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Tag: Akash Pharande

How Housing Prices Are Set (No, It’s Not Arbitrary)

akash pharande  By – Akash Pharande, Managing Director – Pharande Spaces

The Indian housing market is in continuous boom mode, with more people that ever aspiring for homeownership and developers vying for their attention. However, one thing that still tends to haunt many buyers’ minds is the lack of clarity when it comes to the prices of homes. While homes by good developers are selling at a fast clip, many buyers still feel that the prices are set arbitrarily.

Let’s explore how real estate developers arrive at the prices for their properties. For this, we first need to understand a concept and process called ‘price discovery’.

What is Price Discovery?

Price discovery is the process by which the market determines the value of a particular product. It applies to almost all products, including smart phones, costlier household items like air conditioners, refrigerators and television sets, and so on.

You have doubtlessly noticed that the prices of some of these items tends to fluctuate according to the demand for them, the state of the economy, time of year, and even the weather. Even gold items, where the price of the basic raw material is determined by its market value, also experience price hikes during the festive season.

But if the economy is in doldrums and disposable income is low, even gold items will sell at a discount because of lower demand.

In the context of real estate, price discovery determines the prices at which properties reasonably sell. In India, the process of price discovery for residential real estate is complex, as it involves several factors. One of the most important factors is the cost of land.

The Cost of Land

Land is a finite resource, and its availability is limited. The cost of land can vary widely depending on its location, the availability of basic infrastructure there, and what kinds of developments the area has already seen. For all intents and purposes, there is no such thing as basic cost of land – while there may be certain basic benchmarks, the prices of different plots even in the same area can vary widely.

Developers do influence the cost of land through development activities. Announcing new projects can increase land demand in nearby areas, especially if the development enhances the area with amenities and infrastructure. Less directly, the demand from developers for land in a certain area tends to drive up the price quoted by the landowners.

More influential developers, such as those who build massive townships and industrial projects, can also influence zoning and land use changes. This increases land value by enabling more profitable developments for other developers. Large-scale developments can bring about broader economic growth, which attracts businesses and residents, thereby increasing demand and therefore land costs.

In markets where some developers hold large land parcels, they control the supply, and this will also influence pricing. And, of course, government policies also play a key role.

But whether they are responsible for the current land prices or not, developers must factor in the cost of this finite resource when setting the price for their properties.

Construction Costs

Another important factor that influences the price of homes is construction costs. The amount of money a developer spends on construction materials, labour, and other expenses can vary widely depending on the city, location, nature of the project, and quality of the materials used.

The third factor will again vary depending on whether the project being developed falls into the luxury, mid-range, or affordable housing category. The cost of relevant labour hinges on its ready availability in the area.

If the project’s location is remote and the developer breaking completely new ground there, construction labour needs to be brought in from far off and be accommodated. In the case of high-density development areas, labour tends to be more readily available.

Demand

The third factor that affects the price of housing is the demand for it. This can vary significantly depending on the location of the project and whether the project addresses the actual requirements of the target clientele. For example, a luxury development in an area largely defined by low-cost housing is unlikely to see much organic demand.

Also, demand will depend on the developer’s brand value and the amenities offered in the project. Even with good brand backing, the right location and appropriateness of the project, a developer must set the ticket sizes of his homes reasonably so as not to be ‘priced out of the market’ – meaning that prices must be in line with similar projects by other developers in the area.

To summarize

Given the complexity of these factors, it is not surprising that the process of price discovery in the Indian housing sector can often seem arbitrary and opaque. Developers must consider multiple factors to set the price for their properties.

One common strategy used by many – but no means all – developers is to set a base price for their properties but be open to negotiate on it with individual buyers. There is usually more scope for negotiation in the case of projects which are not seeing much sales volumes.

Finally, developers often provide discounts or incentives to buyers who purchase earlier in the project’s development cycle. This encourages buyers to commit to purchasing homes before construction is complete, helping developers to improve cash flows and reduce their financial risk.

Each developer must consider the unique factors that affect the price of their properties and come up with a pricing strategy that is appropriate for that particular project. But conveying these various factors to every single customer is not feasible – finally, home buyers are interested in buying a home and not in the challenges that the developer faces.

It is also pertinent to note that the market also tends to be self-correcting. If developers set excessively high prices, the demand for their properties will be lower than they expected. On the other hand, if a developer sets the prices too low, he may miss out on a good profit margin.

