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Real Estate Market: Excellent 2005, Promising 2006
By property
The year gone by has been an excellent one for the Real Estate fraternity. The last two quarters of 2004, showed increased demand and strengthening of prices. This further accelerated throughout 2005. It is pertinent to note that this trend or boom, unlike in the past, has been sustained primarily because of the strong fundamentals i.e., genuine buyers, positive outlook in the economy both nationally and locally, besides the regular factors such as affordability and easy access to finance, etc. All factors considered, I see stability both in terms of demand and prices in the year 2006. Residential
Not only has there been an increase in apartment prices but also in land values, with select suburban land cost having appreciated 100 per cent in capital values. Demand has been seen across all budgets. However, it is more predominant in the Rs 35 to Rs 70 lakh budget. Stocks released into the market have been largely absorbed in the initial offer period with premiums emerging shortly thereafter, inducing some element of investor participation from the salaried class in the initial offering. Land parcels in central areas available for development have reduced considerably and therefore, the supply side in the prime residential areas has been severely constrained. Commercial It is important to remember that the job creation in the city has resulted in nearly 9 million sq ft of space being committed by Corporate occupiers this year, which clearly reaffirms Bangalore’s position as the preferred location for IT and IT enabled firms. Indications are that 2006 will be an equally good year for the Corporate Real Estate market. The Central Business District (CBD) has limited supply and rates have strengthened sharply. Whereas, in suburban areas where the bulk of the absorption of space has taken place, rental rates have been stable with moderate year on year growth. This has facilitated consolidation and has also provided comfort to occupiers that further expansion will be possible at reasonable rates. They have therefore, been able to make commitments for the medium term. Strong demand to continue Bangalore retained its position as the largest office market in the
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country in 2005 - accounting for approximately 32 per cent of office sector absorption in Tier 1 and Tier 2 cities. The transaction volume recorded in the office market was over 8 million sq ft. However, unlike in 2004, supply of office space in 2005 marginally exceeded the recorded absorption, leading to a stabilization of lease rentals and slower growth in capital value appreciation. Going forward, the Bangalore, Prime Office Market is expected to record absorption levels of approximately 6 million sq.ft in 2006. The micro-markets expected to record major leasing activity are Whitefield, Outer Ring Road, Inner Ring Road and the Central Business District comprising of MG Road and surrounding roads. The residential market witnessed strong end user and investor demand especially in the south-eastern, eastern and northern quadrants of the city leading to an appreciation of between 15 - 20 per cent in apartment capital values over the previous year. The city level demand assessed for apartment units in 2005 was approximately 1,500 units per month with the South and East corridor accounting for more than 40 per cent of the absorption. The residential market in the city is amongst the most sophisticated in the country in terms of housing amenities, facilities offered and innovations in design. The 2006 prognosis for both Commercial/Office and Residential Apartments and Villas continues to look robust. Unlike the previous booms the current boom in the real estate market is driven more by end user demand and the other macro drivers such as rising incomes and affordable housing finance and not by investor speculation. So, things are definitely looking up in the Real Estate Market today. Bright future ahead The year 2006 holds great promise for the Real Estate market. The way prices are shooting up, an average investor will take a quick decision on investing in property rather than postpone the matter. The last budget didn’t promote investment in property. Investors benefited from in stock investment. With the stock market going crazy and unpredictable there has been a dip in such investments. People are thus looking for safer and more profitable alternatives with high benefit returns; thus investment in property is escalating. The steady boom in Software and BPO companies has seen an increase in the recruitment of IT and BPO professionals in Bangalore. This has increased the demand for rented property. People owning multiple or large apartments rent out their apartments or provide ‘paying guest’ accommodation thus, increasing income. There is a constant influx of migrant population in Bangalore, which is good for the property boom. Policy push Some of the important policy decisions of the government of Karnataka / India which have helped shape the real estate scenario of Bangalore in 2005 to a great extent, are as follows: In February 2005, the government announced a more liberalised FDI policy in the real estate sector, as a result of which, FDI has started trickling into the industry. In 2006, it is estimated that US $1.5 billion will be flowing into housing, office, retail, hotel and hospitality, technology parks sectors according to a study by Ernst & Young management consultants. In April 2005, the government removed the prohibition of Venture funds investing in the real estate sector. As a result, Indian and International funds are starting to invest in Indian property sector. The State government stopped registration of properties, other than those approved by concerned authorities like BDA, BMRDA etc. New promises In a nutshell, the year 2005 has been very good for real estate. It was a year when Asian real estate biggies like Keppel from Singapore and ETA Star from Dubai entered the real estate market in Bangalore and more players are expected to come in 2006. Last year was also a year when IT icons came together on a single platform to take on the Government on infrastructure issues. Acquire information on Real Estate at http://www.propertyvertical.com For information on Real Estate Property in Delhi, Gurgaon and surrounding areas Visit http://www.propertyvertical.com/delhi
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