ‘14 Dec ‘14 Jun ‘15 Dec ’15 Jun ‘16 Dec ‘16 Jun ‘17 Dec ‘17 Jun ‘18 Dec ‘18

Budget < 3,913 4,000 4,122 4,247 4,144 4,060 3,991 3,899 3,808 3,719 3,633 3,728

Value < 4,892 5,000 5,152 5,309 5,180 5,076 4,989 4,873 4,760 4,649 4,541 4,659

Premium < 5,870 6,000 6,182 6,370 6,216 6,091 5,987 5,848 5,712 5,579 5,449 5,591

Premium Plus < 7,338 7,500 7,728 7,963 7,770 7,613 7,484 7,310 7,140 6,974 6,811 6,989

Luxury > 7,338 7,500 7,728 7,963 7,770 7,613 7,484 7,310 7,140 6,974 6,811 6,989

TABLE 4 - PRICING CLASSIFICATION FOR EACH SEGMENT (IN ` psf)

EARLY ENDMID READY

Jun ’13 Dec ’13 Jun ’14 Dec ’14 Jun ’15 Dec ’15 Jun ’16 Dec ’16 Jun ’17 Dec ’17 Jun ’18 Dec ’18

60000

50000

40000

30000

20000

10000

0

Inve

nto

ry f

or

Sale

(U

nits

)

24789

17633

3921

5382

4826

7857

4862 5918 5648 61203947 4098 4620 3691 3343

57097498

6746 7345 75438692

7967 8849 8760 9005 9439

1543122757

22349

43140

45078 44691 39120

32300

21107

1558917822

29718 28571

33657

34878

4629647899

5341854765

5241351261

49156

FIG.14 - INVENTORY FOR SALE BY STAGES


22


98968

44459

23260

17835

15009 16825 13654 1252612602

7724 34142805303336254001

771559179413

20122 2091715545 16810

44142 45505

3642136555

8881593995

7614981907

Budget Value Premium OverallPremium Plus Luxury

120000

100000

80000

60000

40000

20000

0

FIG. 15 - SALES BY SEGMENT(IN NUMBER OF UNITS - YEARLY)

We have classified projects into 4 stages based on construction status i.e.,

Early, Mid, End and Ready. End & ready segments form 4.19% & 11.83%

(16% combined) of inventory available respectively in Dec ’18. In Dec ‘17

combined they formed 15.4% of the inventory available. In Dec ’17 the total

inventory in this basket was 13,380 units while in Jun ‘18 this has decreased

to 12,782 units.

On the other hand, early stage inventory available for sale has decreased

from 21,107 units in Dec ’17 to 17,822 units in Dec ‘18. In Dec ’17 it

formed 24.29% of the total availability while in Dec ‘18 it forms 22.34% of

the total availability.

23

Jan ’14 to Dec ’14 Jan ’15 to Dec ’15 Jan ’16 to Dec ’16 Jan ’17 to Dec ’17 Jan ’18 to Dec ’18

INVENTORY OVERHANG

The inventory overhang continues to improve and the current inventory

overhang has dropped from 12.49 months in Jun ’18 to 11.69 months in

Dec ’18.

The inventory overhang has historically been in the 10-12 months range

over time in the budget segment. The value segment has also been in the

range of 13-15 months. However, improvements have been seen in the top

end of the market in all the 3 baskets (Premium / Premium Plus and Luxury).

TABLE 5 - INVENTORY OVERHANG Inventory Inventory Inventory Inventory Inventory Inventory Inventory Overhang Overhang Overhang Overhang Overhang Overhang Overhang (Months) (Months) (Months) (Months) (Months) (Months) (Months) as on Dec '15 as on Jun '16 as on Dec '16 as on Jun ’17 as on Dec ’17 as on Jun ’18 as on Dec ’18

Total 14.13 13.93 13.34 13.90 13.69 12.49 11.69

Budget 11.80 11.96 10.96 11.43 11.38 9.67 10.37

Value 14.33 13.46 13.59 14.73 14.31 14.73 13.00

Premium 18.40 17.49 17.22 14.97 15.43 12.50 12.41

Premium Plus 20.28 16.86 15.52 20.05 17.23 16.26 11.47

Luxury 13.64 19.65 20.09 24.28 22.15 20.59 17.48


24


BREAKUP OF THE MARKETBY JURISDICTION

(PMRDA, PMC, PCMC)

FIG. 16 - AVERAGE PRICES (in ` psf)(Extended boundaries of PMC)

Dec ’18Dec ’15

8000

6000

4000

2000

3905

4769

5075

7186 7039 7075

56504984 4786

45824797 4763

4799

3853 3706 3455

0

Dec ’16 Dec ’17

PMRDAPMC PCMC Overall

PMRDAPMC PCMC Overall

FIG. 17 - AVERAGE PRICES (in ` psf)(without extended boundaries of PMC)

Dec ’18Dec ’15

8000

6000

4000

2000

3905

4769

5075

7186 7039 7075 7000

4984 4786

45824797 4763

4799

3853 3706 3558

0

Dec ’16 Dec ’17

25

A large increase in the market share of PMC is visible on account of the

shifting of a number of submarkets from PMRDA region to PMC. If we ignore

the change of boundaries, the gross inventory continues to decline.

