Where Bangalore scores

How does the city’s real estate resist the sluggish trend in other metros, with prices rising steadily?

July 25, 2014 04:21 pm | Updated 04:21 pm IST - Bangalore

South East Bangalore continues to be most sought after, with 48 per cent stock and over 23 per cent supply.

South East Bangalore continues to be most sought after, with 48 per cent stock and over 23 per cent supply.

Whether settlers, property buyers or people looking simply for a blissful life, Bangalore’s charm remains undiminished. The city records the best growth indices among the three South Indian metropolises of Chennai, Hyderabad and Bangalore. Quality-wise, the city has the most quality-conscious realty clientele. Climatic advantages still make it the best destination for education, health, employment and investment. The city has been offering perhaps one of the best rates of appreciation for land and housing assets with a stable 13 per cent average annual price appreciation in the residential sector for the last four years.

Though the real estate market in other metros and regions of the country has not been promising in the first half of the present year, the Bangalore market has been fairly stable with sales going up, thanks mainly to the end users who constitute as much as 80 per cent of the realty clientele. The city also remains the premier choice for working professionals and for NRI investors and buyers.

Real estate symposium

These features emerged as the highlights at South India’s Real Estate Symposium (SIRES) organised last week in Bangalore. The speakers and participants included representatives from leading builders, real estate companies, business economists and observers of the construction industry.

Yet not everything is hunky dory about the Bangalore market, it transpires. A snapshot survey of the Bangalore real estate scene by realty practitioners L.J. Hooker reveals that the city sits on over 76,000 units of stock with an oversupply of 10,726 units, or 35 per cent, for the period.

Apartments are the most oversupplied segment at 37 per cent while villas had a slight undersupply, that is, 3.7 per cent.

The survey mapped 1,091 projects with 236,000 units of stock at the completion of the first half of the year. It says builders carry an unsold inventory of Rs. 65,411 crore, a rise of 18 per cent in the last six months and 30 per cent in the 12-month period.

Of this, apartment stock represents 77 per cent. The financial burden on builders for holding the huge inventory is estimated to be Rs. 1,000 crore a month.

Prices rise, sales halve

According to Alexander Moore, CEO, Jones Lang LaSalle, prices have risen by nearly 7 per cent in the past 18 months but sales velocity has halved in the last 12 months. He says the budget homes sector has performed best in the last six months with supply at +8 per cent, value homes were at +24 per cent and mid-range at +41 per cent. The survey assesses the prices of the average apartment at Rs. 79 lakh, which is 58-75 per cent higher than the affordability of the average buyer.

As for the choice of locations, the survey points out that South-East Bangalore continues to be the prime region with 48 per cent of the stock and +23 per cent supply. The North-Eastern parts of the city lag behind with unrealised demand at +32 per cent. The North-West is statistically small but undersupplied.

Some positive trends in the sale of apartments could be seen against the annualised 49 per cent decrease. However, villa sales have witnessed a huge drop. The sales velocity of new projects is reported to be 2.5 times higher than the old stock but the average size of the new stock is 7 per cent smaller. Even in terms of square foot rate, the new stock is estimated to be 4 per cent lower than existing stock.

The survey concludes that a significant build-up of inventory is putting pressure on builders to shift stock and simply too much stock is being delivered, and in the wrong segments. It suggests that the northern corridor of the city should come up with employment hubs to stimulate demand. It also suggests that the sector is going to rely on the new government quickly introducing a policy that increases liquidity and stimulates growth.

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