In the past five years, there has been an undeniable slump in India’s real estate. This was due to reasons such as after-effects of the recession, inflation, inventory pile-up, etc. However the same has not been majorly felt in India’s two metropolitan cities, Mumbai and Pune. They are two of the most favourable destinations for real-estate in India for multinational companies foraying in the Indian market. Since they require retail or commercial space for setting up their presence in India, the demand for real estate in these cities has been lucrative.
Major investors in the real estate sector of Mumbai and Pune
Mumbai is home to some of the biggest realty companies in India. Lodha Group, Oberoi Realtors and Wadhwa Group are reputed for their commitment to construction quality, implementation capability, timely delivery, support infrastructure and years of superior credibility (Local Press 2016). Lodha Group, which has recently partnered with international firm Trump Realty is reported to expect a 63% increase in revenues in FY 2017, whereas Oberoi Realtors has already posted a three-fold rise in sales during FY 2016 as compared to FY 2015.
However, given the levels of inventory piled up as well as slump in countrywide real estate market, realtors are now being cautious and avoiding launching of new projects in Mumbai and Pune (Indian Express 2016). Furthermore, with government schemes such as “Housing For All by 2022” and “Smart City” plan, a number of new players are expected to enter in the coming years.
Demand & supply of real estate in Mumbai & Pune
Mumbai and Pune despite of being the hub of several IT companies, Hospitality groups and educational institutions, still have issues in the real estate sector. This is because the sector is exposed to boom and slump (Sandbhor et al. 2013). Several gaps existed in demand and supply of real estate in Mumbai and Pune. Firstly, the cities experienced an increased demand for office space due to change in the investment environment by foreign investors in the IT sector and hospitality sector (Nair 2015). However, the cities are majorly inhabited by the service class who do not have very high purchasing power. Therefore, demand for residential property has remained comparatively lower, except in low-budget, or ‘affordable housing’ segment (The Hindu 2016).
According to IBEF (2016), Mumbai’s commercial space grew the fastest in terms of supply, with an expected demand growth of 12-17% during 2017. However, the residential space witnessed a slump. Meanwhile in Pune, while inventory pile up is being witnessed in housing segment, demand for affordable housing has increased massively during 2015-16 (Business Standard 2016). Also, with the Indian government’s move to demonetise the Rs. 500 and Rs. 1000 notes, the major part of real estate sector has taken a hit.
Major factors driving demand and supply of real estate in Mumbai and Pune can be identified as follows:
Improvement in infrastructure planning
Areas in Mumbai, particularly Navi Mumbai, have in recent years started taking a planned approach towards infrastructure development. The area received a nod for setting up of an international airport from the government. Similarly the area has also been approved to establish several SEZ (Special Economic Zones). Apart from this, the proposed Mumbai Trans Harbour Link, the longest sea bridge in India, will also see a rise in employment and income in the area. These moves are expected to trigger a spurt in demand for commercial and housing realty (The Hindu 2016).
While the rest of India saw a 52% dip in demand for affordable housing in 2014, Navi Mumbai and Pune are the only regions where the segment has seen growth. ‘Affordable housing’ refers to 1 BHK (bedroom-hall-kitchen) or 1.5 BHK format costing between Rs. 5 and 30 lakhs (Joshi 2014). Due to infrastructure development leading to growth in employment opportunities for the lower and lower middle class people, housing will become a lucrative investment. In case of Mumbai, houses are mostly unaffordable for the masses due to its high price. People are flocking to comparatively cheaper properties in Navi Mumbai due to its proximity to the city as well as infrastructure development poised to take place (Puri 2016).
Increasing presence of medium and large scale firms
Increase in penetration of IT companies whether Indian or foreign leads to increase in demand of office spaces which increases rents in that particular area. In Pune and Mumbai, majorly all the IT firms are concentrated in 2-3 areas. These areas are also the most expensive places for offices and homes. Apart from this, many hospitality firms and educational institutions too are rising as Pune is one of the best cities in India for education (Sathyanarayanan 2015).
