Pune, July 10, 2020: Gera Developments, pioneers of the real estate business and the award-winning creators of premium residential and commercial projects in Pune, Goa, and Bengaluru, today released the July 2020 edition of their bi-annual report, The Gera Pune Residential Realty Report.
The research considered the top 20 developers in Pune in terms of brand name and repute. To ensure consistency and uniform comparison, the report has maintained the same list of developers over the past 5 years and then calculated what was their share in the last 12 months. Post RERA and despite the Covid-19 pandemic, the share of the top and reputed developers in the market has increased. In the year Jul ’19 to Jun ’20, their sales account for almost 25% of the total sales. The trend of large projects being launched continues. The number of projects with a size >500 units has further increased to 138. This number almost doubled in the last 6 years.
The major hit taken by the construction industry during the Covid-19 pandemic and the ensuing lockdown is taking a toll on many developers, leading to further consolidation of the sector.
Key Highlights of the report:
Home affordability at a 9-year high
The latest reduction in interest rates has led to increased affordability, now at 3.79 times one’s annual income (it was 3.91 times same time in 2019), this is the best time to buy a home.
Inventory available for sale at a 5-year low
Total number of live projects being built has fallen significantly to 3,076 in Jun ’20 from 3,471 as on Jun ’19. Total inventory available for sale at 75,421 units as on Jun ’20 has moved up marginally indicating that the average size of each project has increased.
Sales offtake has reduced by 16% over the last 6 months.
The yearly decrease (Jul ’19 to Jun ’20) has been 9%.
New Launches fall by 60%.
This is a clear impact of the Covid-19 induced lockdown as activity around new launches has been at a virtual standstill for four out of the last six months. New launches have seen a significant decrease falling by 60% from 52,631 new units introduced into the market in H2 ’19 to 21,072 new units introduced in H1 ’20. On an annual basis, new inventory launched across the city has fallen by 16%, except in higher priced neighbourhoods.
There is newfound interest in the luxury segment
New launches in the Luxury segment have grown by 71% to 5,005 units launched in the 12 months ended Jun ’20 from 2,926 units launched in the previous 12-month cycle. This, while new launches in the value segment are nearly the same and other segments have seen a decline.
Demand has outstripped supply.
The Covid-19 pandemic has caused a sharp drop in the replacement ratio, from 1.167 in Dec ’19 to 0.55 in Jun ’20 i.e. more units have been sold than added in the last six months.
Better prospects in terms of delivery and product quality for consumers.
Between Jul-17 and Jun-18, it took 45 projects to sell 10,000 units. In the period from Jul-19 to Jun-20, that number has dropped to 24 projects. Covid-19 pandemic has accelerated the consolidation in the industry; there will be fewer, reputed developers, with stronger financial position and more professionalism, and better returns for consumers in terms of product and service.
Overall prices up by 2.5% across the city
An interesting finding from the research is the increase in the average market prices across the city. For the first time in 5 years, the average prices (simple average) have risen across the city. On looking deeper, it was found that the average price went up on account of new projects being launched at more prime locations than before and not on account of any change in market sentiment or dynamics.
While releasing the report, Mr. Rohit Gera, Managing Director, Gera Developments said, “The Covid pandemic stopped the world and the real estate industry, in its tracks. As we exit from the lockdown there is a lot of speculation on the effects on the real estate sector. An in-depth understanding indicates that the lockdown has had varying impacts on the different aspects of the business. Developers were able to defer launches of projects, thereby defer large financial commitments on account of project construction and launch expenses. As launches dropped by 55% over 2019, sales, however, were at a standstill for a shorter period. Many customers who had searched and shortlisted their homes pre lockdown, quickly booked their homes once the lockdown started getting lifted despite which sales dropped by 22% over 2019. This disproportionate reduction of new launches versus sales has led to a depletion of the overall inventory in the market which is a good sign. The inventory for sale is now at a 5-year low at around 75,000 homes. The inventory overhang as well as replacement ratios have gotten stronger.”
Mr. Gera further added, “While at an industry level, this bodes well, the stress for developers has increased. Salaries and most overheads have continued to deplete cash flows through the lockdown. Most significantly, the moratoriums on repayment of debt has merely deferred payments to financial institutions. The interest burden has continued to add to the liabilities of the developers through the period of zero activity. This has put many developers, already in a difficult position, into an even more precarious position. There is a tremendous default risk facing many developers and this will have a domino effect for the banks and financial institutions. Looking forward, it is important for the financial institutions to identify the risk of projects running out of money due to low sales and offer better interest rates to borrowers who are buying homes from developers where there is financial closure for the project.
The real estate sector has been dealt a number of body blows and each hit has led to a number of developers exiting the industry. The combined effect of all these seismic events will lead to a steep reduction in the number of developers. Those left will be far financially stronger and more professional than ever before. This will lead to an improvement in delivery and better products for the customers. However, this higher category product delivered by stronger brands will come at a higher cost.”
CONCLUSION
The Covid-19 pandemic and ensuing lockdown has brought the construction industry to a standstill. Four out of the first six months of the year 2020 have seen no activity, showing a steep reduction in new launches and a 5-year-low for inventory. While prices have shown an increase, they are driven by new projects started in the last six months and the high-end/ luxury segment, with rest of the segments remaining subdued. Demand too has outstripped supply.
However, many developers are in a crisis situation due to the combination of pressure on prices, halted projects and persisting overheads. Customers need to be cautious while buying homes in projects offering steep discounts, especially if its construction is not actively progressing.
Overall, the sector is in consolidation mode. Small and unorganised developers are likely to take the hit of the pandemic and the lockdown and exit the sector, leaving it to fewer developers with better financial strength and greater professionalism. This will ultimately result in better delivery and products for consumers.
Corporate Comm India (CCI Newswire)
