Sluggish market, optimistic builders

The IT industry was projected to be a major driver of real estate in Mysore, but it is yet to make major inroads, says R. Krishna Kumar

The Mysore property market is being spurred by the residential sector and the commercial space is slow to gain momentum. Photo: M.A. Sriram

The property market scenario in Mysore is reflective of the trends across the nation and has remained sluggish due to cost escalation with the end users adopting a wait and watch policy, anticipating a dip in prices.

The rules of the game and market economics suggest that a decline in demand should lead to a cut in prices but in a market where the demand for individual or customised independent houses dominates, the end users have to foot the prevailing market rates which seem to be heading north as far as new constructions are concerned. The only solace is the decline in bank interest rates which is expected to fuel the real estate market growth.

Residential market

V.K. Jagadish Babu, CMD, Sankalp Builders, and member of Confederation of Real Estate Developers Association of India (CREDAI), Mysore chapter, pointed out that notwithstanding the general slowdown in the real estate scenario in Mysore, it is the residential property market which is driving the business while the demand for commercial or retail space is yet to gain momentum despite the hype of Tier-II cities propelling the growth in the retail market segment.

A view endorsed by T.R. Ugalavat, Regional Manager, State Bank of India, Regional Business Office, Mysore. He told The Hindu PropertyPlus that the commercial property scene in Mysore is yet to gather steam though the residential property market is doing relatively well. But compared to 2011-12, the market in Mysore has remained sluggish as indicated by the number of homes financed by the SBI, which is a market leader in the home loan segment.

“As against nearly 800 homes amounting to nearly Rs.200 crore financed by the SBI in 2011-12, it has funded 200 homes so far during the current financial year amounting to around Rs.40 crore,” said Mr. Ugalavat.

He said investments are being postponed due to external factors and in view of the escalating construction cost, people are waiting for the banks to reduce the interest rates further. In contrast, the bank’s lending to finance commercial or retail space is negligible.

This is due to the prevailing market fundamentals of low rentals accompanied by relatively poor penetration of the services and industry sector which fuels the demand for commercial space. The IT industry was projected to be a major driver of the real estate market in Mysore but it is yet to make major inroads for now. A senior marketing executive of SBI pointed out that as many as 78 IT companies – big and small – were touted to enter Mysore and land was allotted through the KIADB. But three years down the line not one company has set up office and the land is being held back as a long-term investment.

Meanwhile, in a bid to fuel growth, SBI has slashed the interest rates, said Mr. Ugalavat.

Its rate of interest is 10 per cent for loans up to Rs.30 lakh and 10.15 per cent above Rs.30 lakh, with a slash in processing fee, no prepayment penalty etc. “We expect the market to pick up in the months ahead,” he added.

Affordable housing

The bulk of the lending is in the mid-income housing segment and almost 70 to 80 per cent of the SBI loans extended locally is in this category.

This also puts a question mark on the affordable housing segment which was touted as the mantra by the developers to stay in the market during the economic downturn three years ago.

Given the cost of construction and low Floor Area Ratio (FAR) in Mysore, few builders are prepared to cut costs (read profits) to promote affordable housing whose definition itself remains hazy.

‘Will be buoyant soon’

But the sluggish growth in the real estate market is part of a periodic cycle and builders and lenders are optimistic of a buoyancy in the market. While this is true for all markets, Mr.Ugalavat believes the Mysore market will be more vibrant because of its proximity to Bangalore and the imminent improvement in connectivity by way of railway track doubling and electrification expected to be completed in less than two years.

“The reduction in commuting time between the two cities will make Mysore an attractive investment option for end-users as also those looking for a second-home option, thus fuelling the property market growth,” Mr. Ugalavat added.