Property Values in Bangalore

Global financial market down turn has created lot of confusions in all of us with respect to property prices in Bangalore as we always hear from friends and colleagues that the real estate price has gone down, this is not the right time to sell, this is not the right time to buy and many more of this kind. Here is a complete insight in to the property prices at different areas of Bangalore in the last one year.

 

Residential Property Values (Rs. Per sq. ft.)

 

 

Location	Oct 2008	Jan 2008	Oct 2005
South	5,000-9,000	4,500-7,000	2,900-5,200
South East	3,000-5,000	2,500-3,100	1,500-2,500
South West	3,000-4,500	2,800-4,000	1,200-2,500
East	2,800-3,900	2,500-2,800	1,200-1,800
North	2,700-3,800	2,500-3,000	1,200-1,800
North West	4,200-6,000	4,000-5,000	2,500-3,500
Central I	6,000-8,400	6,000-8,000	3,500-5,500
Central II	3,900-6,000	3,000-4,500	2,000-3,500

 

You can see that properties prices have increased by over 100%-150% in the last 3 years depending upon the location. The highest increase has been in South Bangalore due to excess demand by IT professionals residing in these areas. In the last few month land prices have started falling though the fall is not as high as it is for apartments. Developers may not openly admit it but once you are on the negotiating table they are willing to reduce prices. Table above reflects only the prices which developers are quoting openly. Be rest assure that actual prices are around 10-15% below those numbers. Land prices may not come down significantly because of acute shortage of prime properties. This proves the fact that India is a land of opportunities- without any land! Bangalore has an abysmal average FSI of 1.6 which has led to poor development of residential properties across the city. Hence, most of the prime land have single or double storey building or houses.

See Also: BBMP Property Tax

 

In coming few weeks, you may see significant drop in property prices even from big developers like Sobha, Brigade and DLF, who till now have resisted price reduction.

 

Commercial Property Rental Values (Rs. Per sq. ft. per month)

 

 

Location	Oct 2008	Jan 2008	Oct 2005
CBD	80-85	70-75	30-35
Suburbs	50-55	45-50	25-30
Peripheral:
Whitefield	35-50	40-50	20-25
Electronic City	25-30	25-30	12-15
Outer Ring Road	45-50	40-45	20-25

 

IT firms consumes over 80% of commercial/office spaces in Bangalore. With the economic slowdown across the world, IT sector has taken a severe beating. Businesses are down and so is the demand for office space. There may not be much addition of commercial space in Bangalore in the next 6-12 months due to global slowdown. Our research shows a drop in demand by over 60%. Realty firms may not undertake new projects in the coming months especially on Outer Ring road where there is already an excess supply of properties.

 

Retail Property Rental Values (Rs. Per sq. ft. per month)

 

 

Location	Oct 2008	Jan 2008	Oct 2005
Koramangala	375-450	400-500	200-225
M G Road	1750-250	200-250	100-150
Brigade Road	300-380	320-360	150-200
Cunningham Road	180-225	200-250	100-150
Commercial Street	200-250	175-225	100-150
Vittal Mallya Road	300-350	350-400	150-225
Indiranagar	200-250	250-300	100-150

 

Good news for retailers! Rental prices have decreased due to a mix of excess supply and lower demand. I believe this is the best time for retailers to engage in long term contract with developers at a lower rate. The developers, who are facing huge financial problem, would be more than happy to do so. Expect another series of price correction soon.

 

For the above table, I categorized different zones such as East and South based on following locations.

• South Bangalore includes Kormangala, Jakasandra
• South East Bangalore includes Sarjapur Road, Outer Ring Road, HSR Layout
• South West Bangalore includes Jayanagar, JP Nagar, Kanakpura Road, Bannerghatta Road, BTM Layout
• East Bangalore includes Marathhalli, Whitefiled, Airport Road
• North Bangalore includes Hebbal, Bellary Road, Yelahanka, Dodballapur Road
• North West Bangalore includes Malleshwaram, Rajajinagar
• Central I Bangalore includes Brunton Road, Artillery Road, Ali Askar Road, Cunningham Road
• Central II Bangalore includes Frazer Town, Benson Town, Richards Town, Dollars Colony, Indiranagar
• Suburbs includes Kormangala, Indiranagar, CV Raman Nagar

 

Sources

ABN Amro Research Reports

Cushman & Wakefield

Deutsche Bank Research Reports

 

Bangalore Residential sector

 

Last year there was a noticeable demand for prime residential properties and developers were targeting residential areas in the outskirts of Bangalore such as Whitefield, Sarjapur road, Banerghatta Road and Kanakpura Road. Demand was also high for leased apartments in prime areas of central Bangalore by company executives. Due to limited supply there was upward pressure on rentals. Come September 2008, things have changed dramatically. Demand for properties has simply dried up. Developers and buyers are playing a “bridge game” where one waiting for the other to make a move. However, it is not that the demand has completely vanished. There are some genuine buyers in the market. They want value worth the price.

