Pune Luxury Real Estate on Rise

After a lull of over a year, the luxury segment of the city's real estate market has shown signs of a comeback. Realty sector experts say that there has been a steady increase in luxury projects across cities in India and Pune is a big contributor to this movement.

"Bangalore is at the top of the chart as more than 50% of total luxury units launched in 2012 are there, while Pune has a contribution of nearly 8%," Shveta Jain, executive director of realty advisory company Cushman & Wakefield India, told TOI.

"Residential luxury market in India has exhibited a bullish behavior despite a slowdown in the real estate market of India during the last couple of years. The growing demand in the segment is mainly due to the increase in the number of high net worth individuals (HNIs),'' she said.

Ashutosh Limaye, head of real estate investor services at realty research and advisory company Jones Lang Le Salle (JLL), said despite global economic and financial crisis, the Indian residential market has been relatively stable. "Luxury homes is a growing preference of new age buyers and that has encouraged developers to launch luxury or super luxury housing projects priced between Rs 1 crore and Rs 20 crore.''

The data available with Cushman & Wakefield indicate that there has been a steady increase in luxury projects across the major cities in India.

While cities such as Hyderabad, Bangalore and Pune have witnessed an upward trend in the total number of luxury housing units launched, cities like Mumbai, Kolkata, and the NCR have witnessed a decrease in the total luxury units launched in 2012 in comparison to 2011. In Bangalore, Mumbai and Hyderabad, the luxury segment contributed 7%, 5% and 5% respectively of the total housing supply in 2012, while in Pune it contributed nearly 1%.

Locations such as Goregaon East in Mumbai, Gurgaon in the NCR, Hebbal in Bangalore, and western Hyderabad witnessed the highest capital appreciation at 44%, 42%, 21% and 13% respectively in 2012, the firm said.

The enthusiasm of developers is visible as Pune and surroundings witnessed the launch of three high-end homes projects in less than a month's time, with each unit carrying a price tag of Rs 1 crore upward, going up to Rs 7 crore. Pune witnessed launch of three luxury projects in 2012 in comparison to two projects last year. While the number of total units launched in 2012 increased by nearly 170% over those launched in 2011, the number of luxury units launched in 2012 increased by more than 250%, Cushman & Wakefield pointed out. The average launch price of luxury projects launched in 2012 increased by nearly 20%, compared to 2011.

Sanjay Bajaj, managing director for Pune at JLL, said: "Despite the cautious economic climate, there is still a lot of wealth generation happening among India's HNIs. The luxury homes segment is not a huge contributor to the overall real estate demand in the country, but it has a definite - though limited - clientele and developers who are catering to it. Pune has a relatively good demand ratio for luxury housing in the country; thanks to better amenities and less exotic land prices.

Rishabh Siroya, director of a realty firm, told TOI that seekers of luxury homes are showing renewed interest, though there was never a slump as far as this segment was concerned. "It's perhaps a coincidence that developers did not launch any ambitious high-end homes project in the last one year or so, but there was no question of demand for these properties at any time. Recession never hits luxury. If one wants to buy a Rolls Royce car, he buys it - good markets or bad,'' Siroya said, adding, "The key to luxury housing is that the buyer must be convinced about the features he's getting. Once that happens, price is no hindrance."

Abhisheck Lodha, managing director of a Mumbai based realty company, offered a different paradigm for luxury. "Luxury is a state of mind. Strangely, however, luxury has been connected with the price of homes. It is important how a person feels living in the house he occupies and the comfort he draws from its surroundings," Lodha said. Lodha added that the market for high-price homes was niche one and thus small. "This segment is about 4% of the country's residential market, led by select cities such as Mumbai, Pune, Bangalore, Chandigarh and Delhi NCR. It is, however, growing steadily on the back of rising aspirations and higher disposable incomes.

Luxury housing in India is here to stay, but will probably never cross the 5-6% of the overall real estate demand, Bajaj said. "The rich-poor divide is still too big. While buyers of luxury housing are less affected by economic fluctuations than the middle-class, it cannot be said that performance of the economy does not drive the sentiments in this segment."

Update on Real Estate Bill

The central government has clarified that there is no definite time-frame for approval and implementation of the 'Real Estate (Regulation & Development) Bill, 2012.

The bill was prepared to promote planned and healthy real estate development of colonies and apartments with a view to protect consumer interest and to facilitate smooth and speedy urban construction.

"In order to provide a uniform regulatory environment to enforce disclosure, fair practice and accountability norms and fast track dispute resolution mechanism in real estate transactions, the ministry of housing and urban poverty alleviation has drafted the 'Real Estate (Regulation and Development) Bill, 2012 in consultation with all stakeholders... Since necessary approvals for introducing the bill in Parliament have not been received, no time-frame can be assigned for its finalization at this juncture," states a press statement issued by the government.