But few home buyers today are willing to be patient to see if prices in a particular project will correct. In fact, most buyers are looking for ready-to-move homes precisely because they’re not willing to wait. This means that the developer must come up with the right pricing strategy right off the bat.

If you’ve found a good home option in the right location, in the right project by the right developer, and the price corresponds to your budget, it is safe to assume that the developer has done his homework and that ‘the price is right’.

2024’s Top Choice for Home Buyers – Why Pune is Winning Hearts

2024's Top Choice for Home Buyers - Why Pune is Winning HeartsBy  – Akash Pharande, Managing Director – Pharande Spaces

As the veil lifts on 2024, property end-users and investors in and around Pune are firming up their New Year’s resolution to achieve home ownership this year. It’s certainly the perfect time for it. According to real estate consultants Anarock, Pune and MMR were the top-selling housing markets in 2023.

In Pune, approximately 86,680 homes were sold in 2023, states Anarock, second only to the Mumbai Metropolitan Region’s impressive sales of 153,870 units. Pune‘s high ranking in housing sales is not surprising. The city offers a lot more than just more attractive price points compared to Mumbai. But the price factor certainly matters.

Pune’s Price Advantage

In Pune, you can find a 1BHK apartment ranging from Rs. 35 to 45 lakhs, depending on the area. In contrast, a similar 600-700 square foot apartment in Mumbai would cost around Rs. 80 lakhs to 1 crore. Property prices in Mumbai are typically 30-40% higher than in other Indian cities.

To put it in percentage terms, real estate in Mumbai is, broadly speaking, 75.21% more expensive than in Pune. This makes Pune a far more accessible market for a broader range of buyers and investors. However, there is no doubt that the affordability factor is gradually decreasing because Pune has seen steady price appreciation.

According to a recent report, 2023 saw the average housing price in Pune rise by 11% increase, reaching Rs 5,208 per square foot. This rise was attributed to improved demand in the housing market. Predictions suggest this trend will continue in 2024, making Pune a magnet for investors seeking long-term value growth.

But apart from prices, Pune wins over Mumbai in several other ways.

dream achieved.

Why Pune Succeeds Consistently

Pune continues to deliver the perfect balance of lifestyle and investment value compared to Mumbai. The city offers superior space with more spacious residential options – a distant dream in most MMR areas except the farthest suburbs. Pune is ideal for families and individuals wanting a better quality of life through larger living spaces.

Pune‘s strategic location and improving transport infrastructure also make it highly attractive. The city’s proximity to Mumbai is a defining advantage. At the same time, Pune‘s education, healthcare, and entertainment facilities contribute to a higher standard of living. Additionally, Pune‘s IT parks, commercial hubs, and strong services industry continue to transform the landscape, attracting job seekers and investors.

While buyers and investors have many options in Pune, some areas stand out for important reasons. One getting considerable attention is Punawale.

Punawale – Standout Housing Hotspot

Punawale, within the Pimpri-Chinchwad Municipal Corporation (PCMC) in Pune, has seen remarkable growth, emerging as a preferred housing destination. Like Pune, Punawale has seen substantial price appreciation due to its strategic location, infrastructure development, and surging demand for quality housing.

Unlike other locations, Punawale caters to diverse segments, from affordable housing to luxury projects.

The area has well-planned roads, efficient public transport, and easy access to schools, hospitals, and shopping. This infrastructure makes Punawale more appealing than many Pune areas.

The PCMC Edge

Overall, PCMC outperforms Pune Metropolitan Region in several aspects. PCMC implemented a rational master plan focused on sustainable, balanced development. This urban planning foresight resulted in better-managed residential and commercial spaces, efficient utilities, and less congestion, making areas like Punawale more livable.

PCMC emphasizes green, open spaces. The area has parks and gardens, contributing to a healthier, more aesthetically pleasing environment. These green spaces provide much-needed recreation and relaxation, a rarity in many urban areas.

Punawale maximizes these advantages. It is home to West Pune‘s most outstanding integrated township, which has been a game-changer for its real estate market by enhancing the overall real estate value proposition and setting new residential space standards for the region.

The transformative power of outstanding developments is well-established, and India has several examples of this phenomenon. The entire socio-economic structure of the area changes for the better.

Superior Connectivity

A standout feature of Punawale is its connectivity. Well-linked to key Pune areas and other cities via roads and highways, proximity to the Mumbai-Pune Expressway and major arterials enhances the appeal for commuters and those wanting easy access.