 

Suburbs: 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 Peripheral South 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 less thus demand is lagging the supply in the areas of Outer ring road and Whitefield while those in Suburbs such as Airport road and Indiranagar have higher demand compared to supply of new properties. 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%. Rental values (per month) for mid-range residential developments recorded the highest values in the central location due to lack of new projects launched by developers. The south east market, however, continue to witness rental corrections in the range of 4-11%. Capital values (value / sq ft) for mid-range projects remained constant while those in CBD witnessed 1-4% marginal increase.

 

Central Bangalore: It commands highest premium on property prices. This is the address of who’s who of Bangalore. There is an acute shortage of land in the area and very few new projects are coming up. Those new projects are ultra luxury properties which command price of over Rs. 2 crores.

 

Bangalore Office sector

Demand in 2008 (1^st half) = 7million sq ft compared to 6.6 million sq ft in the same period last year.

 

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 due to shortage of affordable and high quality land.

 

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 corporate 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.

 

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 are 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 flyover and availability of mid to low income 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.

 

Price Correction

Price corrections are the order of the day. I attended Real Estate Expo in Bangalore on October 25 & 26 and unfortunately found poor response from the buyers. Those who were there appeared to be just enquiring about the prices and not willing to buy soon. Hence, the mood among developers was grim. Same i believe is true for IT/ITES firms who have reduced hiring by over 50%. Thus, lower consumption of commercial properties in the next one year or so. But one unique thing I have observed is that strategy adopted by few developers will further aggravate the situation. These developers are not willing to cut the prices to the levels where you have a willing buyer, but instead hold on 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 an overall loss of confidence.

 

Apart from lowering prices to boost sales, developers are offering freebies such as cars and free woodwork. A developer, who is constructing English styles homes in Electronic city, is offering Honda City for every villa, which comes at a price tag of Rs. 1 crore. Some developers are offering woodwork costing up to Rs. 4 Lakhs. Be prepared to explicitly ask for such freebies from your developers.

 

When to buy

Is it the right time to buy a property? Well, it depends on lot of factors, mainly interest rates and affordability. I genuinely believe prices are high for residential properties. A fair reduction in prices and interest rates will make a good cause for buy. There are some reasons for the buyers to cheer in this gloomy economy. RBI cut CRR by 1% and Repo rate by .5% couple of weeks back. This encouraged public sector banks to lower interest rates by up to .75%. Fortunately, Inflation has already come down to single digit (latest being 8.7%) this week which might prompt RBI to further cut CRR (Cash Reserve Ratio) and Repo rates. Hence, I believe interest rates will fall further. This will ease pressure on EMI and encourage genuine buyers to enter the market.

 

Do’s and Don’ts in the bear market

 

Ask for heavy discount on finished apartment. You could ask for up to 20% discount from Tier-2 and Tier-3 developers. Real estate developers are in deep red and will want to sell off all the finished products as soon as possible. However, buy ready to handover properties only. If you can delay your plan, wait for another 1 to 2 months. Prices would come down by another 15-20% over this period.

 

Try to avoid buying any under construction property because the chances are high these developers may not have enough fund to complete these projects. Small developers are the worst affected because they may not have enough resources to fund their projects. Expect to see a delay of 1 to 2 years on most of the projects that were announced this year. “Over the night flyers” have quit the market and this is a great news for the consumers.

 

Outlook

The outlook for the real estate sector looks grim. This is a terrible time for real estate developers, who have excess inventory, are short of capital and facing very poor demand, but a great time for buyers with cash at their disposal. In a bearish market, where there is a poor demand for products, customer is the king! The same is true for property buyers. It is the time for YOU, the buyers, to be greedy.

 

This sector has already seen price corrections to the tune of 5% and will see another correction in the range of 10-15% soon. Developers are in deep trouble due to shortage of external funds as well as lower demand, which is due to a combination of high interest rates, slowing economy and exorbitant prices. Developers are stuck with their expansion plans as they are not able to raise more capital to finish their ongoing projects. They have to sell them if they want to service their loans without defaulting on them. In such situation developers will have to create demand by substantially lowering their prices or offering freebies or both. It all depends on how the developers react to the current situation.

 

I believe the demand for properties may not increase with the decrease of interest rates. This is because consumer confidence has taken a hit. Professionals especially IT guys, who constitutes of over 50% of total buyers in Bangalore, are not sure of their jobs or steady income in future. IT industry has taken a severe hit due to global slowdown. There might be some layoff or salary reduction in addition to lesser hiring next year. Hence, people will prefer to wait for economy to improve before making any huge purchase decision.

 

Having said that I still believe the long term scope of the sector is extremely bright. We still have a huge population without any home ownership. Once the financial crisis is over our economy should continue to grow at a rate of over 9% which will create more employment and add more people to higher income level. Hence, it will generate more demand for high quality residential and commercial properties.