Wednesday, June 20, 2012

WHO IS BUYING PROPERTY IN PUNE - End Users, Investors or Speculators ?

End Users, Investors or Speculators ?
Musings of a Novice Self-Styled Property Guru Part 6

In continuation from Parts 1, 2, 3, 4 and 5 (links given below)

Please read these parts but remember to come back here to Part 6

(Or why not read this post Part 6 first, comment, and then go back to the earlier parts)

A friend of mine, who dabbles in real estate, told me that in the Pune Real Estate Market there are 3 types of consumers who buy residential property:

1. End User
2. Investor
3. Speculator

He also said that the price of property depends on which category dominates the property market at that point of time.

Now how does a layman like me find out how much property each of these three categories of buyers (End Users, Investors, Speculators) are buying and who is dominating the real estate market. Well, as you know, unlike as is prevalent in other sectors, most of whom are well regulated, there is no transparency in the unregulated real estate industry. So it is difficult for a layman to get credible data and authentic information about the property market.

That’s why I decided to find out for myself. I carried out my own little rough survey in the place I live (the upcoming Pune suburb of Wakad) and consulted some “Techie” friends who are the leading property buyers in Wakad and came up with some ballpark figures.

(Let me add a disclaimer that these are ballpark figures based on a very small random sample and are just for illustrative purposes only and I am a novice in this field who is thinking aloud. If you are a clued-up knowledgeable in-the-know real estate analyst then I am sure you have carried out a detailed survey using statistical and scientific techniques and we will be grateful if you could share your wisdom and educate us in this matter).

Now let’s continue with our Property Puzzle of Pune, especially Wakad.

The rough proportion (approximate percentages) of occupation of residential homes was as follows:

Owners – 20 %
Tenants – 55 %
Vacant – 25 %

Thus, 20 % (one-fifth) of homes are being bought by end users (owners) who buy houses to live in them.

More than half the residential properties (55 %) are being bought by Investors for Rental Income (Tenants) and Long Term Appreciation.

One-fourth of the properties (25 %) are being bought by speculators for short-term gain due to quick appreciation yielding them high returns.  

I am confused with what I have discovered.

From the above findings it is evident that the Pune Real Estate Market is an investor driven market, especially in the suburbs of Pune like Wakad.

(And, just imagine, I thought that a once conservative city like Pune would have an end-user driven property market like in the good old days of yesteryear)

As on today, Wakad is an underdeveloped area with zero quality of life due to lack of amenities and facilities, incomplete roads and poor social infrastructure. The only plus point of Wakad is its proximity to the Rajiv Gandhi InfoTech Park in Hinjewadi and that is the main reason IT Techies working in Hinjewadi prefer live nearby in Wakad since commuting to other distant localities is a nightmare due to the terrible chaotic traffic in Pune.

Hence almost all the end users who buy houses in Wakad are Techies.

Now most of these IT Techies earn a lot of money at quite a young age and hence have lots of spare cash to invest and the trend amongst overly paid IT Nerds seems to be to invest their riches in real estate. It is this frenzy to buy property in Pune by these Techies that is the main cause for real estate prices spiralling steeply upwards to exorbitant heights in Pune.

So, obviously most of the real estate “investors” all over Pune are IT Techies, and more so in IT friendly destinations like Wakad and Hinjewadi.

I keep talking to young Techies in my neighbourhood and let me tell you one thing – quite a few of then are quite anxious about their careers as things are not quite hunky-dory as before owing to the prevailing uncertain financial scenario of an impending global economic downturn which can adversely affect the IT Industry. Some fear that if the global economic crisis worsens and there is recession and slowdown, austerity measures like wage freeze and downsizing may be resorted to by IT Companies and this ambiguous prospect has created a sense of insecurity amongst the Techies. Now in these uncertain circumstances, don’t you think that these Techies (most of whom are already paying EMI for their first home loans) will think twice before investing in a second home?

End users will keep buying houses to live in, but end-user demand is a fraction of the total (roughly 20 %) so if Investors (who constitute more than 50 %) of the property market defer buying  houses this will result in a fall in investor demand and worsen the inventory overhang.

Tell me, in this scenario, in an investor driven property market, don’t you think that property prices are bound to fall?

From the figures above it seems that speculative demand is roughly one-fourth (25 %) of the total demand (as compared to 20 % End User Demand). Speculators look for high returns on their investment and short term gain through steep appreciation of property prices and can block their money only for a specific period. If the property prices do not rise significantly (or suppose they correct and fall) due to slack in investor demand, then speculators are likely to sell off their properties to end users and book their profits. This aspect too will have a sobering effect on the property rates.

However, as I said right in the beginning, I am a novice in this domain, and maybe some seasoned experts may say that I am “flying kites”. So I feel it is best for us to ask the experienced property gurus.

Yes, if you are a true Property Guru, an enlightened in-the-know real estate expert, please tell us whether, in your opinion, these tentative findings of property buyer consumer profile (End User 20 %, Investor 55 %, Speculator 25 %) are representative of the property market in Pune?

Is Pune an investor driven property market or is it otherwise?

What do you feel is the percentage proportion of End-users vs Investors vs Speculators?

A friend of mine feels that property prices in Pune have risen mainly due to speculators and it is a speculative demand driven real estate market. Of course, it is the poor end user who bears the brunt of all this.

And, more importantly, considering the current volatile economic scenario, do tell us, whether, in the near future, are property prices in Pune are going to rise or fall, more specifically, in upcoming suburbs like Wakad? Are house sales stagnating? Is absorption rate decreasing and inventory overhang increasing? Are builders and developers facing a cash crunch? Is a correction round the corner? 

In your opinion, what do you think is best for the End User to do – should he buy a house right now or is it better to adopt a wait-and–watch policy for some time?

Dear Reader, please comment and give us your views and help unravel the Pune Property Market Puzzle.

And what about other places in India – is the property market scenario in your city similar to Pune or is it different?

We eagerly await your comments.

Happy House Hunting.


Copyright © Vikram Karve 2012
Vikram Karve has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.
© vikram karve., all rights reserved.

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About Vikram Karve

A creative person with a zest for life, Vikram Karve is a retired Naval Officer turned full time writer. Educated at IIT Delhi, ITBHU Varanasi, The Lawrence School Lovedale and Bishops School Pune, Vikram has published two books: COCKTAIL a collection of fiction short stories about relationships (2011) and APPETITE FOR A STROLL a book of Foodie Adventures (2008) and is currently working on his novel and a book of vignettes and short fiction. An avid blogger, he has written a number of fiction short stories, creative non-fiction articles on a variety of topics including food, travel, philosophy, academics, technology, management, health, pet parenting, teaching stories and self help in magazines and published a large number of professional research papers in journals and edited in-house journals for many years, before the advent of blogging. Vikram has taught at a University as a Professor for almost 15 years and now teaches as a visiting faculty and devotes most of his time to creative writing. Vikram lives in Pune India with his family and muse - his pet dog Sherry with whom he takes long walks thinking creative thoughts.

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