The bill aims to establish a regulatory authority and an appellate tribunal to regulate, control and promote planned and healthy development and construction, sale, transfer and management of colonies, residential buildings and apartments.

As of now the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 enables the state government to monitor timely completion of real estate projects. The draft cabinet note on the new bill has been circulated to all state governments for comments. A meeting with the state ministers dealing with the subject was also held recently.

"The state government has given its feed back to the central government regarding this bill and The state government

has held rounds of meetings with the municipal corporation office-bearers in the state. Considering the opposition from the real estate market, the bill is likely to get delayed," said a state government official.

Real estate housing may get Industry status.....

Housing may get industry or infrastructure statusTNN | Dec 13, 2012, 02.40AM IST
PUNE: The state government has 'in principle' supported the recommendation by a technical group to make housing a part of infrastructure or declare it as an industry.

The 'technical group on estimation of urban housing shortage' of the country for the 12th Five Year Plan period (2012-17) has recently submitted its final report to the ministry of housing and urban poverty alleviation.

"The state government in principle has supported the suggestion. The final decision will soon conveyed to the central governmentIf housing becomes part of infrastructure or treated as industry, it will change the dynamics of urban development," said a state government official.

If housing becomes an industry, the rules and regulations would change; and if it is put under the infrastructure category, more central and state funds could flow to civic bodies.

According to the technical group, the total housing shortage estimated at the beginning of the 12th Five-Year Plan period is 18.78 million. Out of that, 10.55 million is in the economically weaker section (EWS) category and 7.41 million is in the low income group (LIG) category.

In Pune, the mid-city area, comprising 17 'peths' and surrounding areas, spanning over 147.85 sq km, is facing a shortage of 658,975 houses. To accommodate the burgeoning population, the municipal corporation will have to facilitate construction of over 30,000 affordable houses in the coming years. Failure to do so will result in rise of slums.

The new Development Plan (DP) for the old city areas has highlighted the need for affordable housing in the heart of the city.

According to the housing survey incorporated in the DP, in the 17 'peths' and six sectors that the city has been divided into, the requirement of the EWS is around 290,873 houses (that is 44.14% of the total housing requirements). The low income group requires 132,022 houses (20.03%), middle income group requires 172,977 houses (26.24%) and the higher income group needs 63,103 houses (9.58%).

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Low cost housing

HOUSING

Redrawing the Low-cost Model

Builders are finding it difficult to make profits in the true low-cost housing space and are, increasingly, moving their core business proposition to accommodate higher price points.

