But real estate prices are expected to remain firm and increase by 8 to 10 per cent a year

The significant increase in supply of residential space in the absence of commensurate rise in absorption rates could result in oversupply situation in the city, the credit rating agency ICRA Ltd. has warned.

Report

There has been a significant increase in residential projects under development in the last two years that could increase supply in the market, said its report on the real estate market in Bangalore, released on Friday. It observed that the area launched by major developers in 2012 and the current financial year in Bangalore is 3 to 4 times of that sold in 2012. The residential market rebounded in Bangalore in the last two years after witnessing lows in 2009/ 2010.

It, however, said that the despite the expected oversupply, real estate prices in the city are expected to remain firm and increase by 8 to 10 per cent per annum over the short to medium-term due to rise in cost of development as well as capital.

Estimating Bangalore’s residential market size to be 92 million square feet, valued around Rs. 27,600 crore, the report said the real estate sector has grown at a compounded annual growth rate of 6 per cent over the last four years, adding an average of 94,000 new households each year.

Identifying the growth drivers in real estate sector, ICRA expects development to get a major boost from ongoing and planned projects such as Namma Metro, signal-free outer ring road, peripheral ring road, Bangalore-Mysore Infrastructure Corridor, BMRDA’s Satellite Townships and ring road network, the airport expressway, high speed rail to the Bengaluru International Airport and mono rail projects. (Barring Namma Metro and partially the signal-free corridor and BMIC, not much of progress has been seen in other projects.) ICRA has identified east, southeast and northern Bangalore as the key growth areas aided by factors such as proximity to major IT/ITES corridors, upcoming projects, availability of large parcels of land and social infrastructure such as education institutes, hospitals and malls.

However, the agency expressed its concern over the depleting water table in the city.