TABLE 6 – GROSS INVENTORY (in no of units) – EXTENDED BOUNDARIES OF PMC

Dec ‘14 Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18

PMC 71,122 78,881 78,519 1,11,523 1,06,069

PMRDA 1,17,495 1,60,775 1,74,049 1,23,364 1,17,982

PCMC 50,784 63,557 70,745 68,313 62,644

Overall Inventory 2,40,433 3,04,905 3,25,843 3,05,689 2,92,842

TABLE 7 - GROSS INVENTORY (in no of units) – WITHOUT EXTENDED BOUNDARIES OF PMC

Dec ‘14 Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18

PMC 71,122 78,881 78,519 65,128 60,366

PMRDA 1,17,495 1,60,775 1,74,049 1,69,759 1,67,267

PCMC 50,784 63,557 70,745 68,313 62,644

Overall Inventory 2,40,433 3,04,905 3,25,843 3,05,689 2,92,842


26


PMRDAPMC PCMC

60%

50%

40%

30%

20%

10%

0%

PMRDAPMC PCMC

52.73% 53.41%

40.36% 40.29%

36.22%

21.39%22.35%21.71%20.84%

36.48%

24.10%25.87%

Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18

FIG. 18 - SHARE IN INVENTORY(With extended boundaries of PMC)

FIG. 19 - SHARE IN INVENTORY(Without extended boundaries of PMC)

60%

50%

40%

30%

20%

10%

0%

52.73% 53.41% 55.53% 57.12%

21.39%22.35%

21.71%20.84% 21.31% 20.61%

24.10%25.87%

Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18

27

CONCLUSION

There are many positives to take from the performance of the last 6 months.

The cycle seems to have picked up in terms of sales and new launches.

However, the stress on prices still remains as developers seek to grow the

affordable housing segment. With the development of this category, we

should see a large number of people buying homes for the first time which

were previously beyond their affordability levels, thereby laying a very strong

foundation for future upgrades.

There has been talk about reduction of GST for home buying. Hopefully, this

will happen. While lowering of the GST rate is a good idea, it is essential that

the input credit is not done away with. This will lead to an increase in the

selling prices for purchasers and more importantly, all the contractors and

the entire supply chain that had been brought under the formal sector

because of GST will move back out. This could push a large part of the

construction sector into the informal cash based economy again.

Finally, home buyers have become discerning and are now focused on the

reputation of the developer. Historically there have been no barriers to entry

to the sector and anyone could become a developer. While there has been

no regulatory change for this, a natural barrier created by customers who

purchase only from developers where there is track record thereby giving

them safety and peace of mind is very welcome. It will force developers to

perform or perish.


28

29


A thought piece by Mr. Rohit Gera,

Managing Director, Gera Developments Pvt. Ltd.

The last few years have seen the real estate sector impacted with one body

blow after the other. 2018 was no different in this regard. While earlier

years saw demonetization, RERA, GST, judicial wrath, 2018 was the year of

financial throttling.

To appreciate the magnitude of the impact, one needs to understand the

way the sector gets its finances. The fundamental resource for a real estate

project is land, and unlike other industries where debt is available based on

the entire project cost (including land), banks are not permitted to fund

developers for land acquisition. This led to a few developers borrowing

expensive funds from NBFCs but most got funding from customer sales.

Once funding was available from sales, the developer did not need

construction finance and since construction finance was available (now that

the developer had funded the land and approvals), the financial institutions

looked the other way while developers used construction finance funds for

land acquisition.

While the financial scenario got more and more difficult for developers on

account of the successive punches to the industry, there was a concerted

(and laudable) effort by the Reserve Bank to tighten the screws on loose

lending. This along with RERA and the intervention by the Supreme Court

on the financial dealings of a few developers led to developers being

squeezed for funds.

Developers needed to repay loans and with the lone source of funds i.e.

customer payments (but sales are at a snail’s pace), along with the RERA

REAL ESTATE SECTOR– EXPECTATION FROM 2019


30

rules of not permitting diversion of project funds, the only source of funds

were the NBFCs. Funding with repayment moratoriums were available as

long as their loan was secured by the land and hence we did not hear of

many defaults by real estate developers.

2018 however threatens to have changed the funding structure too.

The RBI circular in February 2018 about non-performing loans, forensic

audit of developer’s accounts ordered in a few cases by the Supreme court

and the latest – the ILFS earthquake threatened to bring down many NBFCs

bringing to light the funding mismatch in their portfolios. The subsequent

cleaning up of loan books, sale of portfolios by some of the NBFCs have

had a significant impact on the real estate sector. Many NBFCs funding

mortgages (considered the safest loan segment) were seen delaying

disbursements for projects, due to their own balance sheets shrinking,

where the funds were legitimately payable. This further squeezed the

developers who need to continue to pay for construction. Further, RERA

provides for interest at only 10% for delayed customer payments, which is

lower than lending rates to developers - this creates a negative spread and

exacerbated the problem. Numerous cases where re-finance (read

evergreening) of loans were underway were halted mid-way. NBFCs who

were growing at a blistering pace are suddenly talking about shrinking their

loan book. Given the fact that many of these projects were funded by the

lender of last resort, it is hard to see where the funding for refinance and

indirectly or completion of projects will come from.

As we end 2018, we cannot predict whether all loans will be restructured, or

whether we will see many more defaults. What is certain though is the fact

that 2018 certainly added a new set of woes for an industry reeling under

successive shocks.

Given the last few years, while we hope for a year with good news, it would

be good if 2019 passes without any further negative shocks which impact

not just developers but also millions of workers directly linked to this industry

who lose their livelihood when construction slows or stops.

Gera Developments Pvt. Ltd.200, Gera Plaza, Boat Club Road, Pune - 411001 Tel.: +91 20 2616 5580 / 81

www.gera.in

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