Bangalore Prices Touch Realistic Levels

Even as the Bangalore real estate market continues to totter under a 40 per cent slump since the past 18 months, commercial property prices, too, have been feeling the heat.

As the forlorn market refuses to perk-up, builders, constructing small scale apartments, are quietly making a killing.

When the slump hit the Bangalore property market, builders handling extravagant projects, speculators and real estate agents were the first ones to go under.

After riding the boom period which had peaked in 1995, they were largely responsible for hiking real estate prices to unbelievable heights in the garden city. But once the bubble burst, some believe, a more realistic situation has emerged.

 

However, the slide seems to have struck commercial property prices in Silicon Valley in a big way.

"We have been experiencing the slump for over a year now. The real worry will begin when it starts cutting into the commercial rentals," says Pradeep Joe of First Estate, a high-profile real estate agent.

On M G Road, Bangalore's epicentre, commercial space rentals going for nearly Rs 70 per sq ft has plunged to nearly Rs 35 per sq ft.

Multinational companies in Bangalore like DCM Daewoo, Ericsson and Star TV are picking up office space at prime locations on M G Road and the neighbouring Museum Road for anything between Rs 25-45 per sq ft. With rentals also not very lucrative, builders are hard-pressed for outright sales of commercial property in prime localities.

For example, there are no takers for 650 sq ft space at the premium Barton Centre on MG Road selling for Rs 18 lakh. During the boom period, the same space was hawked for Rs 32 lakh.

"A posh commercial building, Prestige Meridian, constructed by one leading builder of Bangalore on MG Road has seen just 30 per cent occupancy since it came up two years back," points out a real estate agent.

Another major casualty of the slump has been Whitefield, an industrial area 18 km away from the city. Many investors burnt their fingers when they bought chunks of land there during the boom time. Whitefield, expected to be an investor's paradise because of the Singapore Technology Park (STP), has dropped out of the realtors list.

Vacant land, bought for Rs 250-350 per sq ft, has fallen to a more realistic figure of around Rs 50 per sq ft. "Basically, Whitefield never took off because the STP was not a success," says an agent.

This bleak situation has led leading builders in Bangalore to sell their undeveloped land holdings, and stop projects mid-way till there is some improvement in the situation.

Kailash Advani of SNV Properties, a prominent builder constructing high-end flats, has discontinued projects for a year.

The successful Mumbai-based Puravankara group in Bangalore has seen a 20 per cent drop in sales. Another reputed builder, Southern Investments Properties (SI), is also going slow on its projects.

"We have been affected as our receipts have slowed down. Buyers who bought properties during the boom time do not want to shell out money for projects under such depressed market conditions," said an official at SI Properties.

However, the middle-level buyer is still going strong.

"Today, the market still exists for the end-user in the range of Rs 10-15 lakh. The market for properties of Rs 20 lakh and above has disappeared," says Masroor Allam of the Puravankara group.

They claim that 80 per cent of their luxurious, reasonably priced projects at a prime location in Bangalore, Purva Park, has been sold.

Multinationals are preferring to move out to more spacious and cheaper space in the city outskirts where space for parking and captive power sets would be available. While companies like Texas Instruments, Novell and Motorola have moved away from the city, some corporates are going in for "pre-leasing arrangements" with builders.

Under this arrangement, a builder constructs an office complex for the client company, and after a stipulated period, the ownership of the building is handed over to the client.

"Builders are even offering long-term facilities with ready-to-occupy premises," said Masroor Allam.

Moreover, the builders have suffered a further blow due to the unchanging poor infrastructure facilities, high stamp duties, registration fees, sales tax and turnover tax.

The primary reason for the slump has ben attributed to the speculators who withdrew their investments, and pegged it in more profitable ventures.

Realising that the Bangalore market was too inflated, they sold their properties, and have shifted their focus to Hyderabad, Chennai and Mangalore, claim builders.

"Non-Resident Indians (NRIs) just pulled out their investments hoping to at least get back their principal leaving the market high and dry," says Uday Kumar of Casa Estates.

The primary reason for the slump has been that speculators withdrew their investments, and placed it in more profitable ventures