Oversupply of Homes in Pune? Look Again

Oversupply of Homes in Pune? Look Again

Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Oversupply seems to have become a fashionable word with real estate market watchers these days. Unfortunately, like anything that has become fashionable, it is being used far too much, and often without real understanding of the market.

Definition Of Oversupply

In real estate, an oversupply situation is one where an overly large surplus of residential or commercial properties has been created. The surplus happens when there are not enough buyers for these products on the market. An oversupply situation can happen for various reasons. Usually, the term is used when real estate developers have been launching too many projects, thereby putting more housing or office units on the market than buyers are willing to pick up.

An oversupply is also created when the pricing for units is higher than consumers are willing to pay, or when buyers and investors have reason to believe that prices are going to come down. In other words, they are waiting for a correction. When such a perception exists on the market, even reasonably-priced homes and offices may not sell well.

Oversupply In Pune?

First of all, let us examine what a normal real estate market looks like. It is certainly not one where supply and demand are perfectly matched. In a healthy market, there will always be a good supply of homes, because such a supply allows buyers the freedom to choose. Also, a healthy supply ensures that developers have to price their offerings competitively. Without enough supply on the market, there would be a monopolistic situation wherein developers as well as investors can charge whatever they wish.

Some recent reports have indicated that Pune’s real estate market is witnessing an oversupply situation. Pune is, in fact, a market that displays a standard rate of supply and absorption which is normal and required in a growing city which is constantly adding new areas for development into its borders. A good supply pipeline is, in fact, one of the reasons why Pune’s market has remained more competitive and rational that Mumbai. It has also been an integral factor in keeping property prices in this city rational.

It is not clear why any report should attempt to attribute negative connotations to this. Demand for residential properties is very healthy in Pune, and has been picking up even more pace after the last general elections. In fact, Pune’s property market has further distinguished itself by the fact that, unlike in other cities like Mumbai, Delhi and Bangalore, even luxury homes continue to sell well. Premium housing in Pune is amply supported by increasing wealth creation, escalating aspirations among the city’s HNIs and the growing desire of existing home owners to upgrade to a better lifestyle.

Thanks to rational pricing and the good quality of homes being turned out by Pune’s reputed developers, most of the new residential supply coming on the Pune real estate market will be absorbed within the next two years. However, this is not to say that there are absolutely no problems in sight for Pune’s real estate market.

Red Signals On The Outskirts

If there is one reason for concern, it is over the opportunistic supply of housing that is hitting the market on some of the city’s peripheral areas. In these locations, many fly-by-night developers have been actively churning out sub-standard projects which do not comply with standard construction norms and often lack all the required legal approvals. Because of the negative media that these inferior offerings have been attracting, they are unlikely to sell at the rate which their developers have been hoping for.