Bangalore has always been a rather unique real estate market. Heavily driven by IT/ITeS industries, it is nevertheless a city where most of the housing demand comes from end-users. The absence of more investors has historically kept the lid on housing price increases.
It is also a city which, despite its dynamism, remains deficient in terms of public transport and road infrastructure. Nevertheless, compared to its other southern counterparts Chennai and Hyderabad, Bangalore has so far had several advantages as far as housing activity is concerned.
Residential real estate
Despite the pandemic, the city saw property prices rise by 2% – from Rs 4,975 per sq. ft. in Q1 2020 to Rs 5,060 per sq. ft. in Q1 2021. This was the highest price rise among the top seven cities, and it happened primarily because the city continued to see steady growth in housing sales q-o-q.
Amidst restricted new supply, ANAROCK data reveals that Bangalore saw total sales of approx. 8,670 units in the first quarter of 2021, while its unsold inventory declined by 7% in a year – from approx. 62,800 units in Q1 2020 to approx. 58,350 units in Q1 2021.
High demand for affordable and mid-segment homes
In Bangalore, the affordable and mid-segments are driving residential demand. Given the good sales, developers saw it opportune to increase the average prices. Also, property prices in the city had remained range-bound in the past few years, and growth was long overdue.
Unfortunately, the reduction in stamp duty in Karnataka announced in March of 2021 was only for homes valued between Rs 35 lakh to Rs 45 lakh. This reduction has, so far, not given a significant boost to housing sales in Bangalore on the lines seen in Mumbai and Pune.
This is because, albeit for a limited period, Maharashtra reduced stamp duty across all budget segments and not just one category. Housing demand in Bangalore is skewed towards the mid-segment – properties priced within Rs 50 lakh to Rs 1 Crore budget. The stamp duty charges for this budget category have remained unchanged at approx. 5%. The Karnataka State government would do well to consider a limited-period stamp duty cuts across all budget segments.
The Bangalore Development Authority may soon tie up with developers to deploy its many huge land parcels for housing development. How much this will help the city will depend on the type of projects to be built. In states like Maharashtra, government land is primarily released for the development of affordable housing. However, in Bengaluru the highest demand is for mid-range homes.
Also Read: “Affordable Housing May Take Longer To Recover”
Office real estate
Bangalore office real estate market has been under strain since the pandemic started. While there was some momentum seen in the first quarter of 2021, the second Covid-19 wave in the April-June quarter saw much of it eroded. For now, most IT/ITeS companies have extended the WFH option for now and are waiting for things to change in favour of the previous status quo.
Industry data indicates that in 2021, over 7,400 leases accounting for approx. 90 Mn sq. ft. of commercial real estate area in the top six commercial real estate hubs – Bangalore, Mumbai, Pune, Chennai, Gurugram and Noida – will be due for renewal this year. Moreover, when compared to the next two years (2022 and 2023) 2021 has the highest lease expiry pipeline. Of the 90 Mn sq. ft. area leases up for renewal in 2021, IT capital Bengaluru has the highest share at 37%.
That said, the IT/ITeS sectors – which are Bangalore’s economic heartbeat – have been actively hiring new employees in the last two years. Factoring in the gradual return of employees and adoption of hybrid workplace practices by major IT/ITeS firms, Bangalore’s office space demand is set for growth again as these companies will assuredly renew their leases.
Infrastructure
The lack of adequate physical infrastructure facilities remains a challenge in Bangalore. Despite it being the IT hub of the country, the city’s infrastructure is disproportionately weak when it comes to accommodating growth.
Also Read: Bangalore Real Estate: Riding High on Infrastructure Projects
The unavailability of sufficient public transportation nodes in the form of metro and bus lines causes excessive usage of private vehicles, leading to city’s legendary traffic congestion. While the Covid-19 pandemic has reduced vehicular traffic considerably, this is just a temporary respite.
Future developments on Government-owned land parcels will need the benefit of this hindsight. Any new housing projects developed there will need far better road and public transport support than what is currently available in Bangalore.
This article is contributed by Santhosh Kumar, Vice Chairman, ANAROCK Property Consultants.
(The views expressed here are solely those of the author and do not necessarily represent or reflect the views of RoofandFloor)
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