Over the last three years, an increasing number of property investors who were previously focused solely on Mumbai have shifted focus to Pune. The reasons are not hard to understand. Mumbai’s real estate market is caught in a cycle of unrealistic property price escalation that cannot last much longer.
Such a scenario is called a ‘bubble’ because it will eventually burst. Paradoxically, one of the foremost reasons why real estate prices in Mumbai have gone through the roof in the first place is excessive investor activity.
Today, Mumbai’s property market is facing oversupply and lack of demand. In the short to medium term, I expect this market to see a downward correction in pricing as the current price levels are beyond the reach of most buyers. Mumbai’s luxury homes market continues to perform well, but it takes more than good performance in one niche segment for the overall market to bounce back.
The highest demand in Mumbai is for homes in the Rs. 65 to 80 lakh bracket, and there are very few options available in this budget range. Considering the lack of demand for the overpriced properties in most areas, it is logical that there will be a mark-down in prices very soon.
Pune, located less than 200 kilometres from Mumbai, is a far more rational market and has been performing very differently. The ratio of supply and absorption is much better in this city because prices are still within the budgets of mid-income buyers.
The city has been steadily adding new areas to its real estate development landscape, and the supply coming up in these areas helps to keep prices in other areas at rational levels. These positive dynamics have acted like a ‘detour’ sign for property investors. They can see where Mumbai’s real estate market is headed and prefer to plunge their capital into the prospering neighbour city of Pune.
Going by experience, these investors are not looking at saturated areas where price growth has slowed down. The maximum growth is in the city’s developing areas which have more competitive rates and therefore the highest demand. Also, these investors are looking at large projects by reputed players.
The safest and most promising investment opportunities in Pune today lie in townships. These provide residential products which include all the right ingredients for protracted capital appreciation as well as rental income. While prices in the centrally located townships are no longer attractive to property investors, they are drawn to the ones coming up in strategic upcoming areas. These properties are available at lower rates and have the highest potential for appreciation over the next 3-5 years because the city’s population growth is headed towards them.