Inventory pile up and delay in project completion
Inventory pile-up is becoming a huge problem in real estate not only in Mumbai-Pune but also in the entire country. Mumbai is the city with the second highest number of unsold houses in 2015. There were total 192568 residential units lying idle during Financial year 2015. This is due to low demand and increase in number of new launches. Also, according to (Chaudhary 2015), realtors have so far focused only on the premium segment rather than trying to launch budget houses. The demand for budget homes is expected to be around 7 million by 2020, but existing projects are planned only f or 1 million units (Puri 2016).
With the Indian government’s announcement to scrap the Rs. 500 and Rs. 1000 currency notes, the cash-dependent realty sector taken a major hit across the country. However, according to Jayakumar (2016), Mumbai’s property market will take a major turn in the short term. However Pune and Bangalore will remain unaffected as buyers here mainly depend on bank funding.
Potential future growth with real estate reforms
Real estate sector is not standing alone but it is standing on the pillars of its raw material. Slowdown in the industry supplying its raw material will lead to slump in in the real estate sector. Confidence of buyers, fund raising ability of developers, volume of loan given by banks affects the growth of this sector. The recent implementation of the Real Estate Regulatory Bill (RERA) is expected to boost the confidence of buyers in this sector.
- BusinessStandard, 2016. Slowdown hits Pune real estate, unsold inventory up 56%. Business Standard. Available at: http://www.business-standard.com/article/companies/slowdown-hits-pune-real-estate-unsold-inventory-up-56-116012000872_1.html [Accessed December 23, 2016].
- Chaudhary, S., 2015. Mumbai has second-highest unsold housing inventory of 46 months. DNA.
- IBEF, 2016. Real Estate Industry in India. Indian Brand Equity Foundation, p.1. Available at: http://www.ibef.org/industry/real-estate-india.aspx.
- IndianExpress, 2016. Residential real estate: After dark quarters monsoon clouds may shower growth. Indian Express. Available at: http://indianexpress.com/article/business/economy/residential-real-estate-after-dark-quarters-monsoon-clouds-may-shower-growth-2766419/ [Accessed December 23, 2016].
- Jayakumar, N., 2016. Demonetisation move: Dissecting the impact on the real estate sector. IIFL. Available at: http://www.indiainfoline.com/article/news-top-story/demonetisation-move-dissecting-the-impact-on-the-real-estate-sector-116112100128_1.html [Accessed December 23, 2016].
- Joshi, H., 2014. Affordable housing momentum gains in Pune. Business Standard. Available at: http://www.business-standard.com/article/companies/affordable-housing-momentum-gains-in-pune-114111101187_1.html.
- LocalPress, 2016. Developers like Lodha, Wadhwa post record sales amid Mumbai’s property slump. Local Press Co. Available at: http://localpress.co.in/2016/11/developers-like-lodha-wadhwa-post-record-sales-amid-mumbais-property-slump/ [Accessed December 23, 2016].
- Nair, P., 2015. Good time to invest in commercial property. Business Standard. Available at: http://www.business-standard.com/article/pf/good-time-to-invest-in-commercial-property-115122000711_1.html [Accessed December 23, 2016].
- Puri, A., 2016. Are you looking for affordable housing? Economic Times. Available at: http://economictimes.indiatimes.com/wealth/real-estate/are-you-looking-for-affordable-housing/articleshow/50603679.cms [Accessed December 23, 2016].
- Sandbhor, S., Bapat, R. & Chaphalkar, N.B., 2013. Analysis of Behaviour of Real Estate Rates in India-A Case Study of Pune City. International Journal of Management Science and Engineering, World Academy of Science Engineering and Technology, 7(8), pp.1193–1198.
- Sathyanarayanan, D., 2015. Growth in corporate demand boosts confidence of hotel chains. The Economic Times. Available at: http://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/growth-in-corporate-demand-boosts-confidence-of-hotel-chains/articleshow/49532205.cms [Accessed December 23, 2016].