After months of lull, the real estate market in Bangalore is showing signs of revival. The real estate market is now growing by 15-20 per cent compared to last year.
Though the rental and capital values in most of the micro markets witnessed a downward trend in the last 6-8 months, for the end-users or investors the secondary market has been a lucrative option in comparison to the primary market.
But now demand for residential spaces is looking up again, and a few frontline developers have been successful in improving their sales. Though demand for commercial and retail spaces has not caught on, those in the sector feel it could just be a matter of time before things improve.
While sales has been impacted due to current economic scenario coupled with prevalent job insecurity, revival of the economy in the coming months, stable government at the Centre and positive rulings by regulatory authorities will give the much needed impetus to the realty sector, says Mr Sandeep Trivedi, Director – Development Consulting, Cushman & Wakefield India, a real estate services firm.
“Coming to terms with reality, there are positive signs in the market. New projects are being announced and residential construction is picking up; slow, but sure, signs of a change for the better,” says Mr Sridhar Kulkarni, Head – Marketing (Karnataka and Andhra Pradesh), Shriram Properties. In pockets such as Bangalore North and South, there is a sign of increase in demand now, he adds.
Sales Push
Mr Trivedi says in the last few months, developers have also been offering cash discount or providing additional room for the same cost to push sales in the primary segment.
“The State Government’s recent amendment in the registration cost is another positive factor for the residential sector.”
The residential demand is up 30-40 per cent in the mid-to-low income segments since March for residential apartments priced below Rs 30 lakh, says Mr Kulkarni.
In the commercial segment, leasing has picked up 5 per cent in volume terms in the first quarter of 2009-10.
Mr Koshy Varghese, Managing Director, Value Designbuild, feels that pricing is still soft.
“The natural path will be increase in demand due to lower prices leading to firmer prices. If the credit flow improves and builders can complete construction, a firming of prices will happen.” He adds that there is a firming of prices on ready units “where the seller is not desperate”
Showing posts with label Bangalore. Show all posts
Showing posts with label Bangalore. Show all posts
Tuesday, June 2, 2009
Friday, January 9, 2009
Right time to buy properties
I met few developers in Bangalore yesterday. With inflation cooling off to 5.9% last week, India may see interest rates in the range of 7-8% in the next 6 months. This should be music to ears of both buyers and developers. Moreover, the persistent decrease in the general price level of commodities especially cements is likely to bring down the cost of construction. With real estate developers expected to further cut prices over the next three months, experts feel that this is the best time to let their indecisiveness work to buyers advantage.
Thursday, November 6, 2008
Price corrections on its way?
I believe poor demand for properties, higher interest rates and US slow down is significantly hurting real estate developers. I attended Bangalore Real Estate Expo on October 25 & 26 and unfortunately found poor response from :( My analyst friends in Mumbai told me that there were no bidders for MMRDA's Wadala Land and Railways properties as well. Investors believe property rates are too high in this uncertain and slowing economy. Even IT/ITES firms, who are the biggest consumers of commercial properties, have reduced hiring by over 50% and not looking for newer properties. I believe there would be lower consumption of both residential and commercial properties in the next couple of years, much below the estimate of developers. This has already led to a miss match between demand and supply. Hence, prices has to come down if developers do not want to hold on to their properties (inventories) forever.
I spoke to several Tier-2 &3 developers at Bangalore Expo who admitted to reducing rates by Rs. 200-300 per sq. ft. on their properties in South Bangalore. Same was true with those who were launching projects in other areas of Bangalore. Many developers are offering freebies such as cars, plasma TV, and wood work. One developer was offering Honda Civic on his 1 crore+ property in Electronic City! Big boys like Mantri Realty and Brigade haven't lowered the prices till date. I spoke with an analyst in Mumbai who said property prices have already come down by 5% in some areas but not everwhere. He said the market should see many distressed assets in near future as many of youngsters are fully leveraged and if they see any cut in salary or loose job, it would be difficult for them to servive. This will be another harsh reality if there is slowdown in our economy or corporates trim employees in future.
Another important factor that I would like to discuss is the financial condition of real estate developers. Most of them are over leveraged i.e. have huge amount of debt that they raised to fund their aggressive growth. Nobody even in his wildest dream would have imagined of this bleak scenario a year back, when our developers were busy planning and launching projects after projects. With the slowdown in the demand, developers will face severe pressure to honor their interest payments on debt. They have to trigger the demand by lowering prices in this higher interest rate environment, if they do not want to default on the payments. However, big firms so far have resisted the idea of lowering prices. I find this strategy quite strange because this might aggravate the situation even further. They are willing to hold on to inventories with high cost debts , hoping markets to improve further. But once they start defaulting on debt payouts they will have to offload or dump the inventory in the markets leading to chain reaction and a overall loss of confidence.
