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Real Estate in Pune

Real estate market overview:

Real estate plays a crucial role in the Indian economy. It is the second largest employer
after agriculture and is slated to grow at 30% over the next decade. It is expected to touch
$180 billion by 2020.

The housing sector alone contributes to 5-6% of the country’s GDP. Retail, hospitality
and commercial real estate are also growing significantly, providing the much-needed
infrastructure for India’s growing needs.

According to a study by ICRA, the construction industry ranks 3rd among the 14 major
sectors in terms of direct, indirect and induced effects in all sectors of the economy. A
unit increase in construction expenditure generates five times the income, having a
multiplier effect across the board. With backward and forward linkages to over 250
ancillary industries, the positive effects of real estate growth spread far and wide.

Now the government has allowed FDI in real estate sector with certain caveats. It has
decided to permit 100% FDI in forms of housing, hotels, resorts, commercial premises,
educational institutions, recreational facilities, hospitals and city & regional level
infrastructure in order to attract higher investments. Real estate is no doubt, a growth
engine for India’s economy.

Foreign Direct Investment (FDI) in Indian Real Estate market

FDI in Real Estate in India

30 26.5
25
20 16
% FDI

15 10.6 % FDI
10
4.5
5
0
2004 2005 2006 2007
Years

Source: International Research Journal of Finance & Economics, Issue 24 (2009)


Real estate in Pune: The large numbers of real estate analysts have been projecting
Pune as country’s top destination for real estate investment as the city has seen
tremendous growth in sectors of information technology, automobile, manufacturing,
education and services. All these resulted in sudden price rise across all locations in Pune
and real estate properties saw an appreciation of more than 200% within couple of years.
Pune is expected to add an estimated 16million sq ft of commercial space over the next
few (3 to 4) years. With 20 new malls coming up in the city over last few months and
some more on anvil, city’s real estate market is heading for steady upward spiral after the
slump experienced during recession. Another new feature of this development is the rush
of integrated townships here. Those having the capacity to invest and develop large strips
of land and put in physical and social infrastructure are reaping the benefits of these
townships. As per the new Special Township Policy Act of the Maharashtra government,
a minimum area of 100 acre, investment in public infrastructure, such as roads, water,
and sewage is required for development of townships. This development will result in
decongesting the municipal corporation areas and encourage new settlements in the
periphery.

City Development Corporation’s Amanora Park Town took off first with its 400-acre Rs
10,000-crore township. It is setting up its own railway station, apart from creating a
totally intelligent city with use of hi-tech in the entire township of 16,000 apartments.

Another couple of townships such as Paranjape Schemes Construction’s 138-acre Rs


3,200 crore Blue Ridge and Megapolis, a Rs 1,500-crore 150-acre project by Pegasus
Properties Pvt Ltd, a joint venture between Kumar Properties and the Avinash Bhosale
Group have shaped up recently.

Kumar Builders have received clearance from the state government for three townships in
Pune. The first one coming up at Hinjewadi phase II will be spread over 124 acre.
Another Kumar township coming up spreads across 120 acre. The third township of 110
acre is slated to come up in Kharadi. The recently listed Kolte Patil Developers has a
450-acre township at Hinjewadi with ICICI Ventures investing in this venture with a 50%
share.

Wanowrie is emerging as a new mid-range residential location due to factors such as


accessibility to commercial hubs and easy access to social amentities. Areas such as
Koregaon Park, Kalyani Nagar continue to be the most expensive locations.

Baner in the west of Pune is seeing a flood of IT professionals drawn by its proximity to
Hinjewadi IT Park. This is driving up real estate prices. A flat in Baner that would have
cost Rs.1, 700 per sq.ft. few years ago is now going for around. 3,500 Rs. per sq.ft.

The Kharadi area in the east of Pune is growing rapidly with IT companies and real estate
developers attracted by its proximity to Koregaon Park and Kalyani Nagar. Other areas
seeing real estate appreciation in Pune include Waked, Pimple-Nilakh and Pimpri-
Chinchwad.

If we look at the growth from the price angle, real estate prices in Pune have been
showing a rising trend mostly over the last decade except the couple of years of the recent
global recession.

We can see from the below table how the price scenario has changed over the years in
some of the localities; especially the outskirts of Pune.

Price Variations/Changing price scenario in Pune

(In Rs. per Sq. Ft.)