    In 2008, Jaithirth ‘Jerry’ Rao set up Value and Budget Housing Corporation (VBHC) to build low-cost houses — of below 10 lakh each — for the urban poor. Four years on, VBHC has completed the first phase of its maiden project in Bangalore, and sold 400 apartments. However, it has marginalised the low-cost premise it started out with. Low-cost houses make up only 15% of a VBHC project; 75% of the units cost 13 lakh each and the remaining 10% cost 18 lakh each. Market players term these higher price points — which target those seeking bigger, better houses and having the ability to pay a little more — as ‘affordable housing’. Increasingly, companies in the stated business of low-cost housing are operating, in varying degrees, in these pricier spaces. For example, Tata Housing defines low-cost as below 10 lakh and affordable as 15 lakh to 40 lakh, and has an equal mix in its projects. But PS Jayakumar of VBHC says this is mere semantics. “For us, low-cost and affordable are interchangeable terms,” says the managing director of VBHC. “We target salaried people who are willing to invest a little more. It is not for people below the poverty line or at subsistence levels.” Such an evolving price-volume split, and the splitting of hairs over the definition of low cost, is a challenge and reality for builders in this space. Rising input costs, and the extraneous costs related to real estate in India, is making a pure low-cost project commercially unsustainable. This is pushing builders to adopt a hybrid model — a mix of pure low-cost housing and affordable housing. The larger the ticket size, the higher the profit margins. There’s also a pull factor. Buyers are showing a greater inclination towards buying lowcost houses for investment purposes, as opposed to living in them, creating upward pressure on prices. “About 30%-40% is being picked up by investors in these projects,” says Subhankar Mitra, head, strategic consulting (west), Jones Lang LaSalle India, a real estate consultancy, adding that the very idea of low-cost housing is under threat. 
Hybrid Model 
In spite of moving up the price curve, the positioning of builders hasn’t changed: it is still low-cost. Take Tata Housing, which launched a 100% subsidiary in 2010 called Smart Value Homes to build houses in the 5 lakh to 40 lakh range. “The lowincome tag got them the buzz, but all their projects are mixed,” says Vikram Jain, lead, low-income housing practice, Monitor Group, a management consulting firm. Smart Value Homes has two brands: Shubh Griha (houses below 10 lakh) and New Haven (between 15 lakh and 40 lakh). According to Brotin Banerjee, MD and CEO of Tata Housing, both brands co-exist in most projects; some, though, are only under the New Haven brand as the land prices there are higher. “Our projects are usually spread across 40-50 acres and we give them (customers) townships,” he says. “We don’t want our low-cost customers to miss out on the community experience just because their houses cost less.” Jayakumar of VBHC agrees. “When poor and rich communities stay together, security issues are better than communities segregated from each other,” he says. “Our aim is not to build ghettos but vibrant communities where social balances are useful, apart from the economic compulsion of the project.” More groups are looking to enter this space, including Mahindra and TVS. Both declined comment as their projects were in the conceptual stage. But Jain of Monitor, who has spoken to both groups, says Mahindra is focussing on the low-cost segment and TVS on the affordable-housing segment. 
Lack Of Standardisation 
The main issue before developers is how to keep costs down — and, by extension, prices. Jayakumar expects the mixed model to deliver an operating margin of 15%-20%, while Banerjee pegs it at 12%- 15%, adding that a builder needs to achieve “economies of scale” to succeed in this format. A pre-requisite for economies of scale is standardisation: like uniformity in sizes, in design. But building laws — for example, built-up area and open-space norms — vary between cities, even across localities in a city. “It increases our cost and we cannot derive the benefit of economies of scale,” says Jayakumar. Sachin Kulkarni, managing director of Vastushodh, says the current rules and operating environment disincentivise a pure low-cost model. “The bribe we pay for premium-housing projects is the same as for our affordable category, with the same amount of paperwork,” he says. Vastushodh, which works on a hybrid model, has 12 projects in Pune and is planning to enter Mumbai. Kulkarni says approvals take at least six months. “The longer this process, the higher our costs — our capital assets remain idle, gathering interest,” he says. Similarly, for its maiden project in Bangalore, VBHC had to wait 18 months for approvals. “We can reduce our costs by 20% if the approval process is shortened,” says Jayakumar, adding, more states need to follow the Rajasthan lead of single-window clearance for affordable-housing projects. 
    Investor Inflation 
    The low-cost segment targets 
    households with a monthly income 
    of 15,000-20,000; the affordable segment, 25,000-50,000 a month. The supply 
    of low-cost units is not only being challenged at the builder end, but also, unintentionally, by buyers such as Manoj Kurey. This 52-year-old medical representative in Pune, who earns 4.5 lakh a year, recently bought a oneroom set in a Vastushodh project in Yerwada for 4 lakh. “I bought it for investment purposes,” says Kurey, who lives with his family in a two-BHK in central Pune. Kulkarni of Vastushodh says investors have made offers to him to buy an entire building and sell once prices appreciate, but that “we do not encourage investors and prefer selling to end-users”. According to Kulkarni, “not more than 10%” of buyers of such projects would be investors. Even among them, he adds, many are deferred users. Mitra of Jones Lang says investor interest in the low-cost space, which is being fuelled by low ticket prices, is counter-intuitive to the idea this segment stands for. “The pool of investors is very large, and they are pushing up prices and blocking out end-users. The objective of low-cost housing is lost,” he says, adding the government should do more, in terms of checks and balances, to support private initiatives and ensure supply reaches genuine beneficiaries. There are few pure low-cost players left. Even those left are raising their floor prices. For example, Ahmedabad-based premium developer Foliage, entered this business in 2008, with apartments of Rs 3-7 lakh. Today, its price range is 5-11 lakh. “In another five years, it will be 7-12 lakh, depending on land prices,” says Nehal Shah, CEO of Foliage. According to VBHC, between 2010 and 2012, the price of steel increased by 52%, cement 82% and labour costs 55%. Still, Shah finds the low-cost proposition compelling. “My premium segment does not subsidise Navjivan (its low-cost offering). They are two separate entities and I find the low-cost model sustainable,” he says. “We invested 4 crore in the first project and have an RoI (return on investment) of 60%.” But Foliage is an exception. Most players, seeking greater operational and financial stability, prefer the middle ground. And that is the new normal for the low-cost space. 

 This article was published in Economic times in Mumbai on 6th Dec 2012. 

The above toipc if the the most talked one across India. The developers are targeting only the 4-5 % people who pay taxes. Who is bothered about the the remaining 95%. Can they really afford any house below 15 lacs. You see everywhere in Pune the minimum price of a 1 BHK is not below 35 lacs in a good upcoming suburb. But there are some available in remote places like Talegaon, Phursungi, foot hills of Sinhagad, Ranjangaon but who is buying them? Again retail investors, localities in that area,  guy who works in city limits will find it very difficult to commute from remote places.

The basic raw material which is the "Land" the real "Real Estate" is very costly and it is not becoming any cheaper. The land which is in Government's hands, some portions of it should strictly be reserved for Low cost and affordable housing only. Otherwise  it is going to be very difficult to handle the situation in the near future.

Regards,

Hitendra