I spoke to several Tier-2 &3 developers at Bangalore Expo who admitted to reducing rates by Rs. 200-300 per sq. ft. on their properties in South Bangalore. Same was true with those who were launching projects in other areas of Bangalore. Many developers are offering freebies such as cars, plasma TV, and wood work. One developer was offering Honda Civic on his 1 crore+ property in Electronic City! Big boys like Mantri Realty and Brigade haven't lowered the prices till date. I spoke with an analyst in Mumbai who said property prices have already come down by 5% in some areas but not everwhere. He said the market should see many distressed assets in near future as many of youngsters are fully leveraged and if they see any cut in salary or loose job, it would be difficult for them to servive. This will be another harsh reality if there is slowdown in our economy or corporates trim employees in future.
Another important factor that I would like to discuss is the financial condition of real estate developers. Most of them are over leveraged i.e. have huge amount of debt that they raised to fund their aggressive growth. Nobody even in his wildest dream would have imagined of this bleak scenario a year back, when our developers were busy planning and launching projects after projects. With the slowdown in the demand, developers will face severe pressure to honor their interest payments on debt. They have to trigger the demand by lowering prices in this higher interest rate environment, if they do not want to default on the payments. However, big firms so far have resisted the idea of lowering prices. I find this strategy quite strange because this might aggravate the situation even further. They are willing to hold on to inventories with high cost debts , hoping markets to improve further. But once they start defaulting on debt payouts they will have to offload or dump the inventory in the markets leading to chain reaction and a overall loss of confidence.
Thursday, September 4, 2008
Bangalore Real Estate Sector
Office sector
Demand in 2008 (1st half) was 7million sq ft compared to 6.6 million sq ft in the same period last year. I have divided Bangalore commercial areas in to three different zone:
1. Central Business District (CBD)
It includes areas near MG Road, Vittal Mallaya Road, Residency Road and Richmond Road. CBD remains the most attractive and suitable micro-markets for new companies entering Bangalore. The central locations offer ease of accessibility and visibility for these new companies and allow established companies to retain brand equity by being in the heart of the city. There is less supply of office space.
2. Non-CBD areas
It includes Indira nagar, Old Madras Road, Airport Road, CV Raman nagar, Inner ring road, Koramangala. The Non CBD area is being observed as the most preferred location for setting up office for high end engineering companies for setting up R&D centers/labs as well as high end support functions. High levels of absorption activity continued to be witnessed even in the Non CBD areas of the city where many corporates chose to relocate/expand due to availability of quality options offering adequate infrastructure and lower rental values compared to CBD. However, land bank is limited in these regions, which might put upward pressure on the real estate in near future.
3. Suburban and peripheral areas
This includes Whitefield, Outer ring road, Electronic city, Bannerghatta road and North Bangalore. The Suburban micro market is another zone that has witnessed high level of space intake by corporate over the year. Scarcity of space in the Non CBD area is furthering the case for location of corporate in the micro markets. The Peripheral areas remain preferred by the corporate for building their campus style facilities. Consequently these locations have witnessed frenzied construction activity from both developers and also individuals possessing large land banks.
Whitefield is now gaining favor as a viable micro market due to decongestion of the airport road, completion of the Marathahalli flyoverand availability of mid to low end housing infrastructure. The area between Marathalli and Sarjapur on the outer ring road has a fair amount of STP, SEZ and grade-A office supply. The excess supply along with low occupancy has put downward pressure on the prices.
With development of BIA and coming up of Peripheral Ring Road (PPR), properties prices in north Bangalore look to go up in the near future. PPR will connect Tumkur road, Magadi road, Mysore road, Bellary road, Old Madras road, Hosur road and Kanakapura road. This region has seen interests from leading IT firms, property developers for residential areas and hospitality sectors to set up star hotels.
Residential Properties
There has been a noticeable demand for prime residential properties and developers are targeting residential areas in the outskirts of Bangalore such as Whitefield, Sarjapur road, Banerghatta Road and Kanakpura Road. Demand is also high for leased apartments in prime areas of central Bangalore by company executives, due to limited supply there is upward pressure on rentals.
New developments are shifting away from the central Bangalore due to close proximity to IT and ITES areas and availability of land for lifestyle projects. Nearly six mega townships promoted by reputed developers are on the anvil in Bangalore. The proposed mega townships will have thousands of housing units and will be a mix of apartments, row houses and villas. Moreover the townships will include educational, commercial, retail and medical facilities.
