M arket trends would suggest that there was no better time than this in the recent years to those looking to have a roof of their own in the southern metropolis known for its year-round salubrious climate. The second Half-Yearly (H2-2017) report of the global property consultancy Knight Frank affirms that it is for the first time in this decade that the city has witnessed a decline in weighted average prices of 5%.
If evidence is required “one should look at the Homefests, discounts on base selling prices and freebies being offered by the developers to woo the homebuyers”, the report asserted. It points out that neighbourhoods such as Sarjapur Road, Kanakapura Road and Devanahalli were among the pick of the residential micro-markets. Upcoming Metro connectivity to Whitefield has pushed absorption pace of residential units in this location.
Competitive pricing
A further indication of the trend is available in the competitive pricing, thanks mainly to the sluggish market, that has led to 10% decline in unsold inventory in Bengaluru in the second half of the year just past on a year-on-year (y-o-y) basis. However, the city still had a tall inventory of home units at 109,112 which, going by the trend, may require over two years to offload unsold homes.
The realty markets in the top eight metros that were impacted by demonetisation, GST and the Real Estate Regulation Act (RERA), had a roller-coaster ride in the past two years.
But, according to Shantanu Mazumder, Senior Director, Knight Frank, the effect of demonetisation has been wiped out, although RERA would take some more time to see all-round compliance. Mazumder says Maharashtra leads the pack of States in RERA compliance whereas Karnataka ranked 6th on a scale of 15-to-1 (most to least compliant). He pointed out that RERA had caused complete structural change in the way realty is transacted across the country and Maharashtra has proactively worked on its implementation with as many as 12,000 projects now registered under the Act in that State.
Decline of new projects
The report points out that new projects in Bengaluru dwindled by a sharp 37% on y-o-y basis in the second half of 2017 as developers’ focus shifted towards two primary aspects i.e., fast-tracking delivery of the ongoing projects and compliance with RERA. However, Hyderabad with minus 84%, Pune (-58%) and Ahmedabad (-44%) did worse than Bengaluru.
As for commercial real estate, Bengaluru reaffirmed its position as the leading office market among the eight cities with a total transaction volume of 5.91 million square feet (mn. sq. ft) during the latter half of 2017.
A largely IT-ITES driven market, the city however saw a 37% shrinking of average deal size on y-o-y basis even as the total number of deals rose by more than 80% during the same period.
Yet the share of the IT/ITES sector is on the decline as the period reported 20% lower consumption of space compared to the one in second half of 2016 (H2-2016).
The trend indicates a preference for small office space as more than eight out of ten office deals comprised space offtake of less than 50,000 sq. ft.
The report notes that the developers put new project launches on the backburner in the city whilst they prioritised RERA compliance.
The competitive pricing coupled with a sharp decline in new launches in 2017, the report observes, has worked in favour of Bengaluru developers which has resulted in a 10% decline in the inventory on y-o-y basis.
ORR fares well
In terms of micro-markets, Outer Ring Road (ORR) continued to retain its charm and fare well in terms of occupier stickiness, accounting for 47% of the total transaction of office space in H2-2017. ORR also accounted for 69% of the 4.4 mn. sq. ft of new supply in this half-yearly.
Dominance of smaller deal sizes in the total transaction volume with 82% of the total number of the deals belonging to a space offtake of less than 50,000 sq. ft. indicates the emergence of a new trend.
This is attributed to office automation, reskilling, cautious hiring and introduction of co-working spaces, all resulting in requirement of lesser space. For instance, the report notes, co-working operators continued expanding footprint accounting for a 6% share in H2-2017.