Quality of Life

Infrastructure, connectivity, green spaces, and a high-grade township have significantly uplifted Punawale’s quality of life. Residents enjoy a balanced lifestyle with modern amenities, nature, and community focus.

Punawale’s transformation into a real estate hotspot resulted from strategic planning, infrastructure development, and visionary projects. Growth is based on urban convenience, connectivity, and green space – the future of sustainable urban living.

The Future Beckons

Ongoing and planned infrastructure projects, coupled with demand for quality housing, strongly support Punawale’s future growth. Improved road connectivity and public transport have played a pivotal role in boosting values. Easy access to major employment hubs like Hinjewadi IT Park and MIDC industrial belt has made Punawale a hotbed for home seekers valuing easy commutes without compromising quality of life.

For end-users and investors, Punawale brings everything together. With consistent growth in values and enhancements in quality of life and connectivity, Punawale is a standout real estate destination in 2024.

Bricks and Mortar vs. Paper Gains – Why Owning a Home Wins

Akash

By – Akash Pharande, Managing Director – Pharande Spaces

In the wake of the Indian stock market’s record-breaking highs, many investors find themselves in a quandary. Should they continue investing in stocks, chase the ever-fluctuating gold market, or explore a different path altogether? While both assets have the potential for reward, there’s one asset class that consistently outperforms them in both value appreciation and overall satisfaction: residential real estate.

Real Estate: A Consistent and Reliable Performer

Consider these compelling statistics:

The national average residential property price increased by over 8% year-on-year in the first half of 2023, according to leading property consultancies.

Average rental yields across major Indian cities ranged between 2.5% and 4.5% in 2023, providing a steady stream of passive income.

Property prices in key metropolitan areas like Mumbai, Bangalore, and Delhi have grown by an average of 15% annually over the past five years.

These figures paint a clear picture: residential real estate offers consistent appreciation, making it a reliable long-term investment.

Beyond Financial Returns: The Unquantifiable Value of Owning a Home

The true value of real estate extends far beyond financial benefits. Owning a home provides a fundamental human need: a secure and comfortable haven. This alone carries immense value, offering stability, peace of mind, and a sense of belonging that no stock or gold investment can replicate.

Home investment 2

Land: A Scarce Resource with Increasing Value

Unlike stocks, which can be readily replicated and traded, land is a finite resource. As India’s population continues its rapid growth, the demand for housing shows no signs of abating. This translates to an ever-increasing scarcity of land, particularly in desirable locations. By investing in real estate, you’re not just buying a home; you’re securing a piece of land that will only become more valuable with time.

The Psychological and Social Benefits of Homeownership

Owning a home goes beyond dollars and cents. It fosters a sense of belonging, community, and pride. It provides a space for families to grow and thrive, creating memories that will last a lifetime. Studies have shown a positive correlation between homeownership and mental well-being, overall life satisfaction, and even stronger family bonds.

A Treasured Legacy for Generations to Come

Real estate offers a tangible, long-term investment that can be passed down to future generations. By investing in a home, you’re not just building wealth for yourself, but for your family’s future as well. This creates a generational legacy that ensures long-term financial security and stability for loved ones.

Financial Stability Through Rental Income

Owning a second home or renting out a portion of your property can be a reliable source of passive income. This additional income stream can contribute to financial stability, retirement planning, and achieving other financial goals, ultimately giving you greater control over your financial future.

Tax Benefits and Portfolio Diversification

Investing in residential real estate offers various tax benefits, including deductions on home loan interest and capital gains tax exemptions under certain conditions. This further enhances the financial attractiveness of owning a home. Additionally, real estate provides diversification benefits for your portfolio, protecting you from the volatility of the stock and gold markets, thereby creating a more balanced and resilient investment strategy.

Home

A Home is More Than an Investment

While stocks and gold may offer the allure of short-term gains, they also come with the risk of sharp dips and worrisome highs. In contrast, real estate remains a cornerstone for long-term wealth creation and overall well-being. With its consistent appreciation, increasing land value, social and psychological benefits, and long-term value proposition, a home offers much more than just financial returns.

It is the only investment that delivers multiple and sustained returns and should definitely feature large in a diversified investment portfolio. And – it’s a place to call your own, a sanctuary for your family, and a legacy to be cherished for generations to come. As the Indian economy continues its growth trajectory and urbanization progresses, investing in real estate remains a wise and rewarding decision for those seeking a secure and fulfilling future.