Capital values for apartments in prime residential areas of Bangalore are in between INR 3000-4000 / Sq. Ft while rental values are in the range of INR 25-30/sq ft. p.m. Absorption rates for prime and quality residential apartments is very high thus demand is exceeding the supply in the areas of Outer ring road, Whitefield and Airport road. There is scarcity of luxury apartments thus in last one year capita; values in suburbs have increased around 35-50% due to high demand. Yield on Residential property in Bangalore is ranging between 6-7%.
Outlook
To check the trend in the residential properties find out from the local authorities on the trend in stamp duty and registration fees.
Improved connectivity between Bangalore and Mysore has led to gradual development of residential properties in and around Bidadi (southwest of Bangalore)
Upcoming DLF townships
NICE corridor
Upcoming BMIC (Bangalore-Mysore Infrastructure Corridor) project
Planned theme parks and resort in Bidadi
Demand in 2008 (1st half) was 7million sq ft compared to 6.6 million sq ft in the same period last year. I have divided Bangalore commercial areas in to three different zone:
1. Central Business District (CBD)
It includes areas near MG Road, Vittal Mallaya Road, Residency Road and Richmond Road. CBD remains the most attractive and suitable micro-markets for new companies entering Bangalore. The central locations offer ease of accessibility and visibility for these new companies and allow established companies to retain brand equity by being in the heart of the city. There is less supply of office space.
2. Non-CBD areas
It includes Indira nagar, Old Madras Road, Airport Road, CV Raman nagar, Inner ring road, Koramangala. The Non CBD area is being observed as the most preferred location for setting up office for high end engineering companies for setting up R&D centers/labs as well as high end support functions. High levels of absorption activity continued to be witnessed even in the Non CBD areas of the city where many corporates chose to relocate/expand due to availability of quality options offering adequate infrastructure and lower rental values compared to CBD. However, land bank is limited in these regions, which might put upward pressure on the real estate in near future.
3. Suburban and peripheral areas
This includes Whitefield, Outer ring road, Electronic city, Bannerghatta road and North Bangalore. The Suburban micro market is another zone that has witnessed high level of space intake by corporate over the year. Scarcity of space in the Non CBD area is furthering the case for location of corporate in the micro markets. The Peripheral areas remain preferred by the corporate for building their campus style facilities. Consequently these locations have witnessed frenzied construction activity from both developers and also individuals possessing large land banks.
Whitefield is now gaining favor as a viable micro market due to decongestion of the airport road, completion of the Marathahalli flyoverand availability of mid to low end housing infrastructure. The area between Marathalli and Sarjapur on the outer ring road has a fair amount of STP, SEZ and grade-A office supply. The excess supply along with low occupancy has put downward pressure on the prices.
With development of BIA and coming up of Peripheral Ring Road (PPR), properties prices in north Bangalore look to go up in the near future. PPR will connect Tumkur road, Magadi road, Mysore road, Bellary road, Old Madras road, Hosur road and Kanakapura road. This region has seen interests from leading IT firms, property developers for residential areas and hospitality sectors to set up star hotels.
Residential Properties
There has been a noticeable demand for prime residential properties and developers are targeting residential areas in the outskirts of Bangalore such as Whitefield, Sarjapur road, Banerghatta Road and Kanakpura Road. Demand is also high for leased apartments in prime areas of central Bangalore by company executives, due to limited supply there is upward pressure on rentals.
New developments are shifting away from the central Bangalore due to close proximity to IT and ITES areas and availability of land for lifestyle projects. Nearly six mega townships promoted by reputed developers are on the anvil in Bangalore. The proposed mega townships will have thousands of housing units and will be a mix of apartments, row houses and villas. Moreover the townships will include educational, commercial, retail and medical facilities.
Capital values for apartments in prime residential areas of Bangalore are in between INR 3000-4000 / Sq. Ft while rental values are in the range of INR 25-30/sq ft. p.m. Absorption rates for prime and quality residential apartments is very high thus demand is exceeding the supply in the areas of Outer ring road, Whitefield and Airport road. There is scarcity of luxury apartments thus in last one year capita; values in suburbs have increased around 35-50% due to high demand. Yield on Residential property in Bangalore is ranging between 6-7%.
Outlook
To check the trend in the residential properties find out from the local authorities on the trend in stamp duty and registration fees.
Improved connectivity between Bangalore and Mysore has led to gradual development of residential properties in and around Bidadi (southwest of Bangalore)
Upcoming DLF townships
NICE corridor
Upcoming BMIC (Bangalore-Mysore Infrastructure Corridor) project
Planned theme parks and resort in Bidadi
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