Pune Real Estate: Back On Track

Mohammed Aslam
Around this time last year, I remember sitting at this very desk and wondering just where we were headed. When July 2009 rolled by, it would have taken a long stretch of imagination to claim that Pune’s real estate market still had its previous potential. I was looking down at the figures and recall feeling quite worried.
I didn’t have to be an economist to know what had happened. Because of the recession, America had put a stranglehold on the IT industry. Software professionals were returning from Silicon Valley by the planefuls, not sure of what to do next. Pune’s real estate market is not a one-trick pony, and it doesn’t rely only on IT expansion and software salaries, but the market was still hurting. More people than ever before were choosing to stay in rental accommodation rather than buy homes, and the corporate sector seemed to be doing little more than holding its breath and doing damage control.
One of my greatest worries was the slew of malls that was going to hit the market at a time when it was probably at its lowest ever. Who were we going to populate them with, both in terms of retailers and customers?
I won’t say that the market is back with all guns blazing, but matters have improved considerably now. The residential sales and retail lease figures for the month of July 2010 look astonishingly different than from this time last year. I always tend to look at retail leasing first, because the health of the retail sector is a rather accurate barometer of what is happening to a city’s economy. On that count, Pune has had an almost miraculous turnaround. The malls I mentioned are opening on schedule, and all have an almost full complement of anchor and vanilla brands, and shoppers are back in force.
It’s not all because of the economic revival, either. Pune’s real estate market may not be in the same league as Mumbai’s, but it does have one advantage over its glamorous neighbor – its players think faster on their feet. Last year, mall developers were keeping afloat by offering hefty discounts to retailers; this year, the entire leasing roadmap seems to have changed. I recall one conversation between a major retailer and a mall developer just last year. The retailer was stating that a pure rental model did not make sense, since he would not make enough business in a downturn to justify it. The mall developer simply said, “That is your problem.”
The terms ‘minimum guarantee’ and ‘revenue sharing’ were alien to Pune’s mall developers a couple of years ago – today, they are an accepted norm, and the primary reason why none of the new malls are standing empty. There are obviously some traditionalists among our developers who refuse to give in to such ‘New Age’ concepts, but I can clearly see that the tide has turned in the favor of progressive pricing models now. Retail real estate in Pune will live to fight another decade.
As far as residential properties are concerned – the sector is moving again since the last six months. We had previously thought that the returning demand would fizzle out by April, but that has not been the case. The impression I get from my discussions with our Homebay Residential team is that Pune’s home buyers are once again convinced of the long-term potential of their investments.
For mid-income homes, the hottest-selling locations are now in western Pune. For one, buyers have the widest choice there because of the large number of projects popping up all over Hinjewadi, Wakad, Pimple Nilakh, Pimple Saudagar, Aundh and Balewadi. Secondly, this influx of projects is serving to keep prices affordable. In western Pune, average residential property rates start at around Rs. 3200/sq.ft. and hover around 4000/sq.ft. The most popular price tags for homes in these areas are between Rs. 30-40 lakh.
Pune’s more central eastern side still commands premium rates because the IT parks, airport, malls and overall level of development give higher value in terms of investment. The rates in highly developed areas like Viman Nagar, Kalyani Nagar and Korageon Park range can go as high as Rs. 15000/sq.ft. In developing Kharadi and upcoming Wagholi, they now range from Rs. 3800-6000/sq.ft.
In fact, Wagholi is a good example of how yesterday’s obscure locations can rise to real estate superstardom within a short time. Last year, Wagholi was still a relative non-entity, but that changed with the six-laning of Nagar Road and the arrival of some of the newest malls (like Ruia’s Market City and Raheja’s In Orbit) in the area.
When viewed against residential, nobody is pouring champagne over the complete return of Pune’s commercial real estate segment yet. Like the rest of the country, Pune’s office space sector awaits the return of greater stability on the global economic front. Over the last one year, only some of the larger multinational companies have started expanding once again.
Most of the real estate deals currently come from local corporates, but the IT sector is also dusting off its keyboards and getting into the act once more. Obviously, Pune has not lost its flavor as one of the hottest outsourcing destinations in the country; we are currently in discussions with two biggies who are looking for some rather impressive seating capacities, but I’d rather not jinx those deals by talking about them now.
There’s money in the system, too – quite a lot of it, going by the manner in which our Capital Markets departments activity has stepped up over the last six months. A healthy number of Private Equity funds are hopping on the Pune real estate bandwagon once again, eager to be part of its success story via joint ventures and buying pre-leased property.
All said and done, a quick look at the crystal ball tells me that Pune will continue to rock in residential and retail real estate. The city is seeing a bigger influx of new residents from cities like Nasik, Sholapur and Kolhapur with every passing year. With the strengthening of the IT sector, commercial real estate will firm up before too long – and, as I already stated, I’m really bullish about Pune’s retail sector.
Prices will move up both in residential and commercial real estate, because supply is going to decrease. This is because quite a few developers had delayed construction during the all-too-recent slowdown, and will therefore not be able to deliver their projects in time for rates to remain where they are now.
Mohammed Aslam is Head – Pune, Jones Lang LaSalle India
(Republished with permission from the Jones Lang Lasalle India blog India Real Estate Compass)

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