March 2004 March 2005 March 2006 March 2007 March 2008
Koregaon 3000 3500 4000 5800 7250
Park
Aundh 2000 2500 3200 5500 7000
Baner 1600 2000 2500 4500 6200
Wakad 1300 1800 2000 3500 5800
Kalyani 1800 2500 3500 5400 7500
Nagar
Source: International Research Journal of Finance & Economics, Issue 24 (2009)

The recently developed locations of Interest in Pune

1. Magarpatta
2. Kharadi
3. Kalyani Nagar
4. Yerawada
5. Viman Nagar
6. Aundh
7. Baner

Key Developments in the City

1. Magarpatta City
2. Raheja Commerce Zone
3. EON SEZ (Kharadi)
4. Tech Park-1 (Viman Nagar)

Facilitators and changing landscape of real estate market: The IT,


Auto and manufacturing industries’ growth, growth of service sector, education sector has
completely changed Pune’s landscape and in turn this means a new lifestyle for lakhs of
people who can afford to buy these living spaces. IT/ITES sector is a major growth driver
and accounts for 80% of this supply.

The KPMG Report estimated that new employment for about 1, 70,000 would be created
here and it also noted that an increase in this employment would give way for a three-fold
derived demand for residential space, approximately 48 million sq ft.

However, Infrastructure development has not kept pace with this frantic residential and
commercial development.

Real Estate through recession: During the slowdown, Pune real estate sector
experienced severe cash crunch and falling sales. More than 450 real estate projects were
stalled due to the slowdown. It led almost 5000 construction workers and many others
losing their jobs. Buying power of Pune residents got stagnated due to recession and high
home loan interest rates and the construction of cheaper flats was difficult on the account
of severe credit crunch, this resulted in a deadlock situation.

The current state of affair: The real estate prices in the city, which were on a low
for most of year 2009, are now stabilized and in fact posted a bit of a rise in select
locations. Commercial real estate including retail spaces which had taken a bigger hit in
the wake of the economic slowdown is also showing an upward trend as demonstrated by
the plans of some major world brands to enter the city. The market is characterized by a
positive sentiment and increased activity is witnessed. There has been a launch of various
residential projects across many micro markets in both mid- and high-end segments.
Capital and rental values have also appreciated across the city.

Pune is highly price sensitive and the current upward trend is largely a result of the
correction in values that was witnessed in the last few quarters which have made the
values more affordable. Also noticeable is that the large part of the transactions is
happening in the newly-launched projects which offer more competitive values. High end
areas such as Koregaon Park or Bund Garden have shown an 8 per cent rise in prices
while elsewhere the rise is 2-6 per cent. Affordable housing will be a key factor in
driving the realty sector in 2010. As IT firms are back in expansion mode and have
started hiring, the activity is triggered in this segment. The retail segment too is warming
up again as consumer confidence has returned.

All in all, a future growth of real estate here seems quite realistic!
Interview Questions: Satish Magar, President, CREDAI
Chairman & MD, Magarpatta City Development Corporation

1. How would you describe the volatile graph of real market sector in Pune for last
couple of years?
The graph was upwards from 2006 to Oct 2008 then the market dropped down by
10-20%. 2009-10 has been steady with no significant increase or decrease.

2. What do you think the current status of this market in Pune?


The current market is stabilized with end user buying. The uptake is reasonably
good but there would be an overall increase in prices due to Service Tax and
VAT.

3. Do you think the future graph will be upward sloping or there would be ups and
downs experienced again?
The future graph would be steady, slightly moving upwards due to inflation and
govt. taxes but no up’s and down are foreseen as of now.

4. What are the main factors influencing the rapid growth in this sector over the last
few years?
The main factors influencing the rapid growth in the past few years could be
attributed to -
a. I.T. & Service industries setting up offices in Pune
b. Industrial growth
c. Migration to Pune from other parts of Maharashtra
d. Education

5. What is your take on Malls occupying major of the land space? Do you think this
investment can be seen as socially viable? Or you think that these investments can
be diverted to more worthwhile projects (such as housing etc) in Pune?
A mall occupying major land space is a perception. There are few malls coming
up but they are required as a large segment of the population is in middle class
and have a lot of foreign explorers.

6. Which area/side of Pune city do you see more real estate growth happening in
future? Or do you think that Pune is almost fully exploited as for real estate
growth?
The City will grow towards Pimpri Chinchwad areas where the Development Plan
is newly approved. It will also grow in the 23 villages, which now form a part of
the Pune Municipal Corporation. Eastwards on Solapur Road up to Loni Kalbhor
will also see major development.

7. As cities grow “real estately”, the city growth becomes more vertical (high rise
buildings) than horizontal, what do you think will be Pune’s growth like?
In a country like India where urbanization is at a very high pace and Pune being
no exception, the city is expected to grow vertically for optimum Land area.

8. Do you think the government policies are friendly as far as real estate in Pune is
concerned?
Government policies are not as friendly as they would have been expected to be.
The Development plan of 23 merged villages is pending for a long. The slum
redevelopment policy requires more clarity.

9. To what extent the lack of good infrastructure posing a hurdle in this growth?
Good infrastructure particularly mass transportation and Roads imposing a major
hurdle to the growth in Real Estate. But with the integrated Road Development
plan and the proposed Metro could ease the bottleneck.

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