In a correction, a property market changes from a sellers' market to a buyers' market. Demand for homes decreases and the value of one's property goes down. Every kind of property owner - be it end user or investor - worries about the property market going down and prices 'correcting'. The word 'correction' in itself implies that there is something wrong which needs to corrected.
Is the Pune property market going to see a correction? Let us examine what really happens in a correction, and why.
In the first place, real estate corrections do not happen on a national, state or even city level. If and when they occur, they occur in areas of cities where there are a lot of apartments which are priced too high. When the prices come down, demand picks up again, so the local market has 'corrected'.
However, there can be many more reasons why there are more flats on the market than people are willing to buy. Unwillingness to buy can be for many reasons:
- Flats are available, but not in the budget category where the highest need is
- Flats in the right budget category are available. However, the economy is weak and people are uncertain about their jobs - and therefore hesitant about making a home loan commitment
- Home loan interest rates are exorbitantly high and therefore not affordable
If one or more of these factors prevail, people will not prefer to buy homes and instead opt for rental properties. As a result, property investors who want to make a quick buck out of residential property by buying cheap and selling higher stay away. But even in such a market, investors who look at property as a source of regular rental income continue to look for good opportunities and thrive in a rental-driven market.
As far as the national economy is concerned, things are already looking up in India. Inflation is coming down, and the RBI has indicated that home loan interest rates will start decreasing from January 2013.
Meanwhile, employment is looking up. Indian companies - especially in the healthcare, manufacturing and Information Technology sectors, are already on a hiring spree. With more jobs comes more demand for homes.
Now let us have a closer look at Pune - both as a city and as a property market. Pune's overall fortunes are generated by three industries - healthcare, manufacturing and Information Technology. The first may come as a surprise, but the fact is that Pune scores higher than many of the larger cities when it comes to popularity as a destination for obtaining medical treatment.
In fact, it ranks very high as an international medical tourism destination. This is because Pune is known internationally as a city that offers quality treatment at affordable prices. In fact, medical professionals in Pune charge up to 50-60% less than Mumbai, Bangalore and Delhi.
One of the main reasons why medical treatment costs less in Pune is because real estate prices are lower, which makes running hospitals and clinics cheaper. Since the cost of living in Pune is lower, medical staff also draw lower salaries. At the same time, the city has some of the country's most competent doctors and state-of-the-art medical facilities. Countless medical jobs at all levels are being created in Pune every year - and with these jobs comes a constant demand for housing.
Pune's manufacturing sector is a national and international industry legend. Almost every global industrial company has operations here, from pharmaceuticals to automobile manufacturing. These industries are attracted by Pune's highly trained workforce, the cheaper real estate costs involved in setting up and running operations here and the reduced commuting times - which translate into lower attrition and better housing options for employees. Again, the implications on Pune's housing market are obvious.
In terms of Information Technology, Pune is running neck-to-neck with Bangalore and Hyderabad. The city has an incredible saturation of IT parks within a relatively small geographic area. This sector is once again driven by an highly trained workforce and lower real estate costs to both the company and its employees.
The employees from these three industries - from the blue collar cadre right up to senior management - are all on the market for homes in varying price brackets within the city. The transient component of these employees (employees that are not from Pune and will not opt to take up permanent residence here) are a constant source of rental income for investors with properties in the right locations of the city.
With all these factors working in favour of Pune's property market, the justified clamour for a price correction in Mumbai has nevertheless sent its echoes into the Pune market. Paradoxically, it is largely buyers and investors from Mumbai who have contributed to the fast rise in property prices in this city. Accustomed as they are to the sky-high rates in their parent city, they do not tend to hesitate to pay a premium for the larger, better appointed homes in tempting locations available in Pune.
By the same coin, Mumbai provides a clear contrast against which to weight the property investment options in Pune. For this reason, there will always be enough buyers for residential property in this city. Certain areas have certainly reached saturation point, but many of Pune's growth areas are showing steady appreciation in property rates. Moreover, the city offers housing options in all budget categories in almost all locations.
In such a market environment, it is certain that residential property in Pune will continue to be one of the safest and most rewarding investment avenues for a long time to come. It is certainly a mistake to view it from the same perspective as Mumbai. This market has stood the test of time and is growing rationally into a brilliant future.
With such a constant and steadily increasing demand for residential property in Pune, there is no likelihood of a property market correction. In fact, as indicated by the trends over the past years, property prices will continue to increase every year at a minimum of 7-8% in every location. In plainer terms, this means that the housing options available today will not cost less but more in the next year. This is the main reason why Pune has such a large complement of active property investors - and a clear clue for end users.
http://www.moneycontrol.com/news/real-estate/is-pune-real-estateforcorrection_797952.html
No comments:
Post a Comment