Recession: Everything Real Estate Developers Must Know for the Upcoming Year

The first quarter of CY2022 was a boom for real estate in India; the sales had finally picked up. For the city of Pune, the CY2021 closed with 37,218 units and going by the figures of Q1 of CY 2022, it is expected that the year would be crossing record-breaking 50,000+ units.

However, just when the industry was recovering from the effects of the pandemic, the Russia-Ukraine war gave rise to inflation, making the costs of crude oil, metals etc., plunge.

The situation saw an increase in the cost of building raw materials by 20-30%, forcing builders to increase the prices of real estate projects. According to the CREDAI reports, around 60% of real estate builders had anticipated a 20-25% hike in property prices.

The inflation of the costs of commodities, the slowing down of the export cycle globally and the tightening of domestic policies have fueled a risk of a prolonged recession. While we are not overheating like the U.S., but neither is demand fully recovering. The investment firms that had plans to diversify their portfolios in real estate have also halted the plans because of significant losses in shares. The falling rupee price has also made the economy volatile and vulnerable.

According to RERA and IGR data, there are more than 45,000 unsold inventories in just Pune which will take approximately 2 years to sell.

Such a situation leads to a problem where the gap between supply and demand is widening because the homebuyer’s preferences do not match the supply of the market. Developers are still inclined towards premium pricing, while homebuyers are unable to stretch their budgets.

We, at BeyondWalls, recently conducted market research on home buyer’s preferences from Pune and here are the findings:

• In mid-segment, 2 BHKs between INR 45-60 Lac is the most in demand. Whereas the 60%+ supply of 2 BHKs is in the range of INR 65-90 Lac.
• For premium and luxury – the demand has increased in last 2 years after lockdown due WFH & hybrid module. This demand is for 3 BHKs in the range of 70-90 Lacs whereas, price of a premium 3 BHKs ranges from 90-1.2 Cr.

Also Read :

Proven Framework for High Velocity Launches

With respect to preferences, buyer’s prioritized factors in the following sequence:

• Pricing

• Location

• Apartment Size

• Possession Date

• Amenities

• Developer/Brand

Pricing being the main factor for selection, it will become crucial for developers to launch/bring the pricing in this range to sustain, sell and grow.

However, while the buyers in India will delay their homebuying decisions, the NRI investors will find it cheaper to invest in properties in India, opening a small window of opportunity.

To Sum it Up for Real Estate in Pune,

Real estate developers must keep the following points while traversing the industry:

• Property pricing will play a significant role for developers. Understanding the market demand will be crucial
• There may still be an increase in demand for mid-segment at the right price, but anything premium will see a decline
• The saleable premium location projects with no competition will still thrive
• Buyers will not take risks with the new launches unless they meet their every preference and expectation. The volume of real estate sales we generally see during a new launch will be slower