Wide range, stable prices give the city an edge over its peers
With a good range of properties, stable prices and a vibrant workforce, the city’s real estate sector has performed far better than peers like Mumbai and Delhi
Real estate markets around India have been getting a hammering since last year and home sales across the board have suffered.
In the last quarter of the financial year 2012, the Mumbai Metropolitan Region (MMR) saw a drop of 58 per cent in unit home sales, while the National Capital Region (NCR) experienced a similar 57 per cent plunge, compared to the same quarter a year ago, according to realty research firm PropEquity.
However, the one star performer amid this gloom was Bangalore, which saw a drop of just 18 per cent in the quarter, when the numbers were down significantly elsewhere. Moreover, the city has already beaten other property markets in home sales last calendar year, when it absorbed 49 million square feet (sq ft) of residential properties — more than any Indian city — according to Kotak Institutional Equities. Bangalore was followed by NCR, with 46.88 million sq ft of offtake, and MMR, with 35 million sq ft.
"Home sales have been much, much stronger in Bangalore than other cities," says Anuj Puri, chairman and country head, Jones Lang LaSalle, a global property consultant.
So, it's not surprising that Bangalore ranks tenth this year in the list of top global investment destinations, brought out by Urban Land Institute and PricewaterhouseCoopers. Meanwhile, Mumbai and New Delhi fell from third and fifth place in 2011 to 15th and 12th in 2012.
It's not just in the residential market that Bangalore is on top. The city has also experienced the highest absorption in office space among major cities. In the fourth quarter of financial year 2012, Bangalore sold 3.4 million sq ft of office space, which is 89 per cent higher than in the corresponding quarter of the previous year. By comparison, NCR's office absorption has come down from 1.3 million sq ft in Q4 of 2011 to 0.9 million sq ft in Q4 of 2012, according to data culled by Knight Frank, a global realty consultant. In Mumbai, it has risen from 0.9 million sq ft in Q4 of 2011 to just 1.3 million sq ft in Q4 of 2012.
Why is Bangalore performing better than other Indian markets?
A good range of products, seems to be one reason. "There are good products available at various price points," says S Bhaskaran, chief financial officer at Sobha Developers, one of the largest property developers based in Bangalore. "You can buy a house at any price between Rs 20 lakh and Rs 1 crore or more," he adds.
The absence of big price spikes seems to be another reason. "Prices increase in Bangalore by 10-15 per cent in a year, unlike Mumbai or NCR, where prices go up like crazy. Besides, execution of properties is also much better here," says Sameer Jasuja, chief executive of realty research firm PropEquity.
According to data culled by PropEquity, Bangalore has seen a rise of 18 per cent in home prices since the first quarter of 2009. In comparison, other markets such as Chennai, NCR and Mumbai have seen increase of 22 per cent, 48 per cent and 26 per cent, respectively.
Even the recent data released by National Housing Bank Residex, an index that signals property prices across key cities in India, indicate this. Bangalore saw a rise of 4.5 per cent in residential properties in January to March 2012, compared to the same period last year. Mumbai saw a nine per cent and Delhi a 33 per cent increase during the last quarter of financial year 2012.
Many argue that robust hiring by IT companies and stable tech incomes have also fuelled home sales in Bangalore.
"Many IT companies such as HP, IBM and Texas Instruments have large bases in Bangalore. Whenever they win global contracts, the local markets in which they are located benefit, as the firms shift work here," says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, an international property consultant.
Adds K Madhusudan, co-chief investment officer, Azure Capital, a Bangalore-based realty fund manager : "Both global IT majors such as IBM, Oracle and Cisco and domestic companies are hiring aggressively. That is driving the growth of residential and office markets in the city,"
For instance, TCS, the country's largest software exporter, has a hiring target of 50,000 for 2012-13. It has already made job offers to 37,800 students. Another IT major, Infosys, recently announced that it would hire 35,000 in 2012-13. It had made 26,000 campus offers the previous year.
Akshit Shah of SBICAP Securities, however, reminds people that the numbers are looking good, possibly because of low absorption in 2009-10, when both supply and demand were low in Bangalore.
How long will the garden city be able to sustain its good run?
"I believe Bangalore will be able to maintain a good sales momentum. I expect land costs to remain stable and we will be able to offer good products at reasonable rates," says Irfan Razack, chairman and managing director of Prestige Estates, a Bangalore-based developer that has done a sales of Rs 2,200 crore in 2011-12 and is expecting similar numbers in 2012-13.
Adds Jasuja of PropEquity: "I think the trend (Bangalore leading the markets) is likely to continue for the next three-six months. Beyond that, we have to see how the markets pan out."
If the economy improves, rates climb down and developers come out with aggressive prices, things could look up for Mumbai and NCR, adds Jasuja.
SBICAP’s Shah says, given the high inventories, absorption in Bangalore may not continue to keep pace with supply going ahead. He believes Mumbai will overtake Bangalore in absorption of properties in the coming quarters. "At 3.5 million sq ft to four million sq ft a month, the absorption is stable. I do not see further growth from here," he adds.
One big factor distorting the picture so far is that there have been no major approvals given out by Brihanmumbai Muncipal Corporation (BMC). That has changed now, with BMC’s green light to as many as 78 skyscrapers, positioning Mumbai for a construction boom.
If that happens, Bangalore's reign on top of the real estate charts may end.
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