Real estate developers especially in Bangalore, who suffered a setback in 2009 and 2010 consequent to the global recession, have much to cheer this year.
After 2006-07, which is considered as the peak year as far as the Bangalore real estate market is concerned, 2011-12 is the year which has seen the maximum number of residential project launches.
In 2008-09 and 2009-10, not many projects were launched in this city.
NEGATIVE SENTIMENTS
The Bangalore property market saw significant impact on prices and demand post-recession because of the negative sentiments that existed in this predominantly IT-sector-driven market. “We saw a setback in 2009 which was an after-effect of the global recession. So developers didn't come up with any new launches,” recalls Mr Sushil Mantri, President, — CREDAI Karnataka, and Chairman and Managing Director, Mantri Developers.
But now, the market is seeing some good activity, as even non-IT customers are looking at buying property in the city, he says. According to him, property prices bottomed out in 2009-10 and 2010-11, and prices went down 20-25 per cent in those two years, compared to the peak rates witnessed in 2007-08. To retain buyers in the market and keep prices affordable for customers, developers went in for different unit sizes. “So two-bedroom apartments, which used to be in the 1,300-1,400 square foot range, have now been re-sized to approximately 1,100 square feet,” points out Mr Mantri. This helped developers maintain a “healthy and affordable” price. “We cannot bring down the price, but we can bring down the budget for the customers, but for developers also the sale price is more realisable,” he adds. The benefit of this decision is now coming into the market, says Mr Mantri.
DAMPENER ON DEMAND
What has been a dampener is the high interest rates. Some developers do point out a fall in demand in the past few months, since the interest rates started climbing up. “It's more of a delayed decision,” says an industry analyst. The sluggish demand could have impacted prices in Bangalore, with prices falling 8-10 per cent in just the last two quarters.
Besides rising interest rates, the sudden burst of launches has resulted in piling up of inventories, which has also impacted prices, adds Mr Ghumal Zia of Knight Frank India. According to him, there is a possibility of further price correction of approximately 10 per cent in the next six months. “If interest rates don't come down, further reduction in prices is a possibility,” he says.
The weakened global markets have impacted the demand in Bangalore, with the festive season witnessing 30-35 per cent reduction in transactions compared to annual peaks, he says, adding that there has been a continuous de-growth in sales for the past few quarters. However, developers don't agree with Mr Zia.
In fact, Mr Venkat K. Narayana, Chief Financial Officer, Prestige Group, says that sales has been very good for his company this year, and the company has also launched new projects this fiscal. “We have planned a lot more launches this fiscal compared to the previous years. We have already launched 5-6 million square feet of projects this year, while an equal number would be launched during the rest of the year,” he adds. The company delivered 17 million square feet in the last fiscal.
The sales during the fiscal has been good at Rs 980 crore, out of the Rs 1,500 crore new sales targeted for the full year. For Sobha Developers too, sales this fiscal, especially during the second quarter, has been good, and “demand has been far better than the previous quarters,” says Mr J. C. Sharma, Managing Director, Sobha Developers.
He is quick to add there has been an increase in inflationary costs, which can be absorbed by the 8-10 per cent increase in prices year-on-year. Mr Narayana says that prices in Bangalore are now affordable, “and if interest rates go down, demand should go up”. This year, the company has launched more projects in the mid-income segment, which would “give us better volume, and hence even better sales”, he adds.