Bengaluru REALTY: Embracing The New Normal

Real estate industry across the country has been on a bumpy ride since the past few years. Prajakta Karnik takes a peek into the real estate market of Bengaluru.

Known as the IT capital of India, Bengaluru has witnessed significant urbanisation in the past two decades. However, similar to the trends witnessed in Mumbai, the financial capital and Delhi, the national capital of the country, Bengaluru's infrastructure and real estate development has not been able to keep pace with the urbanisation.

Like other metros, the real estate sector in Bengaluru  has also been on a bumpy ride, especially after the various policy decisions announced by the governments both at the Centre and state levels to streamline the industry.

In the beginning of 2020, the industry was bullish about the growth prospects of the sector. However, the Covid pandemic crashed the prospects of the sector after the country went into a complete lockdown mode. For a significant period of 2020, the sector suffered from delay in construction activity, thus affecting the supply, and low demand as the sentiment turned negative.

However, as the number of cases started coming down during the fourth quarter of 2020, the sales picked up. According to a report by property consultant JLL, in Q4 2020, since uncertainties around the economy and jobs started stabilising, it led to an increase in the pace of recovery in residential real estate.

After a massive dip in launches in July-September quarter of 2020, the Bengaluru's residential market witnessed a rise in the number of launches from 1,074 units to 4,335 units in October-December 2020 quarter. Even the sales volumes soared during the period from 1,742 units in Q3 2020 to 2,535 units in Q4 2020, the JLL report revealed.

The momentum continued even in the beginning of Q1 as there was higher demand for ready to move in units as well as for projects nearing completion. As per the estimates by Anarock Property Consultant, Bengaluru saw property prices rise by 2% from Rs 4,975 per sqft in Q1 2020 to Rs 5,060 per sqft in Q1 2021. This was the highest price rise among the top 7 cities, and it happened primarily because the city continued to see steady growth in housing sales quarter-on-quarter.

"In comparison to its other southern city counterparts, Bengaluru is far better placed as far as housing activity is concerned. Amidst restricted new supply, Bengaluru saw total sales of around 8,670 units in the first quarter of 2021, while the unsold inventory in the city in the same period declined by 7% in a year - from nearly 62,800 units in Q1 2020 to nearly 58,350 units in Q1 2021, something more favourable for developers," Santhosh Kumar, Vice Chairman, Anarock Property Consultants said.

He further noted that the affordable and mid-segments were essentially driving demand in the residential sector in the city. "Given the good sales, developers saw it an opportune time to increase the average prices. Also, property prices in the city have largely remained range-bound over the last few years and hence were long overdue," he added.

However, the momentum dropped after the second wave of the pandemic struck the nation. On the brighter side though, businesses were better prepared to handle the challenges of the second wave.

According to Reeza Sebastian, President, Residential Business, Embassy Group, the first wave brought in new challenges to a largely unprepared sector, while the second wave had the industry better prepared as businesses had to innovate strategies to be resilient.

"Despite promoting vaccination for employees and laborers and being digitally well adept, the second wave has hampered the recovery of the residential estate sector for now which was seen in the last six months. The state-wide lockdown in Karnataka with stringent restrictions and curfew in urban areas like Bengaluru has resulted in a reduced labour force which might cause a delay in construction activities and push the timelines with an impact on cash flows subsequently. There will be a slowdown in new project launches in the next few quarters, which will result in a demand-supply mismatch and likely drive up residential values in the next two to four quarters," she added.

From the commercial real estate point of view, Bengaluru being the IT hub of the country, the segment witnessed a major set back as most of the corporates embraced the new normal - the work from home (WFH) culture.

"The coronavirus induced lockdown has made WFH the new normal. Just as things were getting back on track, the second wave hit us making a lot of people wonder if these trends would continue till mass vaccination happens. During this lockdown, a lot of companies have also been hit hard financially and had to cut down on costs. With the WFH culture setting in, small and medium scale companies that had office space on rent or lease, these companieslooked at it as another expense that they could cut back. A report in August 2020 suggested that 6.3 milllion sqft of office space was surrendered in Bengaluru and other cities in India posted similar trends," Vinit Dungarwal, Director, AMs Project Consultants said.

Even businesses are looking at cutting down expenses and not wanting to spend on large or expensive office space. "A lot of spaces that were up for renewal in 2020/21 have not been renewed and a large percentage of the ones that did also renegotiated their contracts. However, as the vaccination drive picks up and people start getting back, the commercial real estate sector too will bounce back," he added.

Elaborating on the future of commercial real estate segment in Bengaluru, Prashin Jhobalia, Vice President, Marketing Strategy, House of Hiranandani said "New office spaces are being planned with more spacious layouts, more space for IT infrastructure, contact less access & operations, safer & hygienic work environment, in-house cafeterias and recreation facilities, which all put together will in turn mean increased demand for office space.  So, one may a see a dip in demand for commercial /IT space in short term but as situation normalises and growth picks up, we may see restoration of demand for  this real estate segment."

Speaking about the measures that need to be taken to give a boost to the sector, Rajendra Joshi CEO Residential, Brigade Enterprise said that there is a need to re-introduce input tax credit for residential real-estate by the central government.

"If implemented, this move will help reduce property prices for the customer. Since input tax credit was removed in 2019 the net impact was an increase in the price of Rs 400 to 500 per sqft. Secondly, although Karnataka has rationalized rates, if the guideline values are reduced it will help in bringing down the overall cost," he added.

Since the housing demand in Bengaluru is largely skewed towards the mid segment - properties priced within Rs 50 lakh to Rs 1 crore budget, experts believe that the Karnataka government should extend the benefit of reduced stamp duty rates to this segment as well. Currently, the benefit of reduced stamp duty is only applicable for homes valued between Rs 35 lakh to Rs 45 lakh.

As Kumar sums up, "To boost overall sales, the Karnataka government must emulate Maharashtra and give limited-period stamp duty cuts across all budget segments."

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