International Journal for Research in Applied Science & Engineering Technology (IJRASET)

ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538

Volume 11 Issue II Feb 2023- Available at www.ijraset.com

Source: NSS0 Report, 2014

1) Vacant Houses in Pune City

A unit is regarded as vacant if it is not put to beneficial use, i.e. neither use for dwelling nor storage. The Vacancy Rate is the proportion of housing stock that is currently unoccupied. When housing price is expected to increase, property owners will delay their sales in order to wait for an upsurge in price so that they can make more profits. The speculators are simply buying or holding the properties for a short term and waiting for price increase to resell and gain a profit. Speculation, therefore, adds pressure to the demand and it further reduces the number of housing stock available to end-user buyers, causing the price to increase. Therefore, high Vacancy Rate can be seen as a manifestation of speculation. High Vacancy Rate indicates that some of the market players invested in housing market for expected price appreciation. Urban areas have both housing shortage and a massive and rapid growing stock of vacant houses. Around 24 million housing units are lying vacant and average Vacancy Rate at national level is about 7.46 per cent according to Census, 2011. This is one of the factors responsible for inflation in housing prices. Housing status details as per Census, 2011 at National Level, Sate Level and in Pune City are presented in following Table No. 6.

Table No. 6: Housing Status as per Census, 2011

Source: Census, 2011

2) Rental Yield

Rental Yield is the return a property investor is likely to achieve on a property through rent. It is a percentage figure, calculated by taking the yearly rental income of a property and dividing it by the total amount that has been invested in that property. The yield on investment is the prime determinant of the fair value of any property. When it comes to investing in property, achieving a good rental return is of paramount importance. The present yield is far lower than the cost of capital or alternative safe investment options available in the markets. Return on fixed deposit is around 9 per cent which is higher than rent yield; still huge investment is done in housing sector. Intention behind investment in housing sector is anticipation of a price appreciation in the future which ultimately reflects speculative behaviour. Residential Property Market Value and Rent Rate across identified localities in Pune City are presented in following Table No. 7. Market Values and Rent are available in sq. ft. unit; same have been converted to sq. mt. unit for the purpose of uniformity and standardization.

Table No.7: Residential Property Market Value and Rent Rate in Pune City

ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538

Volume 11 Issue II Feb 2023- Available at www.ijraset.com

V. ANALYSIS OF SPECULATION IN REAL ESTATE SECTOR IN PUNE CITY

Analysis of Ready Reckoner Rate and Market Value of residential properties across identified localities in Pune City has been carried out. Ready Reckoner Rate and Market Value have shown increasing trends from 2007 to 2013 across identified localities in Pune City. Market Values of residential properties have remained always higher than Ready Reckoner Rates; however, gap between them has reduced over period of time. It is further observed that residential properties in Aundh, Erandwane and Kothrud are having higher Ready Reckoner Rates and Market Values than rest of the localities in Pune City. Analysis of Cost Inflation Index (CII) and Gross Domestic Product (GDP) growth rate at national level has been carried out from 2007 to 2014. It is observed that CII is showing increasing trend; whereas, GDP growth rate is showing fluctuating trends at national level. Increasing trend in CII is due to increase in inflation resulting due to disequilibrium in market. It can be concluded that variation in CII and GDP growth rate trends is due to disequilibrium in the market condition. Ready Reckoner Rate and Market Value of residential properties across identified localities in Pune City have followed higher growth rate and does not followed trend of GDP growth rate and CII. It can be concluded that speculation is one of the factors responsible for inflation in housing prices. This further supported by increase in RESIDEX Index of Pune City by 132 per cent from 2007 to 2014. Annual trends followed by RESIDEX Index, GDP growth rate and CII from 2007 to 2014 showing variation due to high price appreciation in residential properties. Growth rate of RESIDEX Index is much higher than CII growth rate due speculative activities present in housing sector. The speculative activities in the housing sector are the result of uncertainty about future price movements.

Analysis of Investment in Real Estate Sector, Vacancy Rate and Rental Yield across identified localities in Pune City has revealed similar observation as above. Diversified and dynamic economic base of Pune City and its proximity with financial capital of country resulted into rising income level and availability of disposal income. Increase in disposable income is one of the most important reasons for high investment in housing sector. This is observed from saving trends followed in Pune City from 2006-7 to 2012-13. Since year 2006-7, large amount of saving are invested in Real Estate Sector than financial market due to high return in investment. Around 30 per cent saving are invested in Real Estate Sector resulting in price appreciation and speculation in Pune City. This further supported by analysis of Vacancy Rate of housing unit in Pune City with state and national level trends. According to Census, 2011, Vacancy Rate at national level is 7.46 per cent, at state level is 11.23 per cent; whereas, at Pune City level it is 17.94 per cent High Vacancy Rate in Pune City indicates that some of the market players invested in housing market for expected price appreciation. This has been already justified above by increasing investment in Real Estate Sector in Pune City. This is one of the factors responsible for inflation in housing prices; and can be seen as a manifestation of speculation. Comparison of Market Value and Rent Rate of residential properties across identified localities in Pune City are resulting into contradicting trends.

Average Rental Yield in Pune City is around 2.5 to 3 per cent; which is less as compared to other metropolitan cities in India. The present yield is far lower than the cost of capital or alternative safe investment options available in the markets. Increasing investment in Real Estate Sector in Pune City in-spite lower Rental Yield is in anticipation of price appreciation in the future which ultimately reflects speculative behaviour. Imbalance in housing demand and supply, rapid turnover of property ownership, high difference in land and property prices, etc. also reflect presence of speculation in Real Estate Sector in Pune City

VI. CONCLUSION

The Real Estate Sector is an aggregate made up of the housing, industrial, office and retail sectors; wherein, housing sector play the most significant role. Housing possesses dual properties; it serves as a basic need for human being and an investment tool. Housing investment acts as a tool for hedge against the inflation and at the same time with attractive rate of return under relatively lower risk. The attractive rate of return is further amplified by leverage as house purchases are usually assisted by obtaining loans from banks. Furthermore, attractive tax advantages for housing loans make them ideal vehicles for tax planning for salary earners. The higher rate of returns in the housing sector with lower risk has attracted large investment with speculative intention. Assessment of speculation in Real Estate Sector in general and housing sector in particular is important to achieve equilibrium in Real Estate Sector and stability in housing prices. Assessment of speculation using Indexing Method along-with analysis of RESIDEX Index, Vacancy Ratio, Saving Investment Options and Rental Yield parameters is helpful to frame policies for its alleviation. Speculation assessment using these parameters is also helpful to adopt range of policy measures for achieving equilibrium in demand and supply in Real Estate Sector in general and stability in housing price in particular.

References

[1] Bhandari M., (2013, August). The End game of speculation in Indian Real Estate has begun. Retrieved May 30, 2015, from Vallum Capital Advisors Pvt Ltd: http://vallum.in/wp-content/themes/consulting/pdf/val/August